Nama : Irga Ayudias Tantri

NIM : 12030121410011

Case 9–46
Patricia Eklund, controller in the division of social services for the state, recognizes the
importance of the budgetary process for planning, control, and motivational purposes. She
believes that a properly implemented participative budgetary process for planning purposes and
an evaluation procedure will motivate the managers to improve productivity within their
particular departments. Based upon this philosophy, Eklund has implemented the following
budgetary procedures.
 An appropriation target figure is given to each department manager. This amount is the
maximum funding that each department can expect to receive in the next year
 Department managers develop their individual budgets within the following spending
constraints as directed by the controller’s staff
o Expenditure requests cannot exceed the appropriation target.
o All fixed expenditures should be included in the budget. Fixed expenditures
would include such items as contracts and salaries at current levels.
o All government projects directed by higher authority should be included in the
budget in their entirety.
 All government projects directed by higher authority should be included in the budget in
their entirety.
 Upon final budget approval by the legislature, the controller’s staff allocates the
appropriation to the various departments on instructions from the division manager.
However, a specified percentage of each department’s appropriation is held back in
anticipation of potential budget cuts and special funding needs. The amount and use of
this contingency fund is left to the discretion of the division manager.
 Each department is allowed to adjust its budget when necessary to operate within the
reduced appropriation level. However, as stated in the original directive, specific projects
authorized by higher authority must remain intact.
 Each department is allowed to adjust its budget when necessary to operate within the
reduced appropriation level. However, as stated in the original directive, specific projects
authorized by higher authority must remain intact.
 Eklund believes her policy of allowing the department managers to participate in the
budgetary process and then holding them accountable for their performance is essential,
especially during times of limited resources. She further believes that the department
managers will be positively motivated to increase the efficiency and effectiveness of their
departments because they have provided input into the initial budgetary process and are
required to justify any unfavorable performances.
Required:
1. Describe several operational and behavioral benefits that are generally attributed to a
participative budgetary process.
Jawaban :
Manfaat Proses Penganggaran Partisipatif:
 A. Operasional

 Arus informasi - informasi tingkat lantai toko tentang operasi dibawa ke

perhatian manajemen yang lebih tinggi karena data yang terdiri dari anggaran
berasal dari tingkat ini
 Validitas informasi - departemen atau divisi yang menangani operasi itu
sendiri adalah orang-orang yang terpapar data tangan pertama sehingga
membuat informasi anggaran kredibel, andal, dan bisa menjadi dasar yang
baik untuk perencanaan.
 Penyelarasan Tujuan - menggunakan proses penganggaran partisipatif, tujuan
menjadi sama karena menghubungkan manajemen puncak dan kepala divisi
untuk menyepakati metrik tertentu untuk dicapai.
B. Perilaku
 Pemberdayaan Karyawan - kepala divisi bersama dengan karyawan
berpangkat tinggi diizinkan untuk berpartisipasi dalam pengaturan arah divisi
mereka. Karyawan merasa dihargai ketika mereka berpartisipasi dalam
menciptakan anggaran yang akan mereka gunakan.
 Motivasi Karyawan - karena karyawan merasa mereka diberi nilai oleh
perusahaan mereka di bidang-bidang penting seperti penganggaran, mereka
termotivasi.
2. Identify at least four deficiencies in Patricia Eklund’s participative policy for
planning and performance evaluation purposes. For each deficiency identified,
recommend how it can be correct
Jawaban :
1) Angka target alokasi diberikan kepada setiap manajer departemen. Jumlah ini
adalah dana maksimum yang diharapkan dapat diterima setiap departemen di
tahun depan.
Kekurangan: Angka target yang secara sewenang-wenang diberikan kepada
manajer departemen mungkin tidak mencerminkan persyaratan anggaran "nyata"
departemen. Proses penganggaran partisipatif harus memungkinkan departemen
pemegang anggaran untuk mengusulkan berapa banyak yang mereka perlukan
untuk berfungsi dengan baik.
Rekomendasi: Karena ini partisipatif, angka target alokasi harus dilonggarkan
untuk setidaknya mempertimbangkan angka target departemen yang diusulkan.
Dalam kasus kesenjangan besar antara angka-angka ini, pertemuan harus
ditetapkan.

2) Semua proyek pemerintah yang diarahkan oleh otoritas yang lebih tinggi harus
dimasukkan dalam anggaran secara keseluruhan.
Kekurangan: Karena angka target diberikan secara sewenang-wenang kepada
manajer departemen, biaya "proyek pemerintah yang diarahkan oleh otoritas yang
lebih tinggi" mungkin begitu besar sehingga dapat memakan sebagian besar jika
seluruh anggaran untuk tahun tersebut jika digunakan.
Rekomendasi: Proyek-proyek pemerintah yang diarahkan oleh otoritas yang
lebih tinggi harus datang dengan peruntukannya sendiri atau anggaran untuk
pelaksanaannya harus bersumber dari departemen tempat proyek itu berasal.
 3) Pengeluaran yang berlebihan untuk setiap departemen disorot setiap bulan.
Manajer departemen diharapkan untuk memperhitungkan semua pengeluaran
melebihi anggaran. Tanggung jawab fiskal merupakan faktor penting dalam
evaluasi kinerja keseluruhan manajer departemen.
Kekurangan: Bagaimana dengan pengeluaran yang kurang? Departemen
mungkin kurang memanfaatkan anggaran karena kinerja mereka hanya didasarkan
pada apakah mereka overboard
Rekomendasi: Sama pentingnya untuk menilai mengapa anggaran tidak
dibelanjakan sesuai rencana. Selain pengeluaran yang berlebihan, pengeluaran
yang kurang juga harus menjadi bagian dari evaluasi kinerja manajer departemen.

4) Setiap departemen diizinkan untuk menyesuaikan anggarannya bila perlu untuk

beroperasi dalam tingkat alokasi yang dikurangi. Namun, proyek-proyek tertentu
yang disahkan oleh otoritas yang lebih tinggi harus tetap utuh.
Kekurangan: Proyek pemerintah dari manajemen yang lebih tinggi adalah
prioritas utama. Dalam kasus pemotongan anggaran, proyek departemen sendiri
bukanlah prioritas. Mungkin saja proyek-proyek departemen penting dipindahkan
untuk mendukung proyek-proyek pemerintah, bahkan ketika proyek-proyek
pemerintah ini secara sewenang-wenang dimasukkan dalam rencana anggaran
departemen.
Rekomendasi: Badan pelaksana harus diberikan anggaran untuk proyek yang
didelegasikan kepada mereka. Proyek-proyek ini harus datang dengan
peruntukannya sendiri atau anggaran untuk pelaksanaannya harus bersumber dari
departemen tempat proyek itu berasal, dan bukan dari instansi/departemen
pelaksana.
Case 9–47
Jeffrey Vaughn, president of Frame-It Company, was just concluding a budget meeting with his
senior staff. It was November of 20x0, and the group was discussing preparation of the firm’s
master budget for 20x1. “I’ve decided to go ahead and purchase the industrial robot we’ve been
talking about. We’ll make the acquisition on January 2 of next year, and I expect it will take
most of the year to train the personnel and reorganize the production process to take full
advantage of the new equipment.”
In response to a question about financing the acquisition, Vaughn replied as follows: “The robot
will cost $1,000,000. We’ll finance it with a one-year $1,000,000 loan from Shark Bank and
Trust Company. I’ve negotiated a repayment schedule of four equal installments on the last day
of each quarter. The interest rate will be 10 percent, and interest payments will be quarterly as
well.” With that the meeting broke up, and the budget process was on.
Frame-It Company is a manufacturer of metal picture frames. The firm’s two product lines are
designated as S (small frames, 5×7 inches) and L (large frames, 8×10 inches). The primary raw
materials are flexible metal strips and 9-inch by 24-inch glass sheets. Each S frame requires a 2-
foot metal strip; an L frame requires a 3-foot strip. Allowing for normal breakage and scrap
glass, Frame-It can get either four S frames or two L frames out of a glass sheet. Other raw
materials, such as cardboard backing, are insignificant in cost and are treated as indirect
materials. Emily Jackson, Frame-It’s controller, is in charge of preparing the master budget for
20x1. She has gathered the following information:
1. Sales in the fourth quarter of 20x0 are expected to be 50,000 S frames and 40,000 L frames.
The sales manager predicts that over the next two years, sales in each product line will grow
by 5,000 units each quarter over the previous quarter. For example, S frame sales in the first
quarter of 20x1 are expected to be 55,000 units.
2. Frame-It’s sales history indicates that 60 percent of all sales are on credit, with the
remainder of the sales in cash. The company’s collection experience shows that 80 percent
of the credit sales are collected during the quarter in which the sale is made, while the
remaining 20 percent is collected in the following quarter. (For simplicity, assume the
company is able to collect 100 percent of its accounts receivable.)
3. The S frame sells for $10, and the L frame sells for $15. These prices are expected to hold
constant throughout 20x1.
4. Frame-It’s production manager attempts to end each quarter with enough finished-goods
inventory in each product line to cover 20 percent of the following quarter’s sales.
Moreover, an attempt is made to end each quarter with 20 percent of the glass sheets needed
for the following quarter’s production. Since metal strips are purchased locally, Frame-It
buys them on a just-in time basis; inventory is negligible.
5. All of Frame-It’s direct-material purchases are made on account, and 80 percent of each
quarter’s purchases are paid in cash during the same quarter as the purchase. The other 20
percent is paid in the next quarter
6. Indirect materials are purchased as needed and paid for in cash. Work-in-process inventory
is negligible
7. Indirect materials are purchased as needed and paid for in cash. Work-in-process inventory
is negligible

8. The predetermined overhead rate is $10 per direct-labor hour. The following production
overhead costs are budgeted for 20x1.
 All of these costs will be paid in cash during the quarter incurred except for the depreciation
charges.
9. Frame-It’s quarterly selling and administrative expenses are $100,000, paid in cash.
10. Jackson anticipates that dividends of $50,000 will be declared and paid in cash each quarter
11. Frame-It’s projected balance sheet as of December 31, 20x0, follows:

Required:
Prepare Frame-It Company’s master budget for 20x1 by completing the following schedules and
statements.
1. Sales budget:
20x0 20x1
4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Entire Year
S frame unit sales 50.000 55.000 60.000 65.000 70.000 250.000
X S sales price $ 10 $ 10 $ 10 $ 10 $ 10 $ 10
S frame sales revenue $ 500.000 $ 550.000 $ 600.000 $ 650.000 $ 700.000 $ 2.500.000
L frame unit sales 40.000 45.000 50.000 55.000 60.000 210.000
× L sales price $ 15 $ 15 $ 15 $ 15 $ 15 $ 15
L frame
Total sales
sales revenue
revenue $ 600.000 $ 675.000 $ 750.000 $ 825.000 $ 900.000 $ 3.150.000

Total sales revenue $ 1.100.000 $ 1.225.000 $ 1.350.000 $ 1.475.000 $ 1.600.000 $ 5.650.000

Cash sales*
$ 440.000 $ 490.000 $ 540.000 $ 590.000 $ 640.000 $ 2.260.000
Sales on account†
$ 660.000 $ 735.000 $ 810.000 $ 885.000 $ 960.000 $ 3.390.000
*40% of total sales
†60% of total sales.
2. Cash receipts budget:
20x1
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Entire Year

Cash sales $ 490.000 $ 540.000 $ 590.000 $ 640.000 $ 2.260.000

Cash collections from credit sales
made during current quarter* $ 588.000 $ 648.000 $ 708.000 $ 768.000 $ 2.712.000
Cash collections from credit sales
made during previous quarter† $ 132.000 $ 147.000 $ 162.000 $ 177.000 $ 618.000
Total cash receipts $ 1.210.000 $ 1.335.000 $ 1.460.000 $ 1.585.000 $ 5.590.000
*80% of current quarter’s credit sales
†20% of previous quarter’s credit sales

3. Production budget:
20x0 20x1
4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Entire Year
S frames:
Sales (in units) 50.000 55.000 60.000 65.000 70.000 250.000
Add: Desired ending inventory 11.000 12.000 13.000 14.000 15.000 15.000
Total units needed 61.000 67.000 73.000 79.000 85.000 265.000
Less: Expected beginning inventory 10.000 11.000 12.000 13.000 14.000 11.000
Units to be produced 51.000 56.000 61.000 66.000 71.000 254.000

L frames:
Sales (in units) 40.000 45.000 50.000 55.000 60.000 210.000
Add: Desired ending inventory 9.000 10.000 11.000 12.000 13.000 13.000
Total units needed 49.000 55.000 61.000 67.000 73.000 223.000
Less: Expected beginning inventory 8.000 9.000 10.000 11.000 12.000 9.000
Units to be produced 41.000 46.000 51.000 56.000 61.000 214.000

4. Direct-material budget:
 20x0 20x1
4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Entire Year
Metal strips:
S frames to be produced 51.000 56.000 61.000 66.000 71.000 254.000
× Metal quantity per unit (ft.) 2 2 2 2 2 2
Needed for S frame production 102.000 112.000 122.000 132.000 142.000 508.000
L frames to be produced 41.000 46.000 51.000 56.000 61.000 214.000
× Metal quantity per unit (ft.) 3 3 3 3 3 3
Needed for L frame production 123.000 138.000 153.000 168.000 183.000 642.000
Total metal needed for production
to be purchased (ft.) 225.000 250.000 275.000 300.000 325.000 1.150.000
× Price per foot $ 1 $ 1 $ 1 $ 1 $ 1 $ 1
Cost of metal strips to be purchased $ 225.000 $ 250.000 $ 275.000 $ 300.000 $ 325.000 $ 1.150.000

Glass sheets:
S frames to be produced 51.000 56.000 61.000 66.000 71.000 254.000
× Glass quantity per unit (sheets) 0,25 0,25 0,25 0,25 0,25 0,25
Needed for S frame production 12.750 14.000 15.250 16.500 17.750 63.500
L frames to be produced 41.000 46.000 51.000 56.000 61.000 214.000
× Glass quantity per unit (sheets) 0,5 0,5 0,5 0,5 0,5 0,5
Needed for L frame production 20.500 23.000 25.500 28.000 30.500 107.000
Total glass needed for production
(sheets) 33.250 37.000 40.750 44.500 48.250 170.500
Add: Desired ending inventory 7.400 8.150 8.900 9.650 10.400 10.400
Total glass needs 40.650 45.150 49.650 54.150 58.650 180.900
Less: Expected beginning inventory 6.650 7.400 8.150 8.900 9.650 7.400
Glass to be purchased 34.000 37.750 41.500 45.250 49.000 173.500
× Price per glass sheet $ 8 $ 8 $ 8 $ 8 $ 8 $ 8
Cost of glass to be purchased $ 272.000 $ 302.000 $ 332.000 $ 362.000 $ 392.000 $ 1.388.000
Total raw­material purchases
(metal and glass) $ 497.000 $ 552.000 $ 607.000 $ 662.000 $ 717.000 $ 2.538.000

5. Cash disbursements budget:

 20x1
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Entire Year
Raw­material purchases:
Cash payments for purchases
during the current quarter $ 441.600 $ 485.600 $ 529.600 $ 573.600 $ 2.030.400
Cash payments for purchases
during the preceding quarte $ 99.400 $ 110.400 $ 121.400 $ 132.400 $ 463.600
Total cash payments for
raw­material purchases $ 541.000 $ 596.000 $ 651.000 $ 706.000 $ 2.494.000

Direct labor:
Frames produced (S and L) 102.000 112.000 122.000 132.000 468.000
× Direct­labor hours per frame 0,1 0,1 0,1 0,1 0,1
Direct­labor hours to be used 10.200 11.200 12.200 13.200 46.800
× Rate per direct­labor hour $ 20 $ 20 $ 20 $ 20 $ 20
Total cash payments for direct labor $ 204.000 $ 224.000 $ 244.000 $ 264.000 $ 936.000

Manufacturing overhead:
Indirect material $ 10.200 $ 11.200 $ 12.200 $ 13.200 $ 46.800
Indirect labor $ 40.800 $ 44.800 $ 48.800 $ 52.800 $ 187.200
Other $ 31.000 $ 36.000 $ 41.000 $ 46.000 $ 154.000
Total cash payments for
manufacturing overhead $ 82.000 $ 92.000 $ 102.000 $ 112.000 $ 388.000
Cash payments for selling and
administrative expenses $ 100.000 $ 100.000 $ 100.000 $ 100.000 $ 400.000
Total cash disbursements $ 927.000 $ 1.012.000 $ 1.097.000 $ 1.182.000 $ 4.218.000

6. Summary cash budget:

 20x1
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Entire Year
Cash receipts (from schedule 2) $ 1.210.000 $ 1.335.000 $ 1.460.000 $ 1.585.000 $ 5.590.000
Less: Cash disbursements
(from schedule 5) -$ 927.000 -$ 1.012.000 -$ 1.097.000 -$ 1.182.000 -$ 4.218.000
Change in cash balance due
to operations $ 283.000 $ 323.000 $ 363.000 $ 403.000 $ 1.372.000
Payment of dividends -$ 50.000 -$ 50.000 -$ 50.000 -$ 50.000 -$ 200.000
Proceeds from bank loan (1/2/x1) $ 1.000.000 $ - $ - $ - $ 1.000.000
Purchase of equipment -$ 1.000.000 $ - $ - $ - -$ 1.000.000
Quarterly installment on
loan principal -$ 250.000 -$ 250.000 -$ 250.000 -$ 250.000 -$ 1.000.000
Quarterly interest payment -$ 25.000 -$ 18.750 -$ 12.500 -$ 6.250 -$ 62.500
Change in cash balance during
the period -$ 42.000 $ 4.250 $ 50.500 $ 96.750 $ 109.500
Cash balance, beginning of period $ 95.000 $ 53.000 $ 57.250 $ 107.750 $ 95.000
Cash balance, end of period $ 53.000 $ 57.250 $ 107.750 $ 204.500 $ 204.500

Quarterly interest payment:

1st Quarter: $1,000,000 × 10% × ¼ = $25,000
2nd Quarter: $750,000 × 10% × ¼ = $18,750
3rd Quarter: $500,000 × 10% × ¼ = $12,500
4th Quarter: $250,000 × 10% × ¼ = $6,250

7. Prepare a budgeted schedule of cost of goods manufactured and sold for the year 20x1. (Hint:
In the budget, actual and applied overhead will be equal.)
FRAME­IT COMPANY
BUDGETED SCHEDULE OF COST OF GOODS MANUFACTURED AND SOLD
FOR THE YEAR ENDED DECEMBER 31, 20x1
Direct material:
Raw­material inventory, 1/1/x1 $ 59.200
Add: Purchases of raw material [part (4)] $ 2.538.000
Raw material available for use $ 2.597.200
Deduct: Raw­material inventory, 12/31/×1
([part (4)] 10,400 × $8) $ 83.200
Raw material used $ 2.514.000
Direct labor [part (5)] $ 936.000
Manufacturing overhead:
Indirect material $ 46.800
Indirect labor $ 187.200
Other Overhead $ 154.000
Depreciation $ 80.000
Total manufacturing overhead $ 468.000
Cost of goods manufactured
$ 3.918.000
Add: Finished­goods inventory, 1/1/x1 $ 167.000
Cost of goods available for sale $ 4.085.000
Deduct: Finished­goods inventory, 12/31/x1 $ 235.000
Cost of goods sold
$ 3.850.000
 The finished­goods inventory on 12/31/x1 may be verified independently as follows:
S Frames L Frames
Projected inventory on 12/31/×1 15000 13000
Manufacturing cost per unit $ 7 $ 10
Cost of ending inventory $ 105.000 $ 130.000
Total cost of ending inventory (S and L) $ 235.000

8. Prepare Frame-It’s budgeted income statement for 20x1. (Ignore income taxes.)
FRAME­IT COMPANY
BUDGETED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 20x1

Sales revenue $ 5.650.000

Less : Cost of goods sold $ 3.850.000
Gross margin $ 1.800.000
Selling and administrative expenses $ 400.000
Interest expense $ 62.500 $ 462.500
Net income $ 1.337.500

9. Prepare Frame-It’s budgeted statement of retained earnings for 20x1.

FRAME­IT COMPANY
BUDGETED STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 20x1

Retained earnings, 12/31/x0 $ 3.353.800

Add: Net income $ 1.337.500
Deduct: Dividends $ 200.000
Retained earnings, 12/31/x1 $ 4.491.300
10. Prepare Frame-It’s budgeted balance sheet as of December 31, 20x1
FRAME­IT COMPANY
BUDGETED BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 20x1

Cash $ 204.500
Accounts receivable $ 192.000
Inventory:
Raw material $ 83.200
Finished goods $ 235.000
Plant and equipment $ 8.920.000
Total assets $ 9.634.700
Accounts payable $ 143.400
Common stock $ 5.000.000
Retained earnings $ 4.491.300
Total liabilities and stockholders' equity $ 9.634.700

Accounts receivable: Fourth­quarter sales on account × 20% = $960,000 × 20%

Raw material: 10,400 units × $8
Plant and equipment (net of accumulated depreciation): $8,000,000 +$1,000,000 – $80,000
Accounts payable: Fourth­quarter purchases on account × 20% = $717,000 × 20%