Week 6 assignment 6 /p9-17 p9-19 p9-26 p10-20 p 10-21 p10-22

Week 6 Assignment 6

 

Problem 9-17 – Janus Products, Inc

Problem 9-19 – Cyrdon, Inc

Problem 9-26 – Picanuy Corporation

Problem 10-20 – SecuriDoor Corporation

Problem 10-21 – Verona Pizza

Problem 10-22 – KGV Blood Bank

Examples: P9-20, P9-24, C9-29, P10-23.

 

1. Problem 9-17 – Janus Products, Inc

 

Janus Products, Inc. is a merchandising company that sells binders, paper

Cash Budget with Supporting Schedules

 

Janus Products, Inc. is a merchandising company that sells binders, paper, and other school supplies. The company is planning its cash needs for the third quarter. In the past, Janus Products has had to borrow money during the third quarter to support peak sales of back-to-school materials, which occur during August. The following information has been assembled to assist in preparing a cash budget for the quarter:

 

a. Budgeted monthly absorption costing income statements for July-October are as follows:

                                                                              July         August       September       October

Sales                                                                   $40,000   $70,000     $50,000             $45,000

Cost of goods sold                                             24,000     42,000        30,000               27,000

Gross margin                                                      16,000     28,000        20,000               18,000             

Selling and administrative expenses:

Selling expenses                                                  7,200      11,700         8,500                 7,300

Administrative expenses                                    5,600       7,200          6,100                 5,900

Total selling and administrative expenses     12,800     18,900        14,600              13,200 

Net operating income                                       $3,200      $9,100       $5,400              $4,800

*Includes $2,000 depreciation each month

 

b. Sales are 20% for cash and 80% on credit.

c. Credit sales are collected over a three-month period with 10% collected in the month of sale, 70% in the month following sale, and 20% in the second month following sale. May sales totaled $30,000, and June sales totaled $36,000.

d. Inventory purchases are paid for within 15 days. Therefore, 50% of a month’s inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable for inventory purchases at June 30 total $11,700.

e. The company maintains its ending inventory levels at 75% of the cost of the merchandise to be sold in the following month. The merchandise inventory at June 30 is $18,000.

f. Land costing $4,500 will be purchased in July.

g. Dividends of $1,000 will be declared and paid in September.

h. The cash balance on June 30 is $8,000; the company must maintain a cash balance of at least this amount at the end of each month.

i. The company has an agreement with a local bank that allows it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $40,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

 

Required:

1. Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total.

2. Prepare the following for merchandise inventory:

a. A merchandise purchases budget for July, August, and September.

b. A schedule of expected cash disbursements for merchandise purchases for July, August, and September and for the quarter in total.

 

3. Prepare a cash budget for July, August, and September and for the quarter in total.

 

2. Problem 9-19 – Cyrdon, Inc

Crydon, Inc., manufactures an advanced swim fin for scuba divers. Management is now preparing detailed budgets for the third quarter, July through September, and has assembled the following information to assist in preparing the budget:

 

a. The Marketing Department has estimated sales as follows for the remainder of the year

(in pairs of swim fins):

The selling price of the swim fins is $50 per pair.

July . . . . . . . . . . . . . . . . . . 6,000

August . . . . . . . . . . . . . . . . 7,000

September . . . . . . . . . . . . . 5,000

October . . . . . . . . . . . . . . . . 4,000

November . . . . . . . . . . . . . . 3,000

December. . . . . . . . . . . . . . 3,000

b. All sales are on account. Based on past experience, sales are expected to be collected in the following pattern:

40% in the month of sale

50% in the month following sale

10% uncollectible

The beginning accounts receivable balance (excluding uncollectible amounts) on July 1 will be $130,000.

c. The company maintains finished goods inventories equal to 10% of the following month’s sales. The inventory of finished goods on July 1 will be 600 pairs.

d. Each pair of swim fins requires 2 pounds of geico compound. To prevent shortages, the company would like the inventory of geico compound on hand at the end of each month to be equal to 20% of the following month’s production needs. The inventory of geico compound on hand on July 1 will be 2,440 pounds.

e. Geico compound costs $2.50 per pound. Crydon pays for 60% of its purchases in the month of purchase; the remainder is paid for in the following month. The accounts payable balance for geico compound purchases will be $11,400 on July 1.

 

Required:

1. Prepare a sales budget, by month and in total, for the third quarter. (Show your budget in both pairs of swim fins and dollars.) Also prepare a schedule of expected cash collections, by month and in total, for the third quarter.

2. Prepare a production budget for each of the months July through October.

 

3. Prepare a direct materials budget for geico compound, by month and in total, for the third quarter. Also prepare a schedule of expected cash disbursements for geico compound, by month and in total, for the third quarter.

 

 

3. Problem 9-26 – Picanuy Corporation

The following data relate to the operations of Picanuy Corporation, a wholesale distributor of consumer goods:

 

Current assets as of December 31:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,000

Accounts receivable . . . . . . . . . . . . . . . $36,000

Inventory . . . . . . . . . . . . . . . . . . . . . . . . $9,800

Buildings and equipment, net . . . . . . . . . . $110,885

Accounts payable . . . . . . . . . . . . . . . . . . . $32,550

Capital stock . . . . . . . . . . . . . . . . . . . . . . . $100,000

Retained earnings . . . . . . . . . . . . . . . . . . . $30,135

 

a. The gross margin is 30% of sales. (In other words, cost of goods sold is 70% of sales.)

b. Actual and budgeted sales data are as follows:

December (actual) . . . . . . . . . . . . . . . . . . $60,000

January. . . . . . . . . . . . . . . . . . . . . . . . . . . $70,000

February . . . . . . . . . . . . . . . . . . . . . . . . . . $80,000

March . . . . . . . . . . . . . . . . . . . . . . . . . . . . $85,000

April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55,000

 

c. Sales are 40% for cash and 60% on credit. Credit sales are collected in the month following sale. The accounts receivable at December 31 are the result of December credit sales.

d. Each month’s ending inventory should equal 20% of the following month’s budgeted cost of goods sold.

e. One-quarter of a month’s inventory purchases is paid for in the month of purchase; the other three-quarters is paid for in the following month. The accounts payable at December 31 are the result of December purchases of inventory.

f. Monthly expenses are as follows: commissions, $12,000; rent, $1,800; other expenses (excluding depreciation), 8% of sales. Assume that these expenses are paid monthly. Depreciation is $2,400 for the quarter and includes depreciation on new assets acquired during the quarter.

g. Equipment will be acquired for cash: $3,000 in January and $8,000 in February.

h. Management would like to maintain a minimum cash balance of $5,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $50,000.

The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

 

Required:

Using the data above:

1. Complete the following schedule:

Schedule of Expected Cash Collections

January February March Quarter

Cash sales . . . . . . . . . . $28,000

Credit sales . . . . . . . . . . 36,000

Total collections . . . . . . . $64,000

 

2. Complete the following:

Merchandise Purchases Budget

January February March Quarter

Budgeted cost of goods sold . . . . . . . . . $49,000*

Add desired ending inventory . . . . . . . . . 11,200†

Total needs . . . . . . . . . . . . . . . . . . . . . . . 60,200

Less beginning inventory . . . . . . . . . . . . 9,800

Required purchases . . . . . . . . . . . . . . . . $50,400

*$70,000 sales × 70% = $49,000.

†$80,000 × 70% × 20% = $11,200.

 

Schedule of Expected Cash Disbursements—Merchandise Purchases

January February March Quarter

December purchases . . . . . . . . . . . . . . . $32,550* $32,550

January purchases . . . . . . . . . . . . . . . . . 12,600 $37,800 50,400

February purchases . . . . . . . . . . . . . . . .

March purchases . . . . . . . . . . . . . . . . . .

Total disbursements . . . . . . . . . . . . . . . . $45,150

*Beginning balance of the accounts payable.

 

3. Complete the following schedule:

Schedule of Expected Cash Disbursements—Selling and Administrative Expenses

January February March Quarter

Commissions . . . . . . . . . . . . . . . . . . . . . $12,000

Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800

Other expenses . . . . . . . . . . . . . . . . . . . 5,600

Total disbursements . . . . . . . . . . . . . . . . $19,400

 

4. Complete the following cash budget:

Cash Budget

January February March Quarter

Cash balance, beginning . . . . . . . . . . . . $ 6,000

Add cash collections . . . . . . . . . . . . . . . . 64,000

Total cash available . . . . . . . . . . . . . . . . 70,000

Less cash disbursements:

For inventory . . . . . . . . . . . . . . . . . . . . 45,150

For operating expenses . . . . . . . . . . . . 19,400

For equipment . . . . . . . . . . . . . . . . . . 3,000

Total cash disbursements . . . . . . . . . . . . 67,550

Excess (defi ciency) of cash . . . . . . . . . . . 2,450

Financing Etc.

5. Prepare an absorption costing income statement, similar to the one shown in Schedule 9 in the chapter, for the quarter ended March 31.

 

6. Prepare a balance sheet as of March 31.

 

 

4. Problem 10-20 – SecuriDoor Corporation

PROBLEM 10–20 Activity and Spending Variances [LO1, LO2, LO3]

 

You have just been hired by SecuriDoor Corporation, the manufacturer of a revolutionary new

garage door opening device. The president has asked that you review the company’s costing system

and “do what you can to help us get better control of our manufacturing overhead costs.” You

find that the company has never used a flexible budget, and you suggest that preparing such a

budget would be an excellent first step in overhead planning and control.

After much effort and analysis, you determined the following cost formulas and gathered the

following actual cost data for April:

 

Actual Cost

Cost Formula                                       in April

Utilities . . . . . . . . . . . . . . . . . $16,500 plus $0.15 per machine-hour                         $21,300

Maintenance . . . . . . . . . . . . .  $38,600 plus $1.80 per machine-hour            $68,400

Supplies . . . . . . . . . . . . . . . .   $0.50 per machine-hour                                  $9,800

Indirect labor. . . . . . . . . . . . . $94,300 plus $1.20 per machine-hour                         $119,200

Depreciation . . . . . . . . . . . . . $68,000                                                           $69,700

During April, the company worked 18,000 machine-hours and produced 12,000 units. The company

had originally planned to work 20,000 machine-hours during April.

 

Required:

1. Prepare a report showing the activity variances for April. Explain what these variances mean.

 

2. Prepare a report showing the spending variances for April. Explain what these variances mean.

 

 

5. Problem 10-21 – Verona Pizza

 

PROBLEM 10–21 More Than One Cost Driver [LO4, LO5]

Verona Pizza is a small neighborhood pizzeria that has a small area for in-store dining as well

offering takeout and free home delivery services. The pizzeria’s owner has determined that the

shop has two major cost drivers—the number of pizzas sold and the number of deliveries made.

Data concerning the pizzeria’s costs appear below:

                                    Fixed Cost       Cost per                       Cost per

per Month        Pizza                Delivery

Pizza ingredients . . . . . . . . . .              $4.20

Kitchen staff . . . . . . . . . . . . . . $5,870

Utilities . . . . . . . . . . . . . . . . . . $590               $0.10

Delivery person . . . . . . . . . . .                                                 $2.90

Delivery vehicle . . . . . . . . . . . $610                                       $1.30

Equipment depreciation . . . . . $384

Rent . . . . . . . . . . . . . . . . . . . . $1,790

Miscellaneous . . . . . . . . . . . . $710                 $0.05

 

In October, the pizzeria budgeted for 1,500 pizzas at an average selling price of $13.00 per

pizza and for 200 deliveries.

Data concerning the pizzeria’s operations in October appear below:

 

Actual Results

Pizzas. . . . . . . . . . . . . . . . . . . . .         1,600

Deliveries . . . . . . . . . . . . . . . . . . 180

Revenue . . . . . . . . . . . . . . . . . . . $21,340

Pizza ingredients . . . . . . . . . . . . . $6,850

Kitchen staff . . . . . . . . . . . . . . . . . $5,810

Utilities . . . . . . . . . . . . . . . . . . . . . $875

Delivery person. . . . . . . . . . . . . . $522

Delivery vehicle . . . . . . . . . . . . . . $982

Equipment depreciation. . . . . . . . $384

Rent . . . . . . . . . . . . . . . . . . . . . . . . $1,790

Miscellaneous . . . . . . . . . . . . . . . $778

 

Required:

1. Prepare a flexible budget performance report that shows both activity variances and revenue

and spending variances for the pizzeria for October.

 

2. Explain the activity variances.

 

 

6. Problem 10-22 – KGV Blood Bank

 

PROBLEM 9–22 Performance Report for a Nonprofit Organization [LO1, LO4, LO6]

The KGV Blood Bank, a private charity partly supported by government grants, is located on

the Caribbean island of St. Lucia. The blood bank has just finished its operations for September,

which was a particularly busy month due to a powerful hurricane that hit neighboring islands causing

many injuries. The hurricane largely bypassed St. Lucia, but residents of St. Lucia willingly

donated their blood to help people on other islands. As a consequence, the blood bank collected

and processed over 20% more blood than had been originally planned for the month.

A report prepared by a government official comparing actual costs to budgeted costs for the

blood bank appears on the following page. (The currency on St. Lucia is the East Caribbean dollar.)

Continued support from the government depends on the blood bank’s ability to demonstrate control

over its costs.

KGV Blood Bank

Cost Control Report

For the Month Ended September 30

                                                Planning                       Actual

                                                Budget             Results                        Variances

Liters of blood collected . . . . . . . . .    600                  780

Medical supplies. . . . . . . . . . . . . . .     $ 7,110                        $ 9,252                        $2,142 U

Lab tests . . . . . . . . . . . . . . . . . . . . .    8,610               10,782                         2,172 U

Equipment depreciation . . . . . . . . .     1,900               2,100               200 U

Rent . . . . . . . . . . . . . . . . . . . . . . . .     1,500               1,500               0

Utilities . . . . . . . . . . . . . . . . . . . . . .    300                  324                  24 U

Administration. . . . . . . . . . . . . . . . .    14,310                         14,575                         265 U

Total expense . . . . . . . . . . . . . . . . .    $33,730                       $38,533                       $4,803 U

 

The managing director of the blood bank was very unhappy with this report, claiming that his costs were higher than expected due to the emergency on the neighboring islands. He also pointed out that the additional costs had been fully covered by payments from grateful recipients on the other islands. The government official who prepared the report countered that all of the figures had been submitted by the blood bank to the government; he was just pointing out that actual costs were a lot higher than promised in the budget.

The following cost formulas were used to construct the planning budget:

KGV Blood Bank

Cost Control Report

For the Month Ended September 30

                                                Planning                       Actual

                                                Budget             Results                        Variances

Liters of blood collected . . . . . . . . .    600                  780

Medical supplies. . . . . . . . . . . . . . .     $ 7,110                        $ 9,252                        $2,142 U

Lab tests . . . . . . . . . . . . . . . . . . . . .    8,610               10,782                         2,172 U

Equipment depreciation . . . . . . . . .     1,900               2,100               200 U

Rent . . . . . . . . . . . . . . . . . . . . . . . .     1,500               1,500               0

Utilities . . . . . . . . . . . . . . . . . . . . . .    300                  324                  24 U

Administration. . . . . . . . . . . . . . . . .    14,310                         14,575                         265 U

Total expense . . . . . . . . . . . . . . . . .    $33,730                       $38,533                       $4,803 U

Medical supplies. . . . . . . . . . . . . . . . $11.85q

Lab tests . . . . . . . . . . . . . . . . . . . . . . $14.35q

Equipment depreciation . . . . . . . . . . $1,900

Rent . . . . . . . . . . . . . . . . . . . . . . . . . $1,500

Utilities . . . . . . . . . . . . . . . . . . . . . . . $300

Administration. . . . . . . . . . . . . . . . . . $13,200 + $1.85q

 

Required:

1. Prepare a new performance report for September using the flexible budget approach.

2. Do you think any of the variances in the report you prepared should be investigated? Why?

 

 

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