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
ROBLEM 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?
TUTORIAL PREVIEW
Schedule
of expected cash disbursements - selling and administrative expenses
|
|
January
|
February
|
March
|
Quarter
|
|
Commissions
|
$12,000
|
$12,000
|
$12,000
|
$36,000
|
|
Rent
|
1,800
|
1,800
|
1,800
|
5,400
|
file name: Assignment 6.doc File type: .doc PRICE: $25
