Managerial Accounting
Application Problems
1. Sales budget data for Paige Company are given. Management desires to have an ending finished goods inventory equal to 25% of the next quarter's expected unit sales. Prepare a production budget by quarters for the first 6 months of 2017.
(Sales budget data: Unit sales will be 10,000 in quarter 1, 14,000 in quarter 2, 15,000 in quarter 3, and 18,000 in quarter 4. The unit sales price is $70.00 per unit)
2. Perine Company has 2,000 pounds of raw materials in its December 31, 2016, ending inventory. Required production for January and February of 2017 are 4,000 and 5,000 units, respectively. Two pounds of raw materials are needed for each unit, and the estimated cost per pound is $6. Management desires an ending inventory equal to 25% of next month's materials requirements. Prepare the direct materials budget for January.
3. data for Croix Company are given in BE10-1. In the second quarter, budgeted sales were $380,000, and actual sales were $384,000. Prepare a static budget report for the second quarter and for the year to date.
(for the quarter ended March 31, 2017, Croix Company accumulates the following sales data for its newest guitar, The Edge: $315,000 budget; $305,000 actual.)
4. In Rooney Company, direct labor is $20 per hour. The company expects to operate at 10,000 direct labor hours each month. In January 2017, direct labor totaling $206,000 is incurred in working 10,400 hours. Prepare (a) a static budget report and (b) a flexible budget report. Evaluate the usefulness of each report.
5. Each of the items below must be considered in preparing a statement of cash flows for Bakersville Co. for the year ended December 31, 2017. For each item, state how it should be shown in the statement of cash flows for 2017.
(a) Issued bonds for $200,000 cash
(b) Purchased equipment for $150,000 cash
(c) Sold land costing $20,000 for $20,000 cash
(d) Declared and paid a $50,000 cash dividend
6. The management of Morrow Inc. is trying to decide whether it can increase its dividend. During the current year, it reported net income of $875,000. It had net cash provided by operating activities of $734,000, paid cash dividends of $70,000, and had capital expenditures of $280,000. Compute the company's free cash flow, and discuss whether an increase in the dividend appears warranted. What other factors should be considered?