PROBLEMS
1. The Sales Budget and CVP Analysis LO1, 2
CNX Motors is preparing a sales budget for the cur rent year for the service department. The budget based on last year's actual amounts. Management is interested in understanding what might happen if the service department has an increase in sales volume (i.e., the number of mechanic hours) or an increase in the average revenue per mechanic hour. They believe that, because of economic conditions in the local market, it is unlikely that both would increase. Last year's sales amounts were as follows:
|
|
Mechanic Hours
|
Total Revenues
|
|
January
|
1,174
|
$11,681
|
|
February
|
1,057
|
10,538
|
|
March
|
1,125
|
11,261
|
|
April
|
1,516
|
15,008
|
|
May
|
1,724
|
16,981
|
|
June
|
2,515
|
25,014
|
|
July
|
2,746
|
27,185
|
|
August
|
3,107
|
30,604
|
|
September
|
2,421
|
23,823
|
|
October
|
2,211
|
22,154
|
|
November
|
1,709
|
17,090
|
|
December
|
1,524
|
15,125
|
Required
• A. Compute the average revenue per mechanic hour for the current year on the basis of last year's actual data. Round the average hourly rate to the nearest penny.
• B. Prepare a monthly sales budget for the current year, assuming that monthly sales volume (i.e., mechanic hours) will be 10 percent greater than it was in the same month last year. Assume that the average revenue per mechanic hour is the same as you computed in question A. Round budgeted hours to one decimal and budgeted revenues to the nearest dollar.
• C. Prepare a monthly sales budget for the current year, assuming that the average revenue per mechanic hour computed in question A increased by 5 percent. Assume also that the number of mechanic hours stays the same as in the previous year. That is, there is no increase or decrease in the monthly sales volume. Round the rate per mechanic hour to two decimals and budgeted revenues to the nearest dollar.
• D. For the current year in total, is it more advantageous to increase sales volume by 10 percent or average revenue per hour by 5 percent? Remember the impact of variable and fixed costs on these projections.
2. Production and Purchases Budget LO3, 4
Alvarez Company produces various parts used in the automotive industry. The sales budget for the first eight months of 2012 shows the following projections
|
Month
|
Units
|
Month
|
Units
|
|
January
|
25,000
|
May
|
31,400
|
|
February
|
27,000
|
June
|
34,500
|
|
March
|
32,000
|
July
|
36,700
|
|
April
|
28,500
|
August
|
35,000
|
Inventory on December 31 of the previous year was budgeted at 6,250 units. The desired quantity of finished-goods inventory at the end of each month in 2012 is to be equal to 25 percent of the next month's budgeted unit sales. Each unit of finished product requires three pounds of raw material. The company wants to have 30 percent of next month's required raw materials on hand at the end of each month.
Required
• A. Prepare a production budget for January through June of 2012.
• B. Prepare a material purchases budget for the same period, assuming that each pound of raw material costs $22.
3. • Cash Receipts Budget LO5
• Barrera's Outdoor Outfitters sells many items that sporting enthusiasts find useful. The company sells shoes, pants, shirts, jackets, fly-fishing equipment, hiking equipment, hunting equipment, and various other products. The following sales projections were prepared by the company's sales manager and include all items for each of the first seven months of 2012:
|
Month
|
Sales Volume
|
Month
|
Sales Volume
|
|
January
|
25,000
|
May
|
31,400
|
|
February
|
27,000
|
June
|
34,500
|
|
March
|
32,000
|
July
|
36,700
|
|
April
|
28,500
|
|
|
• The average sales price per item is $12. The company estimates that it collects 70 percent of each month's sales in the month of sale and 20 percent the following month. The remaining outstanding sales are collected in the next month. The balance of accounts receivable on December 31, 2011, was $141,600. Of the accounts receivable balance, $33,600 represents uncollected November sales.
• Required
• Prepare a cash receipts budget for January through June of 2012.