Schedule of cash collections
Sugarland Company sells a single product and anticipates opening a new facility in Charlotte on May 1 of the current year. Expected sales during the first three months of activity are: May, $60,000; June, $80,000; and July, $85,000. Thirty percent of all sales are for cash; the remaining 70% are on account. Credit sales have the following collection pattern:
Collected in the month of sale 60%
Collected in the month following sale 35
Uncollectible 5
a. Prepare a schedule of cash collections for May through July.
b. Compute the expected balance in Accounts Receivable as of July 31.
Production and cash-outlay computations
RPR, Inc., anticipates that 120,000 units of product K will be sold during May. Each unit of product K requires four units of raw material A. Actual inventories as of May 1 and budgeted inventories as of May 31 follow.
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1-May
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31-May
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Product K (Units)
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55,000
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60,000
|
|
Rate Materials A (Units)
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40,000
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37,000
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Each unit of raw material A costs $8; RPR pays for all purchases in the month of acquisition. Invoices that account for 80% of the cost of materials acquired will be paid within 10 days of receipt, entitling the company to a 2% cash discount.
a. Determine the number of units of product K to be manufactured in May.
b. Compute the May cash outlay for purchases of raw material A.
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July
|
August
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September
|
|
Beginning cash balance
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$10,000
|
$ ?
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$ ?
|
|
Add: Cash receipts
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50,000
|
63,000
|
71,000
|
|
Deduct: Cash payments
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-64,000
|
-58,000
|
-64,000
|
|
Cash excess (deficiency) before financing
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($4,000)
|
$ ?
|
$ ?
|
|
Financing
|
|
|
|
|
Borrowing to maintain minimum balance
|
?
|
?
|
?
|
|
Principal repayment
|
?
|
?
|
?
|
|
Interest payment
|
?
|
?
|
?
|
|
Ending cash balance
|
$ ?
|
$ ?
|
$ ?
|
Abbreviated cash budget; financing emphasis
An abbreviated cash budget for Big Chuck Enterprises follows.
Big Chuck wishes to maintain a $10,000 minimum cash balance at all times. Additional financing is available (and retired) in $1,000 multiples at a 12% interest rate. Assume that borrowings take place at the beginning of the month; retirements, in contrast, occur at the end of the month. Interest is paid at the time of repaying principal and computed on the portion of principal repaid.
a. Find the unknowns in Big Chuck's abbreviated cash budget.
b. Determine the outstanding loan balance as of September 30, after any repayments have been made.
3. Comprehensive budgeting
The balance sheet of Watson Company as of December 31, 20X1, follows.
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WATSON COMPANY
|
|
Balance Sheet
|
|
December 31, 12X1
|
|
Assets
|
|
|
|
Cash
|
|
$4,595
|
|
Accounts receivable
|
|
10,000
|
|
Finished goods (575 units x $7.00)
|
|
4,025
|
|
Direct materials (2,760 units x $0.50)
|
|
1,380
|
|
Plant & equipment
|
$50,000
|
|
|
Less: Accumulated depreciation
|
10,000
|
40,000
|
|
Total assets
|
|
$60,000
|
|
Liabilities & Stockholders' Equity
|
|
|
|
Accounts payable to suppliers
|
|
$14,000
|
|
Common stock
|
$25,000
|
|
|
Retained earnings
|
21,000
|
46,000
|
|
Total liabilities &. stockholders' equity
|
|
$60,000
|
The following information has been extracted from the firm's accounting records:
1. All sales are made on account at $20 per unit. Sixty percent of the sales are collected in the month of sale; the remaining 40% are collected in the following month. Forecasted sales for the first five months of 20X2 are: January, 1,500 units,- February, 1,600 units; March, 1,800 units; April, 2,000 units; May, 2,100 units.
2. Management wants to maintain the finished goods inventory at 30% of the following month's sales.
3. Watson uses four units of direct material in each finished unit. The direct material price has been stable and is expected to remain so over the next six months. Management wants to maintain the ending direct materials inventory at 60% of the following month's production needs.
4. Seventy percent of all purchases are paid in the month of purchase; the remaining 30% are paid in the subsequent month.
5. Watson's product requires 30 minutes of direct labor time. Each hour of direct labor costs $7.
Instructions:
a. Rounding computations to the nearest dollar, prepare the following for January through March:
1) Sales budget
2) Schedule of cash collections
3) Production budget
4) Direct material purchases budget
5) Schedule of cash disbursements for material purchases
6) Direct labor budget
b. Determine the balances in the following accounts as of March 31:
1) Accounts Receivable
2) Direct Materials
3) Accounts Payable
3. Variances for direct materials and direct labor
Banner Company manufactures flags of various countries. Each flag has a standard of eight square feet of fabric and three hours of direct labor time. Information about recent production activity follows.
Actual cost of fabric: $4.50 per square foot
Fabric consumed: 32,080 square feet
Standard price per square foot of fabric: $4.25
Standard direct labor rate: $10.00 per hour
Actual direct labor rate: $10.20 per hour
Actual labor hours worked: 11,940
Actual production completed: 4,000 flags
a. Compute the materials price variance and the materials quantity variance.
b. Compute the labor rate variance and the labor efficiency variance.
5. Overhead variances
Nova Manufacturing applies factory overhead to products on the basis of direct labor hours. At the beginning of the current year, the company's accountant made the following estimates for the forthcoming period:
- Estimated variable overhead: $500,000
- Estimated fixed overhead: $400,000
- Estimated direct labor hours: 40,000
It is now 12 months later. Actual total overhead incurred in the manufacture of 7,900 units amounted to $895,100. Actual labor hours totaled 39,800. Assuming a direct labor standard of five hours per finished unit, calculate the following:
a. Variable overhead efficiency variance
b. Fixed overhead volume variance
c. Overhead spending variance
1. P26-A1 Basic flexible budgeting
Centron, Inc., has the following budgeted production costs:
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Direct materials
|
$0.40 per unit
|
|
Direct labor
|
1.80 per unit
|
|
Variable factory overhead
|
2.20 per unit
|
|
Fixed factory overhead
|
|
Supervision
|
$24,000
|
|
Maintenance
|
18,000
|
|
Other
|
12,000
|
The company normally manufactures between 20,000 and 25,000 units each quarter. Should output exceed 25,000 units, maintenance and other fixed costs are expected to increase by $6,000 and $4,500, respectively.
During the recent quarter ended March 31, Centron produced 25,500 units and incurred the following costs:
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Direct Materials
|
|
$10,710
|
|
|
Direct Labor
|
|
47,175
|
|
|
Variable factory overhead
|
51,940
|
|
|
Fixed factory overhead
|
|
|
|
|
Supervision
|
|
24,500
|
|
|
Maintenance
|
|
23,700
|
|
|
Other
|
|
16,800
|
|
|
Total production costs
|
|
$174,825
|
|
Instructions:
a. Prepare a flexible budget for 20,000, 22,500, and 25,000 units of activity.
b. Was Centron's experience in the quarter cited better or worse than anticipated? Prepare an appropriate performance report and explain your answer.
c. Explain the benefit of using flexible budgets (as opposed to static budgets) in the measurement of performance.
Straightforward variance analysis
Arrow Enterprises uses a standard costing system. The standard cost sheet for product no. 549 follows.
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Direct materials: 4 units @ $6.50
|
|
$26.00
|
|
Direct labor: 8 hours @ $8.50
|
|
68
|
|
Variable factory overhead: 8 hours
|
@ $7.00
|
56
|
|
Fixed factory overhead: 8 hours
|
@ 2.5
|
20
|
|
Total standard cost per unit
|
|
$170.00
|
The following information pertains to activity for December:
1. Direct materials acquired during the month amounted to 26,350 units at $6.40 per unit. All materials were consumed in operations.
2. Arrow incurred an average wage rate of $8.75 for 51,400 hours of activity.
3. Total overhead incurred amounted to $508,400. Budgeted fixed overhead totals $1.8 million and is spread evenly throughout the year.
4. Actual production amounted to 6,500 completed units.
Instructions:
a. Compute Arrow's direct material variances.
b. Compute Arrow's direct labor variances.
c. Compute Arrow's variances for factory overhead.