Chapter 6 and 7 Problems
Chapter 6 Exercise 2
2. 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
- Prepare a schedule of cash collections for May through July.
- Compute the expected balance in Accounts Receivable as of July 31.
Chapter 6 Exercise 4
4. 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.
|
1-May |
31-May |
|
| Product K (Units) | 55,000 | 60,000 |
| Rate Materials A (Units) | 40,000 | 37,000 |
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.
- Determine the number of units of product K to be manufactured in May.
- Compute the May cash outlay for purchases of raw material A.
| July | August | September | |
| Beginning cash balance |
$10,000 |
$ ? |
$ ? |
| Add: Cash receipts |
50,000 |
63,000 |
71,000 |
| Deduct: Cash payments |
-64,000 |
-58,000 |
-64,000 |
| Cash excess (deficiency) before financing |
($4,000) |
$ ? |
$ ? |
| Financing | |||
| Borrowing to maintain minimum balance |
? |
? |
? |
| Principal repayment |
? |
? |
? |
| Interest payment |
? |
? |
? |
| Ending cash balance |
$ ? |
$ ? |
$ ? |
Chapter 6 Exercise 5
5. 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.
- Find the unknowns in Big Chuck s abbreviated cash budget.
- Determine the outstanding loan balance as of September 30, after any repayments have been made.
Chapter 6 Problem 3
3. Comprehensive budgeting
The balance sheet of Watson Company as of December 31, 19X1, follows.
|
WATSON COMPANY |
||
|
Balance Sheet |
||
|
December 31, 19X1 |
||
| 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 |
Chapter 7 Exercise 3
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
- Compute the materials price variance and the materials quantity variance.
- Compute the labor rate variance and the labor efficiency variance.
Chapter 7 Exercise 5
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:
- Variable overhead efficiency variance
- Fixed overhead volume variance
- Overhead spending variance
Chapter 7 Problem 1
1. P26-A1 Basic flexible budgeting (L.O. 2)
Centron, Inc., has the following budgeted production costs:
| 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:
| 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:
- Prepare a flexible budget for 20,000, 22,500, and 25,000 units of activity.
- Was Centron s experience in the quarter cited better or worse than anticipated? Prepare an appropriate performance report and explain your answer.
- Explain the benefit of using flexible budgets (as opposed to static budgets) in the measurement of performance.
Chapter 7 Problem 5
5. P26-B3 Straightforward variance analysis (L.O. 5)
Arrow Enterprises uses a standard costing system. The standard cost sheet for product no. 549 follows.
| 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:
- Direct materials acquired during the month amounted to 26,350 units at $6.40 per unit. All materials were consumed in operations.
- Arrow incurred an average wage rate of $8.75 for 51,400 hours of activity.
- Total overhead incurred amounted to $508,400. Budgeted fixed overhead totals $1.8 million and is spread evenly throughout the year.
- Actual production amounted to 6,500 completed units.