Special Project on Budgeting and Variances
Spring 2012
The following information relates to Sanchez Company, which sells wooden podiums.
A?· Beginning cash balance on July 1: $30,000.
A?· Cash receipts from sales: 30% is collected in the month of sale, 50% in the next month, and 20% in the second month after sale (uncollectible accounts are negligible and can be ignored). Sales amounts are: May (actual), $1,032,000; June (actual), $720,000; and July (budgeted), $840,000.
A?· Payments on merchandise purchases: 60% in the month of purchase and 40% in the month following purchase. Purchases amounts are: June (actual), $258,000; and July (budgeted), $600,000.
A?· Budgeted cash disbursements for salaries in July: $126,600.
A?· Budgeted depreciation expense for July: $7,200.
A?· Other cash expenses budgeted for July: $90,000.
A?· Accrued income taxes due in July: $80,000 (related to June).
A?· Bank loan interest due in July: $3,960.
A?· Budgeted cost of goods sold is 44% of sales.
A?· Budgeted sales price is $25 per podium.
Required:
1. Prepare a cash budget for the month of July. Show all of your calculations.
2. Prepare a budgeted income statement for the month of July at the current budgeted sales level.
Assume that at the end of July, Sanchez Company reported the following actual results:
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Sanchez Company Statement of Income For month ended 7/31/2012 |
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|
Sales (34,000 podiums) |
$ 884,000 |
|
|
Cost of goods sold |
(388,960) |
|
|
Gross profit |
$ 495040 |
|
|
Salaries expense |
$ 138,600 |
|
|
Depreciation expense |
7,200 |
|
|
Other operating expenses |
92,000 |
|
|
Interest expense |
3,960 |
|
|
Tax expense |
80,000 |
321,760 |
|
Net Income |
$ 154,240 |
|
3. Prepare a flexible budget for the month of July for an actual sales level of 34,000 podiums.
Assume now that Sanchez Company is a manufacturing company. For August, they have established the following standard costs:
Direct Materials (wood):
2.5 feet per podium x $1.40 per foot
Direct Labor:
.53 hours per podium x $10.00 per hour
During August, the company made 28,800 podiums. Actual results showed:
Direct Materials:
$120,960 paid for 80,640 feet of wood
Direct Labor:
$151,200 paid for 14,400 hours
4. Determine the two direct material variances and the two direct labor variances. Then, explain what may have caused these variances.
I am not sure how to start this…any suggestions on how to do this?