ACCOUNTING

Question #3 – Problem 9-19 (pp. 403-404) Cash Budget; Income Statement; Balance Sheet[LO2, LO4, LO8, LO9, LO10]

Minden Company is a wholesale distributor of premium European chocolates. The company’s balance sheet as of April 30 is given below:

Minden Company

Balance Sheet

April 30

Assets
Cash $9,000
Accounts receivable 54,000
Inventory 30,000
Buildings and equipment, net of depreciation 207,000
Total assets $300,000
Liabilities and Stockholders’ Equity
Account payable $63,000
Note payable 14,500
Capital stock,no par 180,000
Retained earnings 42,500
Total liabilities and stockholders’ equity $300,000

 

The company is in the process of preparing budget data for May. A number of budget items have already been prepared, as stated below:

  1. Sales are budgeted at $ 200,000 for May. Of these sales, 4 60,000 will be for cash; the remainder will be credit sales. One-half of a month’s credit sales are collected in the month the sales are made, and the reminder is collected in the following month. All of the april 30 accounts receivable will be collected in May.
  2. Purchases of inventory are expected to total $ 120,000 during May. These purchases will all be on account. Forty percent of all purchases are paid for in the month of purchase; the remainder are paid in the following month. All of April 30 accounts payable to suppliers will be paid during May.
  3. The May 31 inventory balance is budgeted at $ 40,000.
  4. selling and administrative expenses for May are budgeted at $72,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,000 for the month.
  5. The note payable on the April 30 balance sheet will be paid during May, with $100 in interest. (All of the interest relates to May.)
  6. New refrigerating equipment costing $6,500 will be purchased for cash during May.
  7. During May, the company will borrow $20,000 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.

    Required:

    1. Prepare a cash budget for May. Support your budget with a schedule of expected cash collections from sales and a schedule of expected cash disbursements for merchandise purchases.
    2. Prepare a budget income statement for May. Use the absorption costing income statement format as shown in schedule 9.
    3. Prepare a budget balance sheet as of May 31.

       

      Question #4 – Problem 11A-9 (pp. 498–499) Comprehensive Standard Cost Variances[LO2, LO3, LO4, LO6]

      “Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well,” said Kim Clark, president of Martell Company. “Our $18,300 overall manufacturing cost variance is only 1.2% of the $1,536,000 standard cost of products made during the year. That’s well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year.”

      The company produces and sells a single product. The standard cost card for the product follows:

Standard cost card-per unit of product
Direct materials, 2 feet at $8.45 per foot $16.90
Direct labor, 1.4 direct labor hours at $16 per direct labor-hour 22.4
Variable overhead, 1.4 direct-labor hours at $2.50 per direct labor-hour 3.5
Fixed overhead, 1.4 direct labor-hours at $6 per direct labor hour 8.4
Standard cost per unit $51.20

 

The fallowing additional information is available for the year just completed:

  1. The company manufactured 30,000 units of product during the year.
  2. A total of 64,000 feet of material was purchased during the year at a cost of $8.55 per foot. All of this material was used to manufacture the 30,000 units. There were no beginning or ending inventories for the year.
  3. The company worked 43,500 direct labor-hours during the year at a direct labor cost of $15.80 per hour.
  4. Overhead is applied to products on the basis of standard direct labor-hours. Data relating to manufacturing overhead costs follow:
Denominator activity level (direct labor-hours) 35,000
Budgeted fixed overhead costs (from the overhead flexible budget) $210,000
Actual variable overhead costs incurred $108,000
Actual fixed overhead costs incurred $211,800

 

Required:

  1. Compute the direct materials price and quality variances for the year.
  2. Compute the direct labor rate and efficiency variances for the year.
  3. For manufacturing overhead compute:
    1. The variable overhead rate and efficiency variance for the year.
    2. The fixed overhead budget and volume variance for the year.
  4. Total the variances you have computed, and compare the net amount with the $ 18,300 mentioned by the president. Do you agree that bonuses should be given to everyone for good cost control during the year? Explain.

    Question #5– Problem 13-21 (pp. 614–615) Make or Buy Decision[LO3]

    Silven Industries, which manufactures and sells a highly successful line of summer lotions and insect repellents, has decided to diversify in order to stabilize sales throughout the year. A natural area for the company to consider is the production of winter lotions and creams to prevent dry and chapped skin.

    After considerable research, a winter products line has been developed. However, Silven’s president has decided to introduce only one of the new products for this coming winter.If the product is a success, further expansion in future years will be initiated.

    The product selected (called Chap-Off) is a lip balm that will be sold in a lipstick-type tube. The product will be sold to wholesalers in boxes of 24 tubes for $8 per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the product.

    However,a $ 90,000 charge for fixed manufacturing overhead will be absorbed by the product under the company’s absorption costing system.

    Using the estimated sales and production of 100,000 boxed of Chap-Off, the Accounting Department has developed the following cost per box:

     

Direct materials $3.60
Direct Labor 2.00
Manufacturing overhear 1.40
Total cost $7.00

 

The cost above includes costs for producing both the lip balm and the tube that contains it. Ans an alternative to making the tubes, Silven has approached a supplier to discuss the possibility of purchasing the tubs for Chap-Off. The purchase price of the empty tubes from the suppliers would be $1.35 per box of 24 tubes. If Silven Industries accepts the purchase proposal, direct labor and variable manufacturing overhead costs per box of Chap-Off would be reduced by 10% and direct materials costs would be reduced by 25%.

 

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