April May June
  Budgeted sales $ 31,500 $ 40,500 $ 24,500
  Budgeted cash payments for merchandise 21,200 16,300 16,700


Sales are 60% cash and 40% on credit. All credit sales are collected in the month following the sale. The March 30 balance sheet includes balances of $12,500 in cash, $12,500 in accounts receivable, $11,000 in accounts payable, and a $2,500 balance in loans payable. A minimum cash balance of $12,500 is required. Loans are obtained at the end of any month when a cash shortage occurs. Interest is 2% per month based on the beginning of the month loan balance and is paid at each month-end. If an excess balance of cash exists, loans are repaid at the end of the month. Operating expenses are paid in the month incurred and consist of sales commissions (5% of sales), shipping (4% of sales), office salaries ($3,500 per month) and rent ($5,500 per month).


Prepare a cash budget for each of the months of April, May, and June.



Antuan Company set the following standard costs for one unit of its product.


  Direct materials ((4.0 Ibs. @ $6.0 per Ib.) $ 24.00
  Direct labor (1.7 hrs. @ $14.0 per hr.) 23.80
  Overhead (1.7 hrs. @ $18.50 per hr.) 31.45

  Total standard cost $ 79.25


The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% level.


Overhead Budget (75% Capacity)
  Variable overhead costs
     Indirect materials $ 15,000
     Indirect labor 75,000
     Power 15,000
     Repairs and maintenance 30,000

     Total variable overhead costs $ 135,000
  Fixed overhead costs
     Depreciation—building 25,000
     Depreciation—machinery 71,000
     Taxes and insurance 18,000
     Supervision 222,750

     Total fixed overhead costs 336,750

  Total overhead costs $ 471,750


The company incurred the following actual costs when it operated at 75% of capacity in October.


  Direct materials (61,000 Ibs. @ $6.10 per lb.) $ 372,100
  Direct labor (29,000 hrs. @ $14.10 per hr.) 408,900
  Overhead costs
     Indirect materials $ 44,000
     Indirect labor 177,750
     Power 17,250
     Repairs and maintenance 34,500
     Depreciation—building 25,000
     Depreciation—machinery 95,850
     Taxes and insurance 16,200
     Supervision 222,750 633,300

  Total costs $ 1,414,300


1&2. Prepare flexible overhead budgets for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels and classify all items listed in the fixed budget as variable or fixed.


3. Compute the direct materials cost variance, including its price and quantity variances. (Round actual price to 2 decimal places.)
4. Compute the direct labor cost variance, including its rate and efficiency variances.(Round actual rate to 2 decimal places.)


World Company expects to operate at 80% of its productive capacity of 55,000 units per month. At this planned level, the company expects to use 27,500 standard hours of direct labor. Overhead is allocated to products using a predetermined standard rate based on direct labor hours. At the 80% capacity level, the total budgeted cost includes $66,000 fixed overhead cost and $313,500 variable overhead cost. In the current month, the company incurred $360,000 actual overhead and 24,500 actual labor hours while producing 39,000 units.


(1) Compute the overhead volume variance. (Round all your intermediate calculations to 2 decimal places.)


Marathon Running Shop has two service departments (advertising and administration) and two operating departments (shoes and clothing). During 2013, the departments had the following direct expenses and occupied the following amount of floor space.


  Department Direct Expenses Square Feet
  Advertising $ 16,000 780
  Administrative 18,300 1,040
  Shoes 101,600 7,020
  Clothing 12,100 4,160


The advertising department developed and distributed 120 advertisements during the year. Of these, 90 promoted shoes and 30 promoted clothing. The store sold $350,000 of merchandise during the year. Of this amount, $280,000 is from the shoes department, and $70,000 is from the clothing department. The utilities expense of $65,000 is an indirect expense to all departments.


Complete the departmental expense allocation spreadsheet for Marathon Running Shop. Assign (1) direct expenses to each of the four departments, (2) the $65,000 of utilities expense to the four departments on the basis of floor space occupied, (3) the advertising department’s expenses to the two operating departments on the basis of the number of ads placed that promoted a department’s products, and (4) the administrative department’s expenses to the two operating departments based on the amount of sales.


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