Exercise 526
Jim Heston has been working on Austin Paints’ cash budget for the coming year. Based on his
projections for March, the beginning cash balance will be $50,090; cash collections will be
$700,000; and cash disbursements will be $710,450. Austin Paints desires to maintain a
$50,000 minimum cash balance. The company has a 10 percent open line of credit with its
bank, which provides short-term borrowings in $500 increments. All borrowings are made at
the beginning of the month, and all repayments are made at the end of the month (in $500
increments). Accrued interest is paid at the time of repayment.
(a) How much will Austin Paints need to borrow from the bank at the beginning of March?
$
Austin Paints should borrow (b) Assuming that Austin Paints has $7,000 in excess cash budgeted for April, how much
principal will the company plan to repay? How much interest will be repaid in
April? (Round interest repaid answer to the nearest whole dollar amount, e.g.
5,275.)
$
Principal to be repaid $
Interest to be repaid Problem 6-32
Gerald/Brooke, Ltd. manufactures shirts, which it sells to customers for embroidering with
various slogans and emblems. The standard cost card for the shirts is as follows. Direct materials
Direct labor
Variable overhead
Fixed overhead Standard
Price
$1.6 per yard
$12 per DLH
$4 per DLH
$6 per DLH Standard
Quantity
1.25 yards
0.25 DLH
0.25 DLH
0.25 DLH Standard
Cost
$2
3
1
1.5
$7.50 Bobby Brickley, operations manager, was reviewing the results for November when he became
upset by the unfavorable variances he was seeing. In an attempt to understand what had
happened, Bobby asked CFO Lila Davis for more information. She provided the following
overhead budgets, along with the actual results for November.
The company purchased and used 119,300 yards of fabric during the month. Fabric purchases
during the month were made at $1.45 per yard. The direct labor payroll ran $257,367, with an
actual hourly rate of $12.1 per direct labor hour. The annual budgets were based on the
production of 1,004,240 shirts, using 251,400 direct labor hours. Though the budget for November was based on 89,500 shirts, the company actually produced 85,080 shirts during
the month.
Variable Overhead Budget
Annual
Budget
Indirect material Per
Shirt November—
Actual $453,500 $0.45 $36,100 Indirect labor 300,900 0.3 34,520 Equipment repair 200,300 0.2 19,200 52,200 0.05 12,900 $1,006,900 $1.00 $102,720 Equipment
power
Total Fixed Overhead Budget
Annual
Budget
Supervisory salaries November—
Actual $262,900 $23,600 354,200 34,200 82,300 8,400 Depreciation 323,600 37,900 Utilities 212,300 24,200 Quality inspection 280,400 30,400 $1,515,700 $158,700 Insurance
Property taxes Total (a) Calculate the direct materials price and quantity variances for November. (If variance is
zero, select "Not Applicable" and enter 0 for the amounts.)
$
Direct material price variance $
Direct material quantity
variance (b) Calculate the direct labor rate and efficiency variances for November. (Round answers to
0 decimal places, e.g. 125. If variance is zero, select "Not Applicable" and enter 0
for the amounts.)
$
Direct labor rate variance Direct labor efficiency
variance $ (c) Calculate the variable overhead spending and efficiency variances for November. (Round
answers to 0 decimal places, e.g. 125. If variance is zero, select "Not Applicable"
and enter 0 for the amounts.)
$
Variable overhead spending variance $
Variable overhead efficiency
variance (d) Calculate the fixed overhead spending variance for November. (Round answer to 0
decimal places, e.g. 125. If variance is zero, select "Not Applicable" and enter 0 for
the amounts.)
$
Fixed overhead spending variance
