WEEK 6 Chapter 9 Managerial Accounting for Managers
PROBLEM 9-17 JANUS PRODUCTS, INC. PAGE 404
Janus Products, Inc. is a merchandising company that sells binders, papers and other school
supplies,
borrowed money during the 3rd quarter to support peak, sales of back –to-school materials
which occur during August. The following information are assembled to assist in preparing a
cash budget for the quarter.
a.
Budgeted monthly absorption costing income statements for July-Oct. are as follows:
July
August
September
October
Sales……………………………………………………………….……… $40,000
$70,000
$50,000
$45,000
Cost of goods sold………………………………………………….. 24,000
42,000
30,000
27,000
Gross Margin………………………………………………………….. 16,000
28,000
20,000
18,000
Selling and Administrative expenses:
Selling expense……………………………………………………. 7,200
11,700
8,500
7,300
Administrative expense*………………………………………. 5,600
7,200
6,100
5,900
Total Selling and administrative expenses……………… 12,800
18,900
14,600
13,200
Net operating Income…………………………………………….$ 3,200
$ 9,100
$ 5,400
$ 4,800
Includes $2,000 Depreciation each month
b. Sales are 20% for cash and 80% for credit.
c. Credit sales are collected over a three month period with 10% collected in the month of
sale,
70% in the month following sale, and 20% in the second month following sales. May
sales
Totaled $30,000, and June sales totaled $36,000.
d. Inventory purchases are paid for within 15 days. Therefore, 50%of a month’s inventory
purchases are for in the month of purchase. The remaining 50% is paid in the following
month. Accounts payable for inventory purchases at June 30 total $11,700.
e. The company maintains its ending inventory levels at 75% of the cost of the
merchandise to be sold in the following month. The merchandise inventory at June 30 is
$18,000.
f. Land costing $4,500 will be purchased in July.
g. Dividends of $1,000 will be declared and paid in September.
h. The cash balance on June30 is $8,000; the company must maintain a cash balance of at
least this amount at the end of each month.
i. The company has an agreement with a local bank that allows it to borrow in increments
of $1,000 at the beginning of each month, up total loan balance of $40,000. The interest
of rate on these loans is 1% per month, and for simplicity, we will assume that interest
is not compounded. The company would, as for as it is able, repay the loan plus
accumulated interest at the end of the quarter.
REQUIRED:
1. Prepare a schedule of expected cash collection for July, August, and September and for
the quarter in total.
2. Prepare the following for merchandise inventory:
a. A merchandise purchases budget for July, August and September.
b. A schedule of expected cash disbursements for merchandise purchases for July,
August and September and for the quarter in total.
3, Prepare a cash budget for July, August, and September and for the quarter in total.
PROBLEM 9-19 Cyrdon, Inc. Integration of Sales, Production, and Direct
Materials Budgets (LO 9-2, LO 9-3, LO 9-4).
Cyrdon, Inc. manufacturers an advanced swim fin for scuba divers. Management is now
preparing detailed budgets for the third quarter, July through September, and has assembled
the following information to assist in preparing the budget:
a. The Marketing Department has estimated sales as follows for the remainder of the year
(in pairs of swim fins):
The selling price of swim fins is $50 per pair.
July………………………. 6,000
August…………………. 7,000
September………….. 8,000
October……………………..4,000
November………………….3,000
December………………….3,000
b. All sales are on account. Based on past experience, sales are expected to be collected
in the following pattern:
40% in the month of sale
50% in the month following sale
10% uncollectible
The beginning accounts receivable balance (excluding uncollectible amounts) on July 1
will be $130,000.
c. The company maintains finished goods inventories equal to 10% of the following
month’s sales. The inventory of finished goods on July 1 will be 600 pairs.
d. Each pair of swim fins requires 2 pounds of geico compound. To prevent shortages, the
company would like the inventory of geico compound on hand at the end of each month
to be equal to 20% of the following month’s production needs. The inventory of geico
compound on hand on July 1 will be 2,440 pounds.
e. Geico compound cost $2.50 per pound. Crydon pays for 60% of its purchases in the
month of purchase; the remainder is paid for in the following month. The accounts
payable balance for geico compound purchases will $11, 400 on July 1.
f.
REQUIRED:
1. Prepare a sales budget, by month and in total, for the third quarter. (Show your
budget in both pairs of swim fins and dollars). Also prepare a schedule of
expected cash collections, by month and in tool, for the third quarter.
2. Prepare a production budget for each of the months July through October.
3. Prepare a direct materials budget for geico compound by month and in total, for
the third quarter. Also, prepare a schedule of expected cash disbursements for
geico compound, by month and in total, for the third quarter.
PROBLEM 9-26 COMPLETING a MASTER BUDGET (LO 9-2, LO 9-4, LO 9-7, LO 9-8, LO 99, LO 9-10)
PICANUY CORPORATION
The following data relate to the operation of Picanuy Corporation, a wholesale distributor of
consumer goods.
Current assets as of December 31:
Cash…………………………………………
$ 6,000
Accounts Receivable……………….
$ 36,000
Inventory…………………………………
$ 9,800
Buildings and equipment, net ………………. $110,885
Accounts payable…………………………………… $ 32,550
Capital Stock…………………………………………… $100,000
Required earnings………………………………….. $ 30,135
a. The gross margin is 30% of sales. (In other words, cost of goods sold is 70% of sales.)
b. Actual and budgeted sales data are as follows:
December (actual) …………………………………. $ 60, 000
January ………………………………………………….. $ 70, 000
February ……………………………………………….. $ 80, 000
March …………………………………………………… $ 85, 000
April ………………………………………………………. $ 55, 000
c. Sales are 40% for cash and 60% on credit. Credit sales are collected in the month
following sale. The accounts receivable at December 31 are the result of December
credit sales.
d. Each month’s ending inventory should equal 20% of the following month’s budgeted cost
of goods sold.
e. One-quarter of a month ‘s inventory purchases is paid for in the month of purchase is
paid for in
Month of purchase, the other three-quarters is paid for in the following month. The
accounts payable at December 31 are the result of December purchases of the
inventory.
f.
Monthly expenses are as follows: commissions, $12,000; rent. $1,800; other expenses
(excluding depreciation), 8% of sales. Assume that these expenses are paid monthly.
Depreciation is $2,400 for the quarter and includes depreciation on new assets acquired
during the quarter.
g. Equipment will be acquired for cash: $3,000 in January and $8,000 in February.
h. Management would like to maintain a minimum cash balance of $5,000 at the end of
each month. The company has an agreement with a local bank that allows the company
to borrow in increments of $1,000 at the beginning of each month, up to a total loan
balance of $50,000.
The interest rate on these loans is 1% per month and for simplicity, we will assume that
interest is not compounded. The company would, as far as it is able repay the loan plus
accumulated interest at the end of the quarter.
REQUIRED:
Using the data above:
1. Complete the following schedule:
Schedule of Expected Cash
Collections
January
February
March Quarter
Cash sales……………………………………….. $28,000
Credit Sales……………………………………. 36,000
_______
_________
Total collections……..………………………..$64,000
_______
_________
_______
_______
2. Complete the following:
Merchandise Purchase Budget
January
February
Quarter
Budgeted cost of goods sold……………. $49,000*
Add desired ending inventory…………. 11,000+
_______
Total needs……………………………………… 60,000
Less beginning inventory…………………. 9,800
________
March
Required purchases…………………………$50,400
_________
__________
*$70,000 sales X70% = $49,000
+$80,000 X 70% X 20% = $11,200
__________
Scheduled of Expected cash Disbursement – Merchandise Purchases
January
February
Quarter
March
December purchases……………………………………..$ 32,550*
$ 32,550
January purchases………………………………………….. 12,600
$ 37,800
50,400
February purchases……………………………………..….
March purchases……………………………………………. ______
_______
_________
Total disbursements……………………………………….$ 45,150
______
_______
_________
Beginning Balance of the accounts payable
______
______
3. Complete the following schedule:
Schedule of Expected Cash Disbursement – Selling and Administrative Expenses
January
February
March
Quarter
Commissions……………………………………… $ 12,000
Rent ……………………….…………………………
1,800
Other expenses…………………………………
5,600
__________
Total disbursement…………………………… $ 19, 400
______
4. Complete the following cash budget:
Cash Budget
January
February
Cash balance beginning …………………… S 6,000
Add cash collections………………………… 64,000
_____________
Total cash available …………………………. 70,000
March
_______
Quarter
______
Less cash disbursement
For inventory…………………………… 45,150
For operating expenses…………… 19,400
For equipment…………………………. 3,000
_____________
Total cash disbursement…………………… 67,550
Excess (deficiency) of cash………………… 2,450
Financing
Etc.
_______
_______
5. Prepare an Absorption costing income statement, similar to the one shown in Schedule 9
in the
Chapter, for the quarter ended March 31.
6. Prepare a balance sheet as of March 31.
PROBLEM 10 – 20
SECURIDOOR CORP.
Activity and spending variances (LO 10-1, LO 10-2, LO 10-3)
You have been hired by SecuriDoor Corporation, the manufacturer of a revolutionary new
garage door opening device. The President has asked that you review the company’s costing
system and “do” what you can to help us get better control of our manufacturing overhead costs.
“You find that the company has never used a flexible budget, and you suggest that preparing
such a budget would be an excellent first step in overhead planning and control.
After much effort and analysis, you determined the following cost formulas and gathered the
following actual cost data for April.
Cost
Actual Cost
Formula
April
Utilities………………………………… $ 16,500 plus $0.15 per machine-hour
$ 21,300
Maintenance………………………. $ 38,600 plus $1.80 per machine-hour
$ 68, 400
in
Supplies……………………………….. $ 0.50 per machine-hour
Indirect labor……………………….. $ 94,300 plus $1.20 per machine-hour
Depreciation……………………….. .$ 68, 000
$ 9, 800
$119,200
$ 69,700
During April, the company worked 18,000 machine-hours and produced 12,000 units. The
company had originally planned to work 20, 000 machine-hours during April.
REQUIRED:
1. Prepare a report showing the activity variances for April. Explain, what these variances
mean,
2. Prepare a report showing the spending variances for April. Explain what these variances
mean.
PROBLEM 10-21 VERONA PIZZA – More than One Cost Driver (LO 10-4, LO 10-5)
Verona Pizza is a small neighborhood pizzeria that has small area for in-store dining as well
offering takeout and free home delivery services. The pizzeria’s owner has determined that the
shop has two major cost driver. – the number of pizza sold and the Data concerning the
pizzeria’s cost appear below:
Fixed
Per month
Cost per
Pizza
Pizza Ingredients……………………………….
Kitchen staff……………………………………… $ 5, 870
Utilities……………………………………………… $ 590
Delivery person…………………………………
Delivery vehicle………………………………..
$ 610
Equipment Depreciation…………………..
$ 384
Rent…………………………………………………. $ 1, 790
Miscellaneous………………………………….
$ 710
Cost per
Delivery
$4.20
$0.10
$2.90
$1.30
$0.05
In October, pizzeria budgeted for 1,500 pizzas at an average selling price of $13.00 per pizza
and for 200 deliveries.
Data concerning the pizzeria’s operations in October appear below:
Actual Results
Pizzas……………………………………………………………………………………….
1, 600
Deliveries………………………………………………………………………………..
180
Revenue…………………………………………………………………………………. $ 21,340
Pizza ingredients…………………………………………………………………….. $ 6,850
Kitchen staff……………………………………………………………………………. $ 5,810
Utilities……………………………………………………………………………………. $
875
Delivery person………………………………………………………………………. $
522
Delivery vehicle………………………………………………………………………. $
982
Equipment Depreciation…………………………………………………………. $
384
Rent…………………………………………………………………………………………. $ 1,790
Miscellaneous………………………………………………………………………….. $
778
REQUIRED:
1. Prepare a flexible budget performance report that shows both activity variances and
revenue and spending variances for the pizzeria for October.
2. Explain the activity variances.
PROBLEM 10 -22 KGV Blood Bank – Performance Report for a Nonprofit Organization
(LO 10-1, LO 10-4, LO 10-6)
The KGV Blood Bank, a private charity partly supported by government grants, is located on the
Caribbean Island of St. Lucia. The blood bank has just finished its operations for September,
which was particularly busy month due to a powerful hurricane that hit neighboring islands
causing many injuries. The hurricane largely bypassed St. Lucia, but residents of St. Lucia
willingly donated their blood to help people on other islands. As a consequence, the blood bank
collected and processed over 20% more blood than have been originally planned for the month.
A report prepared by a government official comparing actual cost to budgeted costs for the
blood bank appears on the following page. (the company on St. Lucia is the east Caribbean
dollar.)
Continued report from the government depends on the blood bank’s ability to demonstrate
control over its costs.
KGV Blood Bank
Cost Control Report
For the Month Ended in September 30
Planning
Actual
Budget
Results
Variances
Liters of blood collected…………………………………………….
600
780
Medical supplies……………………………………………………….. $ 7, 110
$ 9, 252
$ 2, 142 U
Lab tests……………………………………………………………………. 8, 610
10, 782
2, 172 U
Equipment depreciation…………………………………………… 1, 900
2,100
200 U
Rent………………………………………………………………………….. 1, 500
1, 500
0
Utilities………………………………………………………………………
300
324
24 U
Administration………………………………………………………….. 14,310
14, 375
265 U
Total Expense…………………………………………………………….$33,730
$ 36,533
$ 4,803 U
The managing director of the blood bank was very unhappy with this report, claiming that his
costs were higher than expected due to the emergency on the neighboring islands. He also
pointed out that the additional costs had been fully covered by payments from grateful recipients
on the other islands. The government official who prepared the report countered that all of the
figures had been submitted by the blood bank to the government; he was just pointing out the
actual costs were a lot higher than promised in the budget.
The following cost formulas were used to construct the planning budget:
Medical supplies …………………………………….. $ 11.85q
Lab tests………………………………………………….. $ 14.35Q
Equipment depreciation…………………………. $ 1,900
Rent………………………………………………………… $ 1,500
Utilities……………………………………………………. $
300
Administration………………………………………… $13,200 + $1.85q
REQUIRED:
1. Prepare a new performance report for September using the flexible budget approach.
2. Do you think any of the variances in the report you prepared should be investigated?
Why?
