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Question 3 A- ABC company has two divisions--Women and Men. The divisions have the following revenues...

Question 3

A- ABC company has two divisions--Women and Men. The divisions have the following revenues and expenses:

Women

Men

Sales

$

500,000

$

550,000

Variable costs

200,000

275,000

Traceable fixed costs

150,000

180,000

Allocated common corporate costs

135,000

170,000

Net income (loss)

$

15,000

$

(75,000)

The management of ABC is considering the elimination of the Men Division. If the Men Division were eliminated, its traceable fixed costs could be avoided. Total common corporate costs would be unaffected by this decision.

Required:

Should the Company drop Men division? Explain. Support you answer with the necessary calculations.                                                                                                                  (7.5 marks)

B- XYZ Company manufactures and sell wooden product. It wants to prepare cash budget for the second quarter of the year. The company’s sales budget for the second quarter given below:

April

May

June

Total

Budgeted Credit Sales

$470,000

$670,000

$230,000

$1,370,000

  - Credit sales are collected as follows:

25% in the same month of sale, 65% in the month following sale, and 10% in the second month following sale

- February sales totaled $400,000, and March sales totaled $430,000.

Required:

1. Prepare the cash collection schedule for the second quarter.

2. What is the accounts receivable balance on June 30th?                                               (7.5 marks)

C- ABC Corporation has estimated the following information for first quarter of 2020 for one of its products:

January

February

March

Units to be produced

128,000

140,000

152,000

Desired ending inventory of finished goods

30,000

36,000

38,000

The ending inventory at December 2019 was 28,000 units.

Required:

Prepare the Production Budget and the Sales Budget for the first quarter of 2020, assuming selling price per unit is $20.                                                                                                                              

D- The following information has been take from a manufacturing company for the year 2019:

Sales revenues 36,000 – opening inventory of materials 10,000 – closing inventory of materials 8,000 – opening inventory of finished goods 6,000 – closing inventory of finished goods 4,000 – cost of goods produced 26,000

Required: Calculate cost of goods sold and gross profit for the year ended December 31, 2019.                               

                                                                                                                                             

Solutions

Expert Solution

A.

Loss of Contribution Margin $      (275,000)
Saving of Fixed Costs $        180,000
Financial Advantage (Disadvantage) $        (95,000)

Mens line should not be eliminated since contribution lost is higher than fixed costs avoided.

B.
1.

Cash collections schedule
April May June Quarter
Feb Sales $         40,000 $         40,000
Mar Sales $       279,500 $            43,000 $       322,500
April Sales $       117,500 $          305,500 $          47,000 $       470,000
May Sales $          167,500 $        435,500 $       603,000
June Sales $          57,500 $         57,500
Total Cash Collections $      437,000 $          516,000 $        540,000 $   1,493,000

2.
Accounts Receivable Balance = $670000 x 10% + 230000 x 75% = $239500

C.

Production Budget
July August September Quarter
Sales units 126000 134000 150000 410000
Add : Desired Ending Inventory 30000 36000 38000 38000
Total Goods Required 156000 170000 188000 448000
Less : Beginning Inventory 28000 30000 36000 28000
Production Required 128000 140000 152000 420000
Sales Budget
July August September Quarter
Sales units 126000 134000 150000 410000
Selling Price per unit $                 20 $                    20 $                  20
Sales Revenue $   2,520,000 $      2,680,000 $    3,000,000 $   8,200,000

D.
Cost of Goods Sold = Cost of goods produced + Opening inventory of finished goods - ending inventory of finished goods
= 26000 + 6000 - 4000 = 28000 units

Gross Profit = Sales Revenue - Cost of Goods sold
= 36000 - 28000 = 8000


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