Question

In: Accounting

Peninsula Tour Company is located in a tourist town on Georgian Bay. The small town is...

Peninsula Tour Company is located in a tourist town on Georgian Bay. The small town is quiet during the winter months but comes alive with tourists from May to October. The company is planning for another season of tours to Flowerpot Island, an attractive island because of rock formations on its shoreline that resemble flowerpots. Customers pay for a tour to the island where they are left to hike, and as part of the ticket price they are provided with a return ride later in the day. The tickets are purchased from the boat operator as they board each boat, which can take a maximum of 12 passengers.

For the coming 2019 season, management is considering selling souvenirs. When returning from the island and leaving the boat, passengers must walk along the dock and exit at a common spot. The plan for the new season is to place a booth selling souvenirs of the island (i.e., a paperweight in the shape of a natural flowerpot) at the end of the dock. Based on a one-month trial run of a similar idea last year, management estimates 75% of passengers will purchase a souvenir.

Predicted 2019 monthly tour demand (number of passengers) based on prior year experience follows:

May

June

July

August

September

October

   450

   1,250

   5,500

5,000

2,200

   400

  

Note: Sales activity occurs evenly throughout each month – assume 30 day months.

The company will run advertisements in a local newspaper at a cost of $180 per month (payable monthly in advance). The company estimates that these ads would increase demand by about 10%.

Additional financial data for summer 2019 follows:

Tickets for boat tours sell for $25 each. All sales will be in cash.

Sales price for souvenirs will be $1.75 each. All sales will be in cash.

Cost of goods sold will be $0.70 per souvenir, payable on account one month after delivery. The supplier requires an advance seasonal estimate, but actual orders can be placed at the beginning of each month for guaranteed same-day delivery; souvenirs are purchased in boxes of 144 units per box.

Docking fees (for ticket sales and boat docking space) are $1,600 per month on a minimum six-month contract, payable monthly in advance (only one docking space is required).

Boat rental is $2,550/boat per month, paid one month in advance. Boats are rented as needed on one-month contracts, one boat is required for every 12 customers expected each day (assuming 30 day months). Gasoline is purchased and paid each morning; the total used is $850 per boat each month.

Wages are $2,000 per month for boat operators and $1,100 per month for souvenir sales employees, paid during the first week of the month following the month worked. One person is required to staff a single souvenir booth, and one operator is required for each boat. (Note: to avoid requiring on person to work every day, two employees will be hired for each position and they will work alternate days to earn half the monthly rate.)

There are no capital expenditures planned for 2019.

Money can only be borrowed or repaid in multiples of $1,000 at the beginning of the month, at a cost of 1% interest per month. Interest is paid on the first day of the month following the month borrowed.

The company will end the year with no inventory (units remaining will be donated to a local school) given they have the current year (2018) printed on them and will be of no use the following year (there is no beginning inventory).

Income taxes and other incidental charges are to be ignored.

Required:

a. Prepare a monthly budgeted income statement for the six month period ending October 31, 2019.

b. Prepare a materials purchases budget for souvenirs.

c. Prepare a monthly cash budget for the eight-month period beginning in April through to November (note: the ending monthly cash balance cannot drop below zero resulting in a periodic need for borrowing). Hint, borrow $7,000 in April to start the month with a $7,000 cash balance.

d. Prepare monthly budgeted balance sheets for April 30, 2019, through October 31, 2019.

e. Budgeting can be used for planning as well as control. In terms of planning, would you advise management to start selling souvenirs in May? Hint: break-even analysis will assist in answering this question.

Solutions

Expert Solution

Answer:-

(A). Preparation of Monthly Budgeted Income Statement for the Six Month period ending October 31, 2019:-

Particulars May June July August September October
Sale 12,038 33,438 1,47,125 1,33,750 58,850 10,700

Less:veriable cost

(315) (875) (3850) (3500) (1540) (280)
Contribution 11,723 32,563 1,43,275 1,30,250 57,310

10,420

Less:Fixed Cost (8,170) (8,170) (8,170) (8,170) (8,170) (8,170)
Profit/Loss 3,553 24,393 1,35,105 1,22,080 49,140 2,250

(B). Preparation of Monthly Purcahse Budget for Souvenirs:-

Opening Stock of Souvenirs = 0

Add: Purchase during the period   = 86*144 =   12,384

Less: Closing Stock = (283)

Sold during the period = 12,101

(C). Preparation of Cash Budget for Eight months period begining from April to November, 2019:-

Particulars April May June July August September October November
Opening Cash 7,000 10,391 13,571 37,407 1,70,853 1,59,882 2,08,255 2,10,228
Receipt:-

Sales

11,842 11,842 32,892 1,44,719 1,70,853 58,638 10,525 10,525
Other Receipts 0 0 0 0 0 0 0 0
Total Receipts(A) 18,842 22,233 46,463 1,82,126 1,31,563 2,18,520 2,18,780 2,20,480
Payments:-
Purchase 101 302 706 2,923 2,621 1,915 202 101
Boat Rent 2,550 2,550 2,550 2,550 2,550 2,550 2,550 2,550
Wages 3,100 3,100 3,100 3,100 3,100 3,100 3,100 3,100
Interest 70 70 70 70 70 70 70 70
Gasoline 850 850 850 850 850 850 850 850

Dock Fees

1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600
Advertisement 180 180 180 180 180 180 180

180

Total (B) 8,451 8,662 9,056 11,273 10,971 10,265 8,552 8,451
Closing Cash Balance(A-B) 10,391 13,571 37,407 1,70,853 1,59,882 2,08,255 2,10,228 2,12,029

Related Solutions

A Bacon Factory is located in a small town. Also in the town is a Water...
A Bacon Factory is located in a small town. Also in the town is a Water Park. The smell of the Bacon factory has adversely affected the Water Park such that it has put in air cleaning equipment to eradicate the odor created by the factory. The cost function of the Bacon Factory is: CBF= B2 + 4B1/2 + (1 − x)2 where B denotes the quantity of bacon produced annually and x denotes the quantity of pollutants that A...
A Bacon Factory is located in a small town. Also in the town is a Water...
A Bacon Factory is located in a small town. Also in the town is a Water Park. The smell of the Bacon factory has adversely affected the Water Park such that it has put in air cleaning equipment to eradicate the odor created by the factory. Please show your work.. The cost function of the Bacon Factory is:       CBF= B2 + 4B1/2 + (1 − x)2 where B denotes the quantity of bacon produced annually and x denotes the...
Packer Fan Tours is the official tour company for the Green Bay Packers of the NFL....
Packer Fan Tours is the official tour company for the Green Bay Packers of the NFL. One of the events in the package is to sponsor a reception the night before a game for fans that is attended by 5 of the players from the team. There are 53 players on the Green Bay Packers' roster of which 22 are starters. Assume that the 6 players attending the reception this week are chosen randomly. Determine the probability of the following...
2. Tiare’s city tour company is situated in the highly seasonal town of Moorea where the...
2. Tiare’s city tour company is situated in the highly seasonal town of Moorea where the number of visitors fluctuates greatly from month to month. City tours are very competitive in this town and Tiare is a price-taker. Her monthly fixed cost is $2,000. Her variable costs are: Quantity of tours per month               Variable cost 100                                                      $700 200                                                      $1500 300                                                      $2400 400                                                      $4000 500                                                      $5800 600                                                      $7800 Since Tiare is a price-taker,...
Dilly Farm Supply is located in a small town in the rural west. Data regarding the...
Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow: Image.png Sales are budgeted at $290,000 for November, $310,000 for December, and $210,000 for January. Collections are expected to be 65% in the month of sale and 35% in the month following the sale. The cost of goods sold is 80% of sales. The company desires to have an ending merchandise inventory at the end of each month equal to 70%...
1. Dilly Farm Supply is located in a small town in the rural west. Data regarding...
1. Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow: Sales are budgeted at $308,000 for November, $328,000 for December, and $228,000 for January. Collections are expected to be 65% in the month of sale and 35% in the month following the sale. The cost of goods sold is 80% of sales. The company desires to have an ending merchandise inventory at the end of each month equal to 70%...
  XSU is a state university located in the town of Xanadu.   Xanadu is located on a...
  XSU is a state university located in the town of Xanadu.   Xanadu is located on a large river with many towns within an easy 15-minute drive. Once, the neighborhoods around XSU where all single-family housing but the growth in prestige in XSU caused a large growth in student enrollment over the years, so more and more of the single-family houses were renovated into student housing.    The city did not zone those neighborhoods for exclusive single-family homes. And, the city has...
John’s company signs a contract with the city of Monrovia, a town located in the U.S.,...
John’s company signs a contract with the city of Monrovia, a town located in the U.S., to remove all of the gravel in a specific area. The city has performed their due diligence and has determined that the gravel should be removed and foresees no issues in doing so. After surveying the area himself and after accepting the contract, Hurricane Matthew comes into town and quickly leaves a large portion of the gravel underwater and removing it will cost the...
Free parking spots in a crowded tourist town are ______ goods. A. public b. club c....
Free parking spots in a crowded tourist town are ______ goods. A. public b. club c. private d. common
Flaming Foliage Sky Tours is a small sightseeing tour company in New Hampshire. The firm specializes...
Flaming Foliage Sky Tours is a small sightseeing tour company in New Hampshire. The firm specializes in aerial tours of the New England countryside during September and October, when the fall color is at its peak. Until recently, the company had not had an accounting department. Routine bookkeeping tasks, such as billing, had been handled by an individual who had little formal training in accounting. As the business began to grow, however, the owner recognized the need for more formal...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT