Question

Please use the following information for problems 6 and 7:

The ABC Company has a division that has the following income statement:

Sales                               $5,000

Variable costs                  3,000

                                        _____

Contribution Margin      2,000

Fixed Costs                      2,500

                                         _____

Operating Income           -500

What is the effect of operating this division on the operating income of the ABC Company if $800 of the fixed costs will not be avoided if the company shuts down the division? Should the ABC Company shut down the division in this case?

What is the effect of operating this division on the operating income of the ABC Company if $400 of the fixed costs will not be avoided if the company shuts down the division? Should the ABC Company shut down the division in this case?

A company expects to sell 500 tables in April, 700 in May, and 650 in June. The company sells these tables for $120 per unit. 30% of its sales are cash sales and 70% of its sales are credit sales. Please construct a sales budget for April, May, and June.

A company’s sales budget shows the following:

                                        April              May                 June

Cash Sales                     $5,000        $7,000            $8,000

Credit Sales                $20,000       $28,000          $32,000

The company had credit sales of $10,000 in February and $15,000 in March. Please prepare a schedule of cash collections for April, May, and June, assuming that 24% of credit sales are collected in the month of the sale, 34% are collected in the month after the sale, and 42% are collected 2 months after the sale.

A company expects to sell 500 tables in April, 700 in May, 650 in June, and 800 in July. The company wants its inventory of tables at the end of each month to be equal to 15% of the following month’s unit sales, and its beginning inventory for April was 75 tables. Please construct a production budget for April, May, and June.

A company expects to produce 600 tables in April, 800 in May, 750 in June, 900 in July. Each table requires 30 pounds of wood, and the wood costs $16 per pound. The company wants its inventory of wood at the end of each month to be equal to 25% of the following month’s usage of wood, and its beginning inventory for April was 4,500 pounds of wood. Please construct a direct materials budget for April, May, and June.

Answer 1

6
Operating Income of This Division	-500
Unavoidable Fixed cost if Shut down	800
Effect of other oprating income of ABC Company	-300
It's means if Shut down then additional cost of $ 300 then should Shut down
7
Operating Income of This Division	-500
Unavoidable Fixed cost if Shut down	400
Effect of other oprating income of ABC Company	100
It's means if Shut down then saving of $ 100 then should not Shut down
Sales Budget
	April	May	June
Sale no. of tables (A)	500	700	650
Sale price per table (B)	120	120	120
Total Sales Budget (C=A*B)	60,000	84,000	78,000
Cash Sales (30%*C)	18,000	25,200	23,400
Credit Sale (70%*C)	42,000	58,800	54,600
Schedule of Cash Collection
	April	May	June
Cash Sale	$5,000	$7,000	$8,000
Collection from credit sale:
From February Sale	$4,200
From March Sale	$5,100	$6,300
From April Sale	$4,800	$6,800	$8,400
From May Sale		$6,720	$9,520
From June Sale			$7,680
Cash Collection	$19,100	$26,820	$33,600
Production Budget
	April	May	June	July
Sale Units	500	700	650	800
Add: Inventory required for next Month Sale	105	98	120	-
Less: Opening Stock	75	105	98	120
Total Production required	530	693	673
Direct material Budget
	April	May	June	July
Expected Production	600	800	750	900
Pounds of Wood required for each table	30	30	30	30
Total Wood require	18000	24000	22500	27000
Add: Inventory require for next month	6000	5625	6750	0
Less: Opening Inventory	4500	6000	5625	6750
Total Wood required in pounds	19500	23625	23625
Cost per Pound	16	16	16
Total Cost of Purchase	312,000	378,000	378,000