Question

1.Lakeside Components wishes to purchase parts in one month for sale in the next. On May 31, the company has 13,000 parts in stock, although sales for the next month (June) are estimated to total 11,400 parts. Total sales of parts are expected to be 11,900 in July and 11,200 in August.

Parts are purchased at a wholesale price of $25. The supplier has a financing arrangement by which Lakeside Components pays 70 percent of the purchase price in the month when the parts are delivered and 30 percent in the following month. Lakeside purchased 16,000 parts in May.
Required:

a. Estimate purchases (in units) for June and July.

2.Information on Bowgie Chemicals direct materials costs follows:

Actual quantities of direct materials used		31,300
Actual costs of direct materials used	$	141,800
Standard price per unit of direct materials	$	4.33
Flexible budget for direct materials	$	122,300

Bowgie Chemicals has no materials inventories.

Required:

a. Prepare a short report for management showing Bowgie Chemicals’s direct materials price and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

b. Estimate the cash required to make purchases in June and July.

3.Information on Grand Corporation’s direct materials costs follows:

Quantities of chemical Y purchased and used		19,800	gallons
Actual cost of chemical Y used	$	428,000
Standard price per gallon of chemical Y	$	23.10
Standard quantity of chemical Y allowed		18,200	gallons

Grand Corporation has no materials inventories.

Required:

a. What were Grand Corporation’s direct materials price and efficiency variances? (Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Answer 1

(1)

	June	July
Estimated sales Add: desired ending inventory	11400 11900	11900 11200
Total requirements less: beginning inventory	23300 (13000)	23100 (11900)
Inventory to be purchased	10300	11200

cash required to make purchases in June:

for May purchases = 16000 x $25 x 30% = $120000

for June purchases = 10300 x $25 x 70% = $180250

total = $300250

cash required to make purchases in July:

for June purchases =  10300 x $25 x 30% = $77250

for July purchases = 11200 x $25 x 70% = $196000

total = $273250

(2)

(a)

Material price variance = actual quantity purchased x (standard price - actual price)

= 31300 x ($4.33 - $4.53)

= $6260 Unfavorable

Where,

Actual price = material cost paid/units of material purchased

= $141800/31300 = $4.53

(b)

Material efficiency variance = standard price x (standard quantity - actual quantity used)

= $4.33 x (28245 - 31300)

= $13228.15 Unfavorable

Where,

Standard quantity = $122300/$4.33 = 28245