arris Company manufactures and sells a single product. A partially completed schedule of the company’s total costs and costs per unit over the relevant range of 59,000 to 99,000 units is given below: Required: 1. Complete the above schedule of the company’s total costs and costs per unit. 2. Assume that the company produces and sells 89,000 units during the year at a selling price of $8.45 per unit. Prepare a contribution format income statement for the year.

Hall Corp. purchases a new machine on October 1, 2018. Year end is December 31.

Purchase price 100,000

Residual Value 5,000

Useful life 3 years

Estimated working hours during useful life 7,500

Machine usage in 2018 1,500

Machine usage in 2019 3,750

Machine usage in 2020 2,250

1. Calculate depreciation expense using the activity method for 2018

2. Prepare Hall Corp's journal entry to record 2018 depreciation on December 31, 2018

3. Calculate depreciation expense using the activity method for 2019

4. Prepare Hall Corp's journal entry to record 2019 depreciation on December 31, 2019

5. Calculate depreciation expense using the activity method for 2020

6. Prepare Hall's journal entry to record 2020 depreciation on December 31, 2020

A share of stock with a beta of 0.72 now sells for $47. Investors expect the stock to pay a year-end dividend of $2. The T-bill rate is 3%, and the market risk premium is 6%. If the stock is perceived to be fairly priced today, what must be investors’ expectation of the price of the stock at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Walton Corporation estimated its overhead costs would be $22,700 per month except for January when it pays the $138,000 annual insurance premium on the manufacturing facility. Accordingly, the January overhead costs were expected to be $160,700 ($138,000 + $22,700). The company expected to use 7,100 direct labor hours per month except during July, August, and September when the company expected 9,100 hours of direct labor each month to build inventories for high demand that normally occurs during the Christmas season. The company’s actual direct labor hours were the same as the estimated hours. The company made 3,550 units of product in each month except July, August, and September, in which it produced 4,550 units each month. Direct labor costs were $23.90 per unit, and direct materials costs were $10.70 per unit.

a. Calculate a predetermined overhead rate based on direct labor hours.

b.Determine the total allocated overhead cost for January, March, and August.

c.Determine the cost per unit of product for January, March, and August.

d.Determine the selling price for the product, assuming that the company desires to earn a gross margin of $21.60 per unit.

Custom Automobile Restoration Shop (CARS) is a small shop dedicated to high-quality restorations of vintage cars. Although it will restore an automobile that a customer already owns, usually the shop buys an old vehicle, restores it, and then sells it in a private party sale or at a classic-car auction. The shop has been in existence for 10 years, but for the sake of simplicity, assume it has no beginning inventories for 2017. Five automobile restoration projects were worked on during 2017. By the end of the year, four of these projects were complete and three of them had been sold.

The following selected data are from CARS' 2017 budget:

The following information relates to production events during 2017:

• Raw materials were purchased for $217,100.
• Materials used in production totaled $209,600; $15,900 of these were considered indirect materials costs. The remaining $193,700 of direct materials costs related to individual restoration jobs as follows:

  Job Number	Direct Materials Cost
  701	$	44,300
  702		36,300
  703		43,000
  704		40,600
  705		29,500

• Labor costs incurred for production totaled $184,900. The workers are highly skilled craftsmen who require little supervision. Therefore, all of these costs were considered direct labor costs and related to individual restoration jobs as follows:

  Job Number	Direct Labor Cost
  701	$	41,000
  702		43,000
  703		49,500
  704		31,000
  705		20,400

• Paid factory rent of $30,300.
• Recorded depreciation on factory equipment of $13,100.
• Made $5,800 of payments to outside vendors for maintenance of factory equipment.
• Paid factory utilities costs of $4,300.
• Applied manufacturing overhead using a predetermined rate of $18.00 per machine hour. The 3,790 machine hours that were used relate to each job as follows:

  	Machine
  Job Number	Hours Worked
  701	780
  702	850
  703	920
  704	890
  705	350

• Completed all restoration jobs except Job 705 and transferred those projects to finished goods.
• Sold three jobs for the following amounts:

  Job Number	Sales Price
  701	$	127,000
  702		119,200
  703		111,700

• Closed the Manufacturing Overhead account to transfer any overapplied or underapplied overhead to the Cost of Goods Sold account.

Required

1. Assume CARS had used direct labor hours (versus machine hours) as its cost driver. Compute its predetermined overhead rate. (Round your answer to 2 decimal places.)

2. Determine the ending balance in Raw Materials Inventory.

3. Determine the ending balance in Finished Goods Inventory.

4. Determine the ending balance in Work in Process Inventory.

5. Determine the costs of goods manufactured.

6. Determine the amount of Cost of Goods Sold.

7. Determine the amount of gross margin that was earned on Jobs 701, 702, and 703.

8. Determine the amount of overapplied or underapplied overhead that existed at the end of the year.

(For all requirements, round your intermediate calculations to 2 decimal places.)

What are assets, liabilities, and new worth/net assets and Do GAAP have a preference between cash and accrual bases of accounting? Explain.

CASE:

BIRD'S EYE VIEW LTD.

Macarthur Graham was a retired military pilot who had established Bird’sEyeViewLtd., an aerial touring company that flew over the Niagara Escarpment. Graham had just completed his ninth fiscal year of operations (ending August 31, 2012), and needed to account for all the long-lived asset transactions that had occurred during the past fiscalyear.

HOT AIR BALLOON

For the past eight years, Graham had offered tours from his hot air balloon, which he had purchased for $120,000 when he opened his business. There was now $68,344 of accumulated depreciation. The hot air balloon had an estimated useful life of 10 years and a residual value of $15,000, and it was depreciated using the declining-balance method.

Graham had enjoyed the balloon rides as part of his retirement activities, but he had also been working on obtaining a helicopter pilot’s licence. He had noticed that helicopter rides, in general, were more popular, and he thought the heated cabin in the helicopter would contribute to more stable sales year-round. For this reason, on February 2, 2012, he traded in his hot air balloon towards the purchase of a helicopter.

HELICOPTER

The cost of a used helicopter was still significantly more than that of the hot air balloon. Jeff Meyers, a retiring contract delivery provider for a mining operation, agreed to sell his helicopter to Graham for a price of $840,000 in exchange for the hot air balloon and $800,000 cash. The helicopter had 2,000 flight hours of life remaining and no residual value. Graham used the helicopter for 40 hours during the remainder of the year.

STORAGE FACILITY

On September 1, 2011, Graham negotiated to purchase the storage facility he had been renting previously for $86,000 cash. The facility would be depreciated using the straight-line method and had an expected useful life of 20 years, with an estimated residual value of $25,200. At the end of fiscal 2012, the building had an appraisal value of $78,600.

BUS

Graham had also purchased a used bus to transport people from Owen Sound to the air strip, since the Niagara Escarpment was a popular vacation spot for Owen Sound residents. The bus was purchased for $70,000 on September 1, 2008, and had an estimated residual value of $5,000 and a useful life of four years. At the beginning of the fiscal year, the bus had accumulated depreciation of $61,250. Graham used the double-diminishing-balance method to depreciate the bus.

RESEARCH AND DEVELOPMENT

In anticipation of possibly purchasing a helicopter, Graham had commissioned a family friend to design a camera that he could mount on the bottom of the chopper. Graham envisioned this camera being controllablefromatablet,whichcustomerscouldusetotakepicturesduringtheflight.Grahamcouldthen sell the pictures to the customers after the flight concluded. In addition, Graham thought he could sell the designforthecameraandproducemoreunitstoselltofellowpilotsinotherregions.

He paid the designer $500 per month to work on the project, starting January 5, 2012. On July 3, 2012, Graham received a call from the designer saying that he had solved the majority of the preliminary research problems and the two decided to start development. They determined that these costs met the criteria for development. The part-time designer estimated that development would not be completed until sometime next fiscal year.

Required:

As Macarthur Graham, working asset by asset, post all required transactions for the financial year ending August 31, 2012.

Briefly explain the difference between liquidity, solvency, and profitability analysis.

Problem 9-4A (Video)

Colter Company prepares monthly cash budgets. Relevant data from operating budgets for 2020 are as follows.

January

February

Sales$360,000$400,000

Direct materials purchases120,000125,000

Direct labor90,000100,000

Manufacturing overhead70,00075,000

Selling and administrative expenses79,00085,000

All sales are on account. Collections are expected to be 50% in the month of sale, 30% in the first month following the sale, and 20% in the second month following the sale. Sixty percent (60%) of direct materials purchases are paid in cash in the month of purchase, and the balance due is paid in the month following the purchase. All other items above are paid in the month incurred except for selling and administrative expenses that include $1,000 of depreciation per month.

Other data:

1.Credit sales: November 2019, $250,000; December 2019, $320,000.

2.Purchases of direct materials: December 2019, $100,000.

3.Other receipts: January—Collection of December 31, 2019, notes receivable $15,000;

                      February—Proceeds from sale of securities $6,000.

4.Other disbursements: February—Payment of $6,000 cash dividend.

The company’s cash balance on January 1, 2020, is expected to be $60,000. The company wants to maintain a minimum cash balance of $50,000.
Prepare schedules for (1) expected collections from customers and (2) expected payments for direct materials purchases for January and February.

Expected Collections from Customers

January

February

November

$

$

December

January

February

    Total collections$$

Expected Payments for Direct Materials

January

February

December

$

$

January

February

    Total payments$$

Prepare a cash budget for January and February in columnar form.

COLTER COMPANY
Cash Budget

For the Two Months Ending February 28, 2020February 28, 2020For the Quarter Ending February 28, 2020

January

February

Ending Cash BalanceManufacturing OverheadNotes ReceivableExcess (Deficiency) of Available Cash Over Cash DisbursementsTotal DisbursementsReceiptsRepaymentsTotal ReceiptsDirect MaterialsSale of SecuritiesBorrowingsDisbursementsFinancingCollections from CustomersDirect LaborSelling and Administrative ExpensesTotal Available CashCash DividendBeginning Cash Balance

$$

AddLess

:

BorrowingsExcess (Deficiency) of Available Cash Over Cash DisbursementsCollections from CustomersTotal DisbursementsTotal Available CashManufacturing OverheadTotal ReceiptsDirect LaborDirect MaterialsRepaymentsFinancingDisbursementsEnding Cash BalanceNotes ReceivableReceiptsSale of SecuritiesSelling and Administrative ExpensesCash DividendBeginning Cash Balance

    Repayments    Receipts    Cash Dividend    Excess (Deficiency) of Available Cash Over Cash Disbursements    Sale of Securities    Selling and Administrative Expenses    Total Available Cash    Notes Receivable    Total Disbursements    Total Receipts    Beginning Cash Balance    Collections from Customers    Borrowings    Disbursements    Direct Labor    Direct Materials    Ending Cash Balance    Financing    Manufacturing Overhead    

    Manufacturing Overhead    Notes Receivable    Sale of Securities    Beginning Cash Balance    Total Disbursements    Excess (Deficiency) of Available Cash Over Cash Disbursements    Total Receipts    Repayments    Direct Materials    Receipts    Collections from Customers    Selling and Administrative Expenses    Total Available Cash    Cash Dividend    Borrowings    Direct Labor    Disbursements    Financing    Ending Cash Balance    

    Cash Dividend    Beginning Cash Balance    Total Receipts    Disbursements    Direct Labor    Borrowings    Notes Receivable    Total Disbursements    Financing    Total Available Cash    Collections from Customers    Direct Materials    Manufacturing Overhead    Receipts    Sale of Securities    Ending Cash Balance    Repayments    Selling and Administrative Expenses    Excess (Deficiency) of Available Cash Over Cash Disbursements    

    Disbursements    Total Receipts    Sale of Securities    Total Disbursements    Cash Dividend    Total Available Cash    Ending Cash Balance    Manufacturing Overhead    Receipts    Beginning Cash Balance    Notes Receivable    Borrowings    Excess (Deficiency) of Available Cash Over Cash Disbursements    Repayments    Selling and Administrative Expenses    Collections from Customers    Direct Labor    Direct Materials    Financing    

BorrowingsFinancingReceiptsDirect MaterialsCollections from CustomersTotal ReceiptsBeginning Cash BalanceRepaymentsTotal Available CashCash DividendTotal DisbursementsEnding Cash BalanceDisbursementsManufacturing OverheadDirect LaborExcess (Deficiency) of Available Cash Over Cash DisbursementsNotes ReceivableSelling and Administrative ExpensesSale of Securities

AddLess

:

Manufacturing OverheadFinancingExcess (Deficiency) of Available Cash Over Cash DisbursementsRepaymentsCash DividendDirect LaborTotal Available CashBorrowingsBeginning Cash BalanceSelling and Administrative ExpensesEnding Cash BalanceTotal DisbursementsSale of SecuritiesNotes ReceivableReceiptsTotal ReceiptsDirect MaterialsCollections from CustomersDisbursements

    Ending Cash Balance    Cash Dividend    Excess (Deficiency) of Available Cash Over Cash Disbursements    Beginning Cash Balance    Manufacturing Overhead    Selling and Administrative Expenses    Direct Labor    Collections from Customers    Direct Materials    Total Disbursements    Total Available Cash    Financing    Disbursements    Notes Receivable    Borrowings    Total Receipts    Receipts    Repayments    Sale of Securities    

    Total Available Cash    Cash Dividend    Selling and Administrative Expenses    Total Disbursements    Total Receipts    Borrowings    Direct Materials    Beginning Cash Balance    Excess (Deficiency) of Available Cash Over Cash Disbursements    Financing    Collections from Customers    Repayments    Manufacturing Overhead    Notes Receivable    Receipts    Direct Labor    Disbursements    Ending Cash Balance    Sale of Securities    

    Excess (Deficiency) of Available Cash Over Cash Disbursements    Disbursements    Notes Receivable    Financing    Receipts    Collections from Customers    Sale of Securities    Manufacturing Overhead    Ending Cash Balance    Direct Materials    Total Disbursements    Repayments    Selling and Administrative Expenses    Borrowings    Direct Labor    Beginning Cash Balance    Total Available Cash    Total Receipts    Cash Dividend    

    Total Available Cash    Borrowings    Direct Labor    Manufacturing Overhead    Disbursements    Repayments    Total Receipts    Cash Dividend    Direct Materials    Ending Cash Balance    Receipts    Beginning Cash Balance    Financing    Selling and Administrative Expenses    Total Disbursements    Excess (Deficiency) of Available Cash Over Cash Disbursements    Notes Receivable    Collections from Customers    Sale of Securities    

    Total Disbursements    Disbursements    Direct Materials    Direct Labor    Ending Cash Balance    Borrowings    Excess (Deficiency) of Available Cash Over Cash Disbursements    Financing    Manufacturing Overhead    Notes Receivable    Selling and Administrative Expenses    Receipts    Repayments    Total Receipts    Cash Dividend    Sale of Securities    Total Available Cash    Collections from Customers    Beginning Cash Balance    

    Total Available Cash    Beginning Cash Balance    Direct Labor    Cash Dividend    Sale of Securities    Total Disbursements    Total Receipts    Borrowings    Financing    Collections from Customers    Excess (Deficiency) of Available Cash Over Cash Disbursements    Direct Materials    Disbursements    Selling and Administrative Expenses    Ending Cash Balance    Manufacturing Overhead    Notes Receivable    Receipts    Repayments    

Total DisbursementsTotal ReceiptsManufacturing OverheadCollections from CustomersCash DividendBeginning Cash BalanceNotes ReceivableFinancingDirect LaborBorrowingsRepaymentsDirect MaterialsDisbursementsExcess (Deficiency) of Available Cash Over Cash DisbursementsEnding Cash BalanceReceiptsSale of SecuritiesSelling and Administrative ExpensesTotal Available Cash

Notes ReceivableCollections from CustomersSale of SecuritiesDirect MaterialsCash DividendTotal DisbursementsDisbursementsBeginning Cash BalanceManufacturing OverheadExcess (Deficiency) of Available Cash Over Cash DisbursementsFinancingDirect LaborReceiptsRepaymentsEnding Cash BalanceSelling and Administrative ExpensesTotal Available CashTotal ReceiptsBorrowings

AddLess

:

RepaymentsDirect MaterialsCash DividendManufacturing OverheadSale of SecuritiesSelling and Administrative ExpensesBeginning Cash BalanceFinancingBorrowingsTotal ReceiptsCollections from CustomersNotes ReceivableReceiptsDisbursementsTotal Available CashTotal DisbursementsDirect LaborEnding Cash BalanceExcess (Deficiency) of Available Cash Over Cash Disbursements

AddLess

:

Excess (Deficiency) of Available Cash Over Cash DisbursementsFinancingManufacturing OverheadTotal Available CashBeginning Cash BalanceCollections from CustomersCash DividendTotal ReceiptsRepaymentsReceiptsDirect LaborNotes ReceivableBorrowingsDirect MaterialsDisbursementsEnding Cash BalanceSale of SecuritiesSelling and Administrative ExpensesTotal Disbursements

Notes ReceivableCash DividendEnding Cash BalanceFinancingManufacturing OverheadReceiptsRepaymentsExcess (Deficiency) of Available Cash Over Cash DisbursementsSale of SecuritiesDirect LaborCollections from CustomersSelling and Administrative ExpensesTotal DisbursementsTotal Available CashBeginning Cash BalanceTotal ReceiptsBorrowingsDirect MaterialsDisbursements

$$

As the new accountant for Cohen & Co., you have been asked to provide a succinct analysis of financial performance for the year just ended. You obtain the following information that pertains to the company’s sole product: Actual Master (Static) Budget Units sold 25,000 30,000 Sales $ 402,000 $ 456,000 Variable costs 232,000 276,000 Fixed costs 161,000 141,000 Required: 1. What was the actual operating income for the period? 2. What was the company’s master (static) budget operating income for the period? 3. (a) What was the total master (static) budget variance, in terms of operating income, for the period? (b) Is this variance favorable (F) or unfavorable (U)? (Note: The total master (static) budget variance is also referred to as the total operating income variance for the period.) (If a variance has no amount, select "None" in the corresponding dropdown cell.) 4. The total master (static) budget variance for a period can be decomposed into a total flexible-budget variance and a sales volume variance. (a) What was the total flexible-budget variance for the period? (b) Was this variance favorable (F) or unfavorable (U)? (c) What was the sales volume variance for the period? (d) Was this variance favorable (F) or unfavorable (U)? (Do not round your intermediate calculations. If a variance has no amount, select "None" in the corresponding dropdown cell.)

NOPAT is
a. net income with costs removed that managers at the divisional level are unable to control.
b. net income plus noncash flow amounts.
c. net income less the cost of financing.
d. net income minus noninterest-bearing current liabilities.

Exercise 9-14 (Video)

Danner Company expects to have a cash balance of $45,000 on January 1, 2020. Relevant monthly budget data for the first 2 months of 2020 are as follows.

Collections from customers: January $85,000, February $150,000.

Payments for direct materials: January $50,000, February $75,000.

Direct labor: January $30,000, February $45,000. Wages are paid in the month they are incurred.

Manufacturing overhead: January $21,000, February $25,000. These costs include depreciation of $1,500 per month. All other overhead costs are paid as incurred.

Selling and administrative expenses: January $15,000, February $20,000. These costs are exclusive of depreciation. They are paid as incurred.

Sales of marketable securities in January are expected to realize $12,000 in cash. Danner Company has a line of credit at a local bank that enables it to borrow up to $25,000. The company wants to maintain a minimum monthly cash balance of $20,000.

Prepare a cash budget for January and February.

DANNER COMPANY
Cash Budget

For the Quarter Ending February 28, 2020For the Two Months Ending February 28, 2020February 28, 2020

January

February

Direct MaterialsCollections from CustomersBeginning Cash BalanceFinancingRepaymentsDirect LaborManufacturing OverheadDisbursementsBorrowingsEnding Cash BalanceExcess (Deficiency) of Available Cash Over Cash DisbursementsReceiptsSale of Marketable SecuritiesSelling and Administrative ExpensesTotal Available CashTotal DisbursementsTotal Receipts

$

$

AddLess

:

Collections from CustomersDirect LaborTotal DisbursementsDirect MaterialsTotal Available CashSale of Marketable SecuritiesSelling and Administrative ExpensesDisbursementsTotal ReceiptsBorrowingsRepaymentsReceiptsManufacturing OverheadFinancingEnding Cash BalanceBeginning Cash BalanceExcess (Deficiency) of Available Cash Over Cash Disbursements

    Financing    Excess (Deficiency) of Available Cash Over Cash Disbursements    Total Disbursements    Selling and Administrative Expenses    Manufacturing Overhead    Receipts    Repayments    Disbursements    Ending Cash Balance    Sale of Marketable Securities    Total Available Cash    Total Receipts    Beginning Cash Balance    Borrowings    Collections from Customers    Direct Labor    Direct Materials    

    Total Available Cash    Direct Materials    Collections from Customers    Disbursements    Direct Labor    Sale of Marketable Securities    Ending Cash Balance    Excess (Deficiency) of Available Cash Over Cash Disbursements    Manufacturing Overhead    Financing    Total Disbursements    Receipts    Repayments    Total Receipts    Selling and Administrative Expenses    Beginning Cash Balance    Borrowings    

    Receipts    Repayments    Total Available Cash    Manufacturing Overhead    Beginning Cash Balance    Sale of Marketable Securities    Total Receipts    Financing    Borrowings    Total Disbursements    Selling and Administrative Expenses    Collections from Customers    Direct Labor    Direct Materials    Disbursements    Ending Cash Balance    Excess (Deficiency) of Available Cash Over Cash Disbursements    

Total ReceiptsManufacturing OverheadDirect LaborExcess (Deficiency) of Available Cash Over Cash DisbursementsReceiptsDisbursementsEnding Cash BalanceBeginning Cash BalanceRepaymentsBorrowingsFinancingSale of Marketable SecuritiesSelling and Administrative ExpensesTotal Available CashTotal DisbursementsDirect MaterialsCollections from Customers

AddLess

:

Sale of Marketable SecuritiesTotal ReceiptsDirect LaborSelling and Administrative ExpensesDirect MaterialsFinancingRepaymentsBeginning Cash BalanceDisbursementsTotal Available CashExcess (Deficiency) of Available Cash Over Cash DisbursementsCollections from CustomersManufacturing OverheadTotal DisbursementsEnding Cash BalanceBorrowingsReceipts

    Sale of Marketable Securities    Collections from Customers    Receipts    Total Receipts    Direct Labor    Selling and Administrative Expenses    Direct Materials    Beginning Cash Balance    Excess (Deficiency) of Available Cash Over Cash Disbursements    Financing    Total Available Cash    Manufacturing Overhead    Repayments    Disbursements    Ending Cash Balance    Total Disbursements    Borrowings    

    Collections from Customers    Selling and Administrative Expenses    Manufacturing Overhead    Total Receipts    Direct Materials    Direct Labor    Repayments    Total Available Cash    Receipts    Sale of Marketable Securities    Disbursements    Beginning Cash Balance    Borrowings    Ending Cash Balance    Total Disbursements    Excess (Deficiency) of Available Cash Over Cash Disbursements    Financing    

    Excess (Deficiency) of Available Cash Over Cash Disbursements    Sale of Marketable Securities    Total Available Cash    Disbursements    Direct Materials    Borrowings    Ending Cash Balance    Collections from Customers    Financing    Selling and Administrative Expenses    Direct Labor    Total Disbursements    Manufacturing Overhead    Total Receipts    Receipts    Beginning Cash Balance    Repayments    

    Financing    Disbursements    Manufacturing Overhead    Direct Labor    Borrowings    Receipts    Repayments    Total Receipts    Ending Cash Balance    Excess (Deficiency) of Available Cash Over Cash Disbursements    Selling and Administrative Expenses    Sale of Marketable Securities    Total Available Cash    Total Disbursements    Beginning Cash Balance    Direct Materials    Collections from Customers    

    Total Receipts    Selling and Administrative Expenses    Receipts    Total Disbursements    Disbursements    Manufacturing Overhead    Financing    Ending Cash Balance    Sale of Marketable Securities    Excess (Deficiency) of Available Cash Over Cash Disbursements    Beginning Cash Balance    Repayments    Borrowings    Total Available Cash    Collections from Customers    Direct Labor    Direct Materials    

Total Available CashManufacturing OverheadDisbursementsDirect LaborFinancingTotal DisbursementsReceiptsBeginning Cash BalanceTotal ReceiptsDirect MaterialsBorrowingsCollections from CustomersEnding Cash BalanceRepaymentsExcess (Deficiency) of Available Cash Over Cash DisbursementsSale of Marketable SecuritiesSelling and Administrative Expenses

Beginning Cash BalanceDirect LaborTotal ReceiptsEnding Cash BalanceBorrowingsDisbursementsCollections from CustomersDirect MaterialsReceiptsRepaymentsSale of Marketable SecuritiesExcess (Deficiency) of Available Cash Over Cash DisbursementsSelling and Administrative ExpensesFinancingManufacturing OverheadTotal Available CashTotal Disbursements

LessAdd

:

Direct LaborTotal ReceiptsExcess (Deficiency) of Available Cash Over Cash DisbursementsBeginning Cash BalanceDisbursementsDirect MaterialsSelling and Administrative ExpensesRepaymentsTotal Available CashReceiptsManufacturing OverheadTotal DisbursementsBorrowingsFinancingSale of Marketable SecuritiesCollections from CustomersEnding Cash Balance

AddLess

:

RepaymentsTotal DisbursementsTotal ReceiptsSelling and Administrative ExpensesBeginning Cash BalanceDirect LaborDirect MaterialsReceiptsDisbursementsEnding Cash BalanceExcess (Deficiency) of Available Cash Over Cash DisbursementsManufacturing OverheadSale of Marketable SecuritiesFinancingTotal Available CashBorrowingsCollections from Customers

Collections from CustomersTotal Available CashDirect LaborEnding Cash BalanceDirect MaterialsDisbursementsExcess (Deficiency) of Available Cash Over Cash DisbursementsFinancingRepaymentsTotal ReceiptsManufacturing OverheadReceiptsSale of Marketable SecuritiesSelling and Administrative ExpensesTotal DisbursementsBeginning Cash BalanceBorrowings

$$

One test that is often conducted for the acquisition and payment cycle is the Accounts Payable Cutoff Test. What category does this test fall under? Can you explain the test and why it is performed?

Freese, Inc., is in the process of preparing the fourth quarter budget for 2016, and the following data have been assembled: The company sells a single product at a price of $70 per unit. The estimated sales volume for the next six months is as follows: September 14,300 units October 13,200 units November 15,400 units December 22,000 units January 9,900 units February 11,000 units All sales are on account. The company's collection experience has been that 30% of a month's sales are collected in the month of sale, 68% are collected in the month following the sale, and 2% are uncollectible. It is expected that the net realizable value of accounts receivable (i.e., accounts receivable less allowance for uncollectible accounts) will be $680,680 on September 30, 2016. Management's policy is to maintain ending finished goods inventory each month at a level equal to 30% of the next month's budgeted sales. The finished goods inventory on September 30, 2016, is expected to be 3,960 units. To make one unit of finished product, 4 pounds of materials are required. Management's policy is to have enough materials on hand at the end of each month to equal 40% of the next month's estimated usage. The raw materials inventory is expected to be 22,176 pounds on September 30, 2016. The cost per pound of raw material is $6, and 70% of all purchases are paid for in the month of purchase; the remainder is paid in the following month. The accounts payable for raw material purchases is expected to be $100,267 on September 30, 2016.

Required: a. Prepare a sales budget in units and dollars, by month and in total, for the fourth quarter (October, November, and December) of 2016.

b. Prepare a schedule of cash collections from sales, by month and in total, for the fourth quarter of 2016.

c. Prepare a production budget in units, by month and in total, for the fourth quarter of 2016.

d. Prepare a materials purchases budget in pounds, by month and in total, for the fourth quarter of 2016.

e. Prepare a schedule of cash payments for materials, by month and in total, for the fourth quarter of 2016. (Do not round intermediate calculations.)