MatchPoint Racket Company manufactures two types of tennis rackets, the Junior and Pro Striker models. The production budget for March for the two rackets is as follows:

Both rackets are produced in two departments, Forming and Assembly. The direct labor hours required for each racket are estimated as follows:

The direct labor rate for each department is as follows:

Prepare the direct labor cost budget for March.

Requirement: Complete the various budget schedules using Excel.

The Distribution Center of 123 Oil and Gas Company wants a master budget for the next three months, beginning January 1st. It desires an ending minimum cash balance of $4,000 each month. Sales are forecasted at an average selling price/transfer price of $4 per widget. In January, the Distribution Centre is beginning just-in-time deliveries from suppliers, which means that purchases equal expected sales. The December 31 inventory balance will be drawn down to $5,000, which will be the desired ending inventory thereafter. Purchase price per widget is $2. Purchases during any given month are paid in full during the following month. All sales are on credit, payable within thirty days, but experience has shown that 60 percent of current sales are collected in the current month, 30 percent in the next month, and 10 percent in the month thereafter. Bad debts are negligible. The Distribution Centre sells to related sister corporations as well as outside/external sales. The following are some of the expenses for the Distribution Centre:

Wages and salaries $12000/month Insurance expired 100/month Depreciation 200/month Miscellaneous 2000/month

Rent 200/month + 10% of quarterly sales over $10,000

Cash dividends of $1,000 are to be paid quarterly, beginning January 15, and are declared on the fifteenth of the previous month. All operating expenses are paid as incurred, except insurance, depreciation, and rent. Rent of $200 is paid at the beginning of each month and the additional 10 percent of sales is paid quarterly on the tenth of the month following the quarter. The next settlement is due January 10.

The company plans to buy some new office fixtures for $2,000 cash in March. To the distribution company this will be considered a capital purchase.

Money can be borrowed and repaid in multiples of $500, at an interest rate of 12 percent per annum. Management wants to minimize borrowing and repay rapidly. Interest is computed and paid when the principal is repaid. Assume that borrowing takes place at the beginning, and repayment at the end, of the months in question. Money is never borrowed at the beginning and repaid at the end of the same month. Compute interest to the nearest dollar.

ASSETS AS OF
DECEMBER 31,
Cash $4,000 Accounts receivable 16,000 Inventory* 31,250 Prepaid insurance 1,200 Fixed assets, net 10,000

Total $62,450

LIABILITIES AS OF DECEMBER 31,
Accounts payable (merchandise) $28,750 Dividends payable $1,000 Rent Payable $6,000

Total $35,750

*November 30 inventory balance = $12,500

Recent and forecasted sales:

October $30,000 December $20,000 November $20,000 January $50,000 February $60,000 March $30,000 April $36,000

Required

Prepare a master budget for the following schedules identified below. Use Excel and incorporate a formula based spread sheet whenever possible. I will be altering the sales figures in your submitted Excel spread sheet to test your formulas.

Work Sheet/Template Cash Collections Schedule

Purchase Budget

Statement of Cash Receipts and Disbursements

Income Statement for the 3 months ending March 31

Balance Sheet as of March 31:

Wesley Power Tools manufactures a wide variety of tools and accessories. One of its more popular items is a cordless power handisaw. Each handisaw sells for $46. Wesley expects the following unit sales:

Wesley’s ending finished goods inventory policy is 25 percent of the next month’s sales.

Suppose each handisaw takes approximately 0.60 hours to manufacture, and Wesley pays an average labor wage of $22 per hour.

Each handisaw requires a plastic housing that Wesley purchases from a supplier at a cost of $5.00 each. The company has an ending direct materials inventory policy of 20 percent of the following month’s production requirements. Materials other than the housing unit total $4.50 per handisaw.

Manufacturing overhead for this product includes $72,000 annual fixed overhead (based on production of 27,000 units) and $1.20 per unit variable manufacturing overhead. Wesley’s selling expenses are 7 percent of sales dollars, and administrative expenses are fixed at $18,000 per month.

Required:
Compute the following for the first quarter: (Round your intermediate calculations to nearest whole dollar.)

Problem 6-25 Prepare and Interpret Income Statements; Changes in Both Sales and Production; Lean Production [LO6-1, LO6-2, LO6-3]

Starfax, Inc., manufactures a small part that is widely used in various electronic products such as home computers. Results for the first three years of operations were as follows (absorption costing basis):

In the latter part of Year 2, a competitor went out of business and in the process dumped a large number of units on the market. As a result, Starfax’s sales dropped by 20% during Year 2 even though production increased during the year. Management had expected sales to remain constant at 50,000 units; the increased production was designed to provide the company with a buffer of protection against unexpected spurts in demand. By the start of Year 3, management could see that it had excess inventory and that spurts in demand were unlikely. To reduce the excessive inventories, Starfax cut back production during Year 3, as shown below:

Additional information about the company follows:

1. The company’s plant is highly automated. Variable manufacturing expenses (direct materials, direct labor, and variable manufacturing overhead) total only $6.00 per unit, and fixed manufacturing overhead expenses total $450,000 per year.

2. A new fixed manufacturing overhead rate is computed each year based that year's actual fixed manufacturing overhead costs divided by the actual number of units produced.

3. Variable selling and administrative expenses were $3 per unit sold in each year. Fixed selling and administrative expenses totaled $80,000 per year.

4. The company uses a FIFO inventory flow assumption. (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first.)

Starfax’s management can’t understand why profits doubled during Year 2 when sales dropped by 20% and why a loss was incurred during Year 3 when sales recovered to previous levels.

Required:

1. Prepare a contribution format variable costing income statement for each year.

2. Refer to the absorption costing income statements above.

a. Compute the unit product cost in each year under absorption costing. Show how much of this cost is variable and how much is fixed.

b. Reconcile the variable costing and absorption costing net operating income figures for each year.

5b. If Lean Production had been used during Year 2 and Year 3, what would the company’s net operating income (or loss) have been in each year under absorption costing?

Futaba photo shop has three services, print, enlargement, frame. The shop owner thinks these two services can be sold as a bundle, Print 3, Enlarge 4 and Frame 1. The company spends 10% of selling price as variable advertising expenses. Fixed cost for the shop is $129,320. The following information related to these three services is given.

Determine the contribution margin per unit of each product

Compute the breakeven point volume for each service. Present supporting calculations

What is the total sales units required to earn profit of $252,000 on after tax, the above assumption and a tax rate of 40%?

DuPONT ANALYSIS

A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the DuPont equation. The firm has no lease payments but has a $2 million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows:

^aCalculation is based on a 365-day year.

1. Calculate the following ratios. Do not round intermediate steps. Round your answers to two decimal places.

   	Firm	Industry Average
   Current ratio	x	3.17x
   Debt to total capital	%	20.40%
   Times interest earned	x	22.72x
   EBITDA coverage	x	19.80x
   Inventory turnover	x	12.59x
   Days sales outstanding	days	23.7days
   Fixed assets turnover	x	6.73x
   Total assets turnover	x	3.78x
   Profit margin	%	8.24%
   Return on total assets	%	30.69%
   Return on common equity	%	47.29%
   Return on invested capital	%	38.40%

2. Construct a DuPont equation for the firm and the industry. Do not round intermediate steps. Round your answers to two decimal places.

   	Firm	Industry
   Profit margin	%	8.24%
   Total assets turnover	x	3.78x
   Equity multiplier	x	x

3. Do the balance sheet accounts or the income statement figures seem to be primarily responsible for the low profits?
   -Select-IIIIIIIVVItem 17
   1. The low ROE for the firm is due to the fact that the firm is utilizing more debt than the average firm in the industry and the low ROA is mainly a result of an excess investment in assets.
   2. The low ROE for the firm is due to the fact that the firm is utilizing less debt than the average firm in the industry and the low ROA is mainly a result of an lower than average investment in assets.
   3. Analysis of the extended Du Pont equation and the set of ratios shows that the turnover ratio of sales to assets is quite low; however, its profit margin compares favorably with the industry average. Either sales should be higher given the present level of assets, or the firm is carrying more assets than it needs to support its sales.
   4. Analysis of the extended Du Pont equation and the set of ratios shows that the turnover ratio of sales to assets is quite low; however, its profit margin compares favorably with the industry average. Either sales should be lower given the present level of assets, or the firm is carrying less assets than it needs to support its sales.
   5. Analysis of the extended Du Pont equation and the set of ratios shows that most of the Asset Management ratios are below the averages. Either assets should be higher given the present level of sales, or the firm is carrying less assets than it needs to support its sales.
      
4. Which specific accounts seem to be most out of line relative to other firms in the industry?
   -Select-IIIIIIIVVItem 18
   1. The accounts which seem to be most out of line include the following ratios: Debt to Total Capital, Inventory Turnover, Total Asset Turnover, Return on Assets, and Profit Margin.
   2. The accounts which seem to be most out of line include the following ratios: Times Interest Earned, Total Asset Turnover, Profit Margin, Return on Assets, and Return on Equity.
   3. The accounts which seem to be most out of line include the following ratios: Inventory Turnover, Days Sales Outstanding, Fixed Asset Turnover, Profit Margin, and Return on Equity.
   4. The accounts which seem to be most out of line include the following ratios: Inventory Turnover, Days Sales Outstanding, Total Asset Turnover, Return on Assets, and Return on Equity.
   5. The accounts which seem to be most out of line include the following ratios: Current, EBITDA Coverage, Inventory Turnover, Days Sales Outstanding, and Return on Equity.
      
5. If the firm had a pronounced seasonal sales pattern or if it grew rapidly during the year, how might that affect the validity of your ratio analysis?
   -Select-IIIIIIIVVItem 19
   1. It is more important to adjust the debt ratio than the inventory turnover ratio to account for any seasonal fluctuations.
   2. Seasonal sales patterns would most likely affect the profitability ratios, with little effect on asset management ratios. Rapid growth would not substantially affect your analysis.
   3. Rapid growth would most likely affect the coverage ratios, with little effect on asset management ratios. Seasonal sales patterns would not substantially affect your analysis.
   4. Seasonal sales patterns would most likely affect the liquidity ratios, with little effect on asset management ratios. Rapid growth would not substantially affect your analysis.
   5. If the firm had seasonal sales patterns, or if it grew rapidly during the year, many ratios would most likely be distorted.
      
   
   How might you correct for such potential problems?
   -Select-IIIIIIIVVItem 20
   1. It is possible to correct for such problems by comparing the calculated ratios to the ratios of firms in the same industry group over an extended period.
   2. There is no need to correct for these potential problems since you are comparing the calculated ratios to the ratios of firms in the same industry group.
   3. It is possible to correct for such problems by insuring that all firms in the same industry group are using the same accounting techniques.
   4. It is possible to correct for such problems by using average rather than end-of-period financial statement information.
   5. It is possible to correct for such problems by comparing the calculated ratios to the ratios of firms in a different line of business.

Said Al Hamli and his friend Khaled Al Masri are the owners of a small hotel, the Sun Star, in the Red Sea town of Hurghada. Close to Cairo, the resort town has grown from a fishing village to one of Egypt’s famous vacation spots. Hurghada is the gateway to many small islands and offshore reefs favored by recreational snorkelers and divers and many tourists combine their stay with excursions to the Nile Valley, the Great Pyramids and Luxor.

To take advantage of the growing numbers of tourists, particularly from Europe and the Middle East, Said and Khaled are planning to double the room capacity of their hotel by adding a second building to the already existing structure. Fortunately, Said recognized the great potential of Hurghada ten years ago, well before the town became a hub for recreational tourism, and bought the land adjacent to the hotel for relatively little money when it was still under construction.

Now, Said and Khaled are studying the new layout and trying to determine if the expected revenues justify the substantial initial investment of EGP 70 million ($11.8 million). According to their calculations, operating cost would rise by EGP 23.8 million ($4 million) in the first year, which would include hiring and training of new personnel, maintenance of facilities and equipment etc., and likely increase by about 5 percent per year thereafter. With an aggressive marketing strategy, Said and Khaled believe that a revenue enhancement of EGP 20.8 million in the first year is realistic and that a subsequent annual increase of about 15 percent for eight to nine years, with revenues leveling off thereafter, can be achieved. Ideally, Khaled would like to retire in ten years. Seeking advice from you, a knowledgeable friend, they share their detailed cost and revenue projections with you.

QUESTIONS

Fallow Corporation is subject to tax only in State X. State income taxes are not deductible for State X income tax purposes. Fallow generated the following income and deductions:

a. The starting point in computing the State X income tax base is Federal taxable income, which is $.

b. If the interest on State X's obligations is exempt from State X's income tax, Fallow's State X taxable income is $.

c. If the interest on State X's obligations is subject to State X's income tax, Fallow's State X taxable income is $.

Exercise 17-13 The 2020 accounting records of Blocker Transport reveal these transactions and events. Payment of interest $10,600 Collection of accounts receivable $190,700 Cash sales 49,900 Payment of salaries and wages 56,100 Receipt of dividend revenue 17,100 Depreciation expense 15,000 Payment of income taxes 15,300 Proceeds from sale of vehicles 12,600 Net income 37,900 Purchase of equipment for cash 21,700 Payment of accounts payable Loss on sale of vehicles 3,200 for merchandise 114,400 Payment of dividends 14,600 Payment for land 73,800 Payment of operating expenses 28,700

Prepare the cash flows from operating activities section using the direct method.

Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter:

1. As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:

2. Actual sales for December and budgeted sales for the next four months are as follows:

3. Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales.

4. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)

5. Monthly expenses are budgeted as follows: salaries and wages, $27,000 per month: advertising, $70,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,000 for the quarter.

6. Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.

7. One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid in the following month.

8. During February, the company will purchase a new copy machine for $1,700 cash. During March, other equipment will be purchased for cash at a cost of $84,500.

9. During January, the company will declare and pay $45,000 in cash dividends.

10. Management wants to maintain a minimum cash balance of $30,000. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:

Using the data above, complete the following statements and schedules for the first quarter:

1. Schedule of expected cash collections:

2-a. Merchandise purchases budget:

2-b. Schedule of expected cash disbursements for merchandise purchases:

3. Cash budget:

4. Prepare an absorption costing income statement for the quarter ending March 31.

5. Prepare a balance sheet as of March 31.

Please answer both question as a discussion board

The sales budget is considered the primary driver of all other budgets including budget balance sheet and cash budget.

1. Explain why it is critical the sales budget is the first budget prepared in the master budget.

2. Describe how changes in the sales budget can ripple through the operating budgets and impact the cash budget and budgeted balance sheet.

Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter:

1. As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:

2. Actual sales for December and budgeted sales for the next four months are as follows:

3. Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales.

4. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)

5. Monthly expenses are budgeted as follows: salaries and wages, $21,000 per month: advertising, $61,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $43,060 for the quarter.

6. Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.

7. One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid in the following month.

8. During February, the company will purchase a new copy machine for $1,600 cash. During March, other equipment will be purchased for cash at a cost of $73,000.

9. During January, the company will declare and pay $45,000 in cash dividends.

10. Management wants to maintain a minimum cash balance of $30,000. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:

Using the data above, complete the following statements and schedules for the first quarter:

1. Schedule of expected cash collections:

2-a. Merchandise purchases budget:

2-b. Schedule of expected cash disbursements for merchandise purchases:

3. Cash budget:

4. Prepare an absorption costing income statement for the quarter ending March 31.

5. Prepare a balance sheet as of March 31.

A20-14 Basic and Diluted EPS

The following information relates to Willowdale Ltd.’s financial statements for the year ended 31 December 20X6:

a. On 1 January 20X6, Willowdale’s capital structure consisted of the following:

b. On 30 September 20X6, Willowdale issued an additional 100,000 common shares for $1.5 million cash.
c. Willowdale reported earnings of $1.5 million for the year ended 31 December 20X6 net of tax of 25%.

Required:
Calculate the basic and diluted earnings per share figures for 20X6

The following data relates to Merrick Ltd., a single product company who manufactures vaccines:

Variances for October:

DIRECT MATERIAL QUANTITY VARIANCE 2400 UNFAVORABLE

MATERIALS VARIANCE (TOTAL) 600 FAVORABLE

DIRECT LABOR EFFICIENCY VARIANCE 9000 FAVORABLE

Actual materials and labor costs for October:

Materials and labor standards to manufacture one unit of vaccine:

Merrick Ltd. manufactured and sold 1,400 units of vaccines during October. There were no materials and finished goods inventories at the start and end of the October.

Required:

1. Compute standard price per pound of materials.
2. Compute standard quantity of materials allowed for actual production.
3. Compute standard quantity of direct materials allowed for one unit of product.
4. Compute actual direct labor cost per hour for October.
5. Compute direct labor rate variance and indicate whether it is favorable or unfavorable.