Building Your Skills Case [LO8-2, LO8-4, LO8-8, LO8-9, LO8-10]

You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a master budget for the upcoming second quarter. To this end, you have worked with accounting and other areas to gather the information assembled below.

The company sells many styles of earrings, but all are sold for the same price—$18 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings):

The concentration of sales before and during May is due to Mother’s Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month.

Suppliers are paid $5.90 for a pair of earrings. One-half of a month’s purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit. Only 20% of a month’s sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

Monthly operating expenses for the company are given below:

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $25,500 in new equipment during May and $59,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $29,250 each quarter, payable in the first month of the following quarter.

The company’s balance sheet as of March 31 is given below:

The company maintains a minimum cash balance of $69,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.

The company has an agreement with a 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. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $69,000 in cash.

Required:

Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules:

1. a. A sales budget, by month and in total.

    b. A schedule of expected cash collections, by month and in total.

    c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.

    d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.

2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $69,000.

3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.

4. A budgeted balance sheet as of June 30.

U.S Tax law with 2019 revisions:

Problem 7-7
Earned Income Credit (LO 7.2)

Margaret and David Simmons are married and file a joint income tax return. They have two dependent children, Margo, 5 years old (Social Security number 316-31-4890), and Daniel, who was born during the year (Social Security number 316-31-7894). Margaret's wages are $3,000, and David has wages of $14,000. In addition, they receive interest income of $200 during the year. Margaret and David do not have any other items of income and do not have any deductions for adjusted gross income.

Assuming the Simmons file Form 1040 for 2019, complete Schedule EIC and the Earned Income Credit Worksheet A. Enter amounts as positive numbers.

Click here to view the Earned Income Credit table.

Note: List children from oldest to youngest.

1. Selected transactions for Green iguana Inc. during current fiscal year as follows:

- Jan.20 Split the common stock 3 for 1 and reduced the par from $75 to $25 per share. After the split, there were 600,000 common shares outstanding.

- Apr. 1 Purchased 30,000 shares of the corporation’s own common stock at $27, recording the stock at cost.

- May 1 Declared semiannual dividends of $.80 on 25,000 shares of preferred of preferred stock and $0.18 on the common stock to stockholders of record on May 20, payable on June 1.

- June 1 Paid the cash dividends.

- Aug 7 Sold 22,000 shares of treasury stock at $34, receiving cash.

- Nov 15 Declared semiannual dividends of $.80 on the preferred stock and $0.20 on the common stock (before the stock dividend). In addition, a 2% common stock dividend was declared on the common stock outstanding, to be capitalized at the fair value of the common stock, which is estimated at $40.

- Dec 15 Paid the cash dividends and issued the certificates for stock dividend.

Instructions: Journalize the transactions (30 points).

The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow:

*Allocated on the basis of sales dollars.

Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out.

Required:

1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?

2. Should the production and sale of racing bikes be discontinued?

3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines.

Bode Corporation has two divisions: East and West. Data from the most recent month appear below:

The company's common fixed expenses total $73,200. If the company operates at exactly the break-even sales of the East Division and West Division, what would be the company's overall net operating income?

($337,600)

($73,200)

$0

$24,983

Direct Materials and Direct Labor Variance Analysis

Shasta Fixture Company manufactures faucets in a small manufacturing facility. The faucets are made from brass. Manufacturing has 50 employees. Each employee presently provides 32 hours of labor per week. Information about a production week is as follows:

Required:

a. Determine the standard cost per unit for direct materials and direct labor. Round the cost per unit to two decimal places.

b. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Round your answers to the nearest whole dollar. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

c. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Round your answers to the nearest whole dollar. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Using the attached template, you are to compute the gross pay, federal withholding, Social Security withholding, Medicare withholding and the net payment for this company. Assume there is no state income tax. Overtime is paid at a rate of 1.5 times the normal wage rate.

NOTE: PLEASE DONT FORGET THE PIVOT TABLE!

In addition, compute the total gross pay, federal withholding, Social Security withholding, Medicare withholding and net payment for all the employees. Further, create a pivot table indicating the total gross pay, Social Security withholding, Medicare withholding and net pay for wage employees and for salary employees. Please note you should use auto fill to complete this assignment in an efficient manner. Use the following Excel template:

Early in 2015, Menan Corporation engaged Roberts, Inc. to design and construct a complete modernization of Menan's manufacturing facility. Construction was begun on May 1, 2015. Menan made the following payments to Roberts, Inc. during 2015:

In order to help finance the construction, Nolan issued the following during 2015:

1. $12,000,000 of 10-year, 9% bonds payable, issued at par on May 1, 2015, with interest payable annually on May 1.

2. 20,000,000 shares of no-par common stock, issued at $10 per share on May 1, 2015.

In addition to the 9% bonds payable, the only other debt outstanding during 2015 was an $8,000,000, 12% note payable dated January 1, 2012 and due January 1, 2022, with interest payable annually on January 1.

What is the total amount to be debited to the 'Manufacturing Facility' account during the year 2015?

Packaging Solutions Corporation manufactures and sells a wide variety of packaging products. Performance reports are prepared monthly for each department. The planning budget and flexible budget for the Production Department are based on the following formulas, where q is the number of labor-hours worked in a month:

The Production Department planned to work 4,500 labor-hours in March; however, it actually worked 4,300 labor-hours during the month. Its actual costs incurred in March are listed below:

Required:

1. Prepare the Production Department’s planning budget for the month.

2. Prepare the Production Department’s flexible budget for the month.

3. Calculate the spending variances for all expense items.

1. Tropical ltd produces powder soap for households use. The standard direct costs per carton containing 20 packets of one kg each is as follows:

Raw materials

15 kgs of tallons @ sh 10 per kg

10 kgs of caustic soda @ sh 16 per kg

Labour 20 hours @ 5 per hour

Packed materials

20 packets @ 50 cents each

1 carton @ sh 5 each

The monthly budget is per 1,000 cartons. The overhead expenses which are all Fixed are budgeted at sh 40,000 and selling price per 1kg packet of soap is sh 25. the following details relate to October 2007 when 1,200 cartons of soap

            Were produced and sold

                                                                                                            Ksh

                        Sales 1,200 cartons                                                 552,000

                        Raw materials:

                                    Tallow 10,800 kgs                                       129,600

                                    Caustic soda 13200 kgs                             198,000

                                    Labour; 26,400 hours                                 145,200

                                    Fixed overhead expenditure                    42,000

            REQUIRED: calculate

1. Price and usage variances each raw materials.                
2. Labour rate and efficiency variances.                                 
3. Sales price and volume variances.                                       
4. Overhead expenditure variances.                                        

Is it necessary to do a physical count of inventory if the company is using a perpetual system? Why or why not? What sort of company would likely use a perpetual system? What sort of company would likely use a periodic system? (Provide specific examples).

Departmental Income Statement
The following information was obtained from the ledger of Woodfield Candies, Inc., at the end of 2016

Woodfield analyzes its operating expenses at the end of each period in order to prepare an income statement that will exhibit departmental contribution to common expenses. From payroll records, advertising copy, and other records, the following tabulation was obtained:

Prepare a departmental income statement for Woodfield Candies, Inc., showing departmental contribution to common expenses, assuming an overall income tax rate of 35%.

Do not use negative signs with your answers below.

Pureform, Inc., uses the weighted-average method in its process costing system. It manufactures a product that passes through two departments. Data for a recent month for the first department follow:

The beginning work in process inventory was 85% complete with respect to materials and 70% complete with respect to labor and overhead. The ending work in process inventory was 65% complete with respect to materials and 25% complete with respect to labor and overhead.

Required:

Assume that the company uses the FIFO method in its process costing system.

1. Compute the first department's equivalent units of production for materials, labor, and overhead for the month.

2. Compute the first department's cost per equivalent unit for materials, labor, overhead, and in total for the month. (Round your answers to 2 decimal places.)