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 $50. Wesley expects the following unit sales:

Wesley’s ending finished goods inventory policy is 35 percent of the next month’s sales.
      Suppose each handisaw takes approximately .55 hours to manufacture, and Wesley pays an average labor wage of $15.50 per hour.
      Each handisaw requires a plastic housing that Wesley purchases from a supplier at a cost of $6.00 each. The company has an ending raw materials inventory policy of 10 percent of the following month’s production requirements. Materials other than the housing unit total $3.50 per handisaw.
      Manufacturing overhead for this product includes $66,000 annual fixed overhead (based on production of 24,000 units) and $.80 per unit variable manufacturing overhead. Wesley’s selling expenses are 6 percent of sales dollars, and administrative expenses are fixed at $15,000 per month.

Required:
1. Compute the budgeted cost of goods sold for the first quarter. (Round direct material, direct labor and overhead costs per unit to 2 decimal places. Round final answers to the nearest dollar amount.)

       

2. Compute the budgeted selling and administrative expenses.



3. Complete the budgeted income statement for the handisaw product for the first quarter. (Round direct material, direct labor and overhead costs per unit to 2 decimal places. Round final answers to the nearest dollar amount.)

Excess demand leads to a:

A) surplus and rising prices.

B) shortage and rising prices.

C) surplus and falling prices.

D) shortage and falling prices.

Calculate the present value of the following annuity streams:

a. $4,000 received each year for 4 years on the last day of each year if your investments pay 6 percent compounded annually.
b. $4,000 received each quarter for 4 years on the last day of each quarter if your investments pay 6 percent compounded quarterly.
c. $4,000 received each year for 4 years on the first day of each year if your investments pay 6 percent compounded annually.
d. $4,000 received each quarter for 4 years on the first day of each quarter if your investments pay 6 percent compounded quarterly.
  
(For all requirements, do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

Devon Manufacturing is preparing its master budget for the first quarter of the upcoming year. The below data table and more data pertain to Devon Manufacturing's operations:

REQUIREMENTS

1. Prepare a schedule of cash collections for January, February, and March, and for the quarter in total.

2. Prepare a production budget. (Hint: Unit sales = Sales in dollars / Selling price per unit.)

3. Prepare a direct materials budget.

4. Prepare a cash payments budget for the direct material purchases from Requirement 3.

5. Prepare a cash payments budget for direct labor.

6. Prepare a cash payments budget for manufacturing overhead costs.

7. Prepare a cash payments budget for operating expenses.

8. Prepare a combined cash budget.

9. Calculate the budgeted manufacturing cost per unit (assume that fixed manufacturing overhead is budgeted to be per $0.90 unit for the year).

10. Prepare a budgeted income statement for the quarter ending March 31. (Hint: Cost of goods sold = Budgeted cost of manufacturing one unit x Number of units sold.)

DATA TABLE

Current Assets as of December 31 (prior year):

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,500

Accounts receivable, net . . . . . . . . . . $ 48,000

Inventory . . . . . . . . . . . . . . . . . . . . . . . $ 15,000

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Property, plant, and equipment, net . .. . $ 123,000

Accounts payable . . . . . . . . . . . . . . .. $ 42,400

Capital stock . . . . .. . . . . . . . . . . . . . . $ 125,500

Retained earnings .. . . . . . . . . . . . . . .. $ 22,600

MORE DATA

a. Actual sales in December were $70,000. Selling price per unit is projected to remain stable at $10 per unit throughout the budget period. Sales for the first five months of the upcoming year are budgeted to be as follows:

January . . . . . . . . $ 80,000

February . . . . . . . $ 92,000

March . . . . . . . . . $ 99,000

April . . . . . . . . . . $ 97,000

May . . . . . . . . . . $ 85,000

b. Sales are 30% cash and 70% credit. All credit sales are collected in the month following the sale.

c. Devon Manufacturing has a policy that states that each month's ending inventory of finished goods should be 25% of the following month's sales (in units).

d. Of each month's direct material purchases, 20% are paid for in the month of purchase, while the remainder is paid for in the month following purchase. Two pounds of direct material is needed per unit at $2 per pound. Ending inventory of direct materials should be 10% of next month's production needs.

e. Most of the labor at the manufacturing facility is indirect, but there is some direct labor incurred. The direct labor hours per unit is 0.01. The direct labor rate per hour is $12 per hour. All direct labor is paid for in the month in which the work is performed. The direct labor total cost for each of the upcoming three months is as follows:

January . . . . . . . . $ 996

February . . . . . . . $ 1,125

March . . . . . . . . . $ 1,182

f. Monthly manufacturing overhead costs are $5,000 for factory rent, $3,000 for other fixed manufacturing expenses, and $1.20 per unit for variable manufacturing overhead. No depreciation is included in these figures. All expenses are paid in the month in which they are incurred.

g. Computer equipment for the administrative offices will be purchased in the upcoming quarter. In January, Devon Manufacturing will purchase equipment for $5,000(cash), while February's cash expenditure will be $12,000 and March's cash expenditure will be $16,000.

h. Operating expenses are budgeted to be $1.00 per unit sold plus fixed operating expenses of $1,000 per month. All operating expenses are paid in the month in which they are incurred.

i. Depreciation on the building and equipment for the general and administrative offices is budgeted to be $5,000 for the entire quarter, which includes depreciation on new acquisitions.

j. Devon Manufacturing has a policy that the ending cash balance in each month must be at least $4,000. It has a line of credit with a local bank. The company can borrow in increments of $1,000 at the beginning of each month, up to a total outstanding loan balance of$110,000 . The interest rate on these loans is 1% per month simple interest (not compounded). The company would pay down on the line of credit balance in increments of $1,000 if it has excess funds at the end of the quarter. The company would also pay the accumulated interest at the end of the quarter on the funds borrowed during the quarter.

k. The company's income tax rate is projected to be 30% of operating income less interest expense. The company pays $10,000 cash at the end of February in estimated taxes.

You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of 3.8 percent per year, compounded monthly for the first six months, increasing thereafter to 18.7 percent compounded monthly.

Assuming you transfer the $18,500 balance from your existing credit card and make no subsequent payments, how much interest will you owe at the end of the first year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Elizabeth Egbert owns a galvanizing plant. Customers bring in their fabricated steel products (like light poles, towers, trailers, etc.), and Egbert dips them into a heated vat of molten zinc. The zinc bonds to the metal and produces a highly durable corrosion resistant product. Egbert's primary inventory is molten zinc purchased from suppliers in large blocks of solid material. These blocks are immersed in the heated vat and will melt together with the zinc already in the pool. Egbert generally keeps the vat relatively full, and it is never allowed to cool. Egbert started the year 20X8 with 500,000 pounds of zinc in the pool. During the year Egbert purchased 2,800,000 pounds of zinc. At year's end, the pool contained 520,000 pounds of zinc.

(a) How much zinc was used during 20X8?

(b) Accountants frequently refer to "goods available for sale." How much zinc, in pounds, was "available for sale?"

(c) If the beginning inventory cost $1.25 per pound, and purchases during 20X8 cost $1.50 per pound, how much is the "cost of goods available for sale"?

(d) If Egbert uses FIFO, how much should be attributed to ending inventory and how much to cost of goods sold?

(e) If Egbert uses LIFO, how much should be attributed to ending inventory and how much to cost of goods sold?

(f) What will be the difference in profitability between choosing the FIFO and LIFO methods?

“We really need to get this new material-handling equipment in operation just after the new year begins. I hope we can finance it largely with cash and marketable securities, but if necessary we can get a short-term loan down at MetroBank.” This statement by Beth Davies-Lowry, president of Intercoastal Electronics Company, concluded a meeting she had called with the firm’s top management. Intercoastal is a small, rapidly growing wholesaler of consumer electronic products. The firm’s main product lines are small kitchen appliances and power tools. Marcia Wilcox, Intercoastal’s General Manager of Marketing, has recently completed a sales forecast. She believes the company’s sales during the first quarter of 20x1 will increase by 10 percent each month over the previous month’s sales. Then Wilcox expects sales to remain constant for several months. Intercoastal’s projected balance sheet as of December 31, 20x0, is as follows: Cash .................................................................................................................................................. $ 35,000 Accounts receivable ............................................................................................................................ 270,000 Marketable securities .......................................................................................................................... 15,000 Inventory ............................................................................................................................................ 154,000 Buildings and equipment (net of accumulated depreciation) ................................................................... 626,000 Total assets ........................................................................................................................................$1,100,000 Accounts payable ................................................................................................................................ $ 176,400 Bond interest payable .......................................................................................................................... 12,500 Property taxes payable ........................................................................................................................ 3,600 Bonds payable (10%; due in 20x6) ....................................................................................................... 300,000 Common stock ................................................................................................................................... 500,000 Retained earnings ............................................................................................................................... 107,500 Total liabilities and stockholders’ equity ................................................................................................$1,100,000 Jack Hanson, the assistant controller, is now preparing a monthly budget for the first quarter of 20x1. In the process, the following information has been accumulated:

1 . Projected sales for December of 20x0 are $400,000. Credit sales typically are 75 percent of total sales. Intercoastal’s credit experience indicates that 10 percent of the credit sales are collected during the month of sale, and the remainder are collected during the following month.

2 . Intercoastal’s cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account, and 40 percent of each month’s purchases are paid during the month of purchase. The remainder is paid during the following month. In order to have adequate stocks of inventory on hand, the firm attempts to have inventory at the end of each month equal to half of the next month’s projected cost of goods sold. 3 . Hanson has estimated that Intercoastal’s other monthly expenses will be as follows:Sales salaries .............................................................................................................................................. $21,000 Advertising and promotion ............................................................................................................................ 16,000 Administrative salaries ................................................................................................................................. 21,000 Depreciation ................................................................................................................................................ 25,000 Interest on bonds ......................................................................................................................................... 2,500 Property taxes .............................................................................................................................................. 900 In addition, sales commissions run at the rate of 1 percent of sales.

4 . Intercoastal’s president, Davies-Lowry, has indicated that the firm should invest $125,000 in an automated inventory-handling system to control the movement of inventory in the firm’s ware-house just after the new year begins. These equipment purchases will be financed primarily from the firm’s cash and marketable securities. However, Davies-Lowry believes that Intercoastal needs to keep a minimum cash balance of $25,000. If necessary, the remainder of the equipment pur-chases will be financed using short-term credit from a local bank. The minimum period for such a loan is three months. Hanson believes short-term interest rates will be 10 percent per year at the time of the equipment purchases. If a loan is necessary, Davies-Lowry has decided it should be paid off by the end of the first quarter if possible.

5 . Intercoastal’s board of directors has indicated an intention to declare and pay dividends of $50,000 on the last day of each quarter.

6 . The interest on any short-term borrowing will be paid when the loan is repaid. Interest on Inter-coastal’s bonds is paid semiannually on January 31 and July 31 for the preceding six-month period.

7 . Property taxes are paid semiannually on February 28 and August 31 for the preceding six-month period.

Required: 1 . Describe the role of budgeting in a firm’s strategic planning.

2 . For each of the financial objectives established by the board of directors and the president of Healthful Foods Inc., determine whether John Winslow’s budget attains these objectives. Support your conclusion in each case by presenting appropriate calculations, and use the following format for your answer. Objective Attained/Not AttainedCalculations 3 . Explain why the adjustments contemplated by John Winslow are unethical, citing specific standards of ethical conduct for management accountants. (CMA, adapted) “We really need to get this new material-handling equipment in operation just after the new year begins. I hope we can finance it largely with cash and marketable securities, but if necessary we can get a short-term loan down at MetroBank.” This statement by Beth Davies-Lowry, president of Intercoastal Electronics Company, concluded a meeting she had called with the firm’s top management. Intercoastal is a small, rapidly growing wholesaler of consumer electronic products. The firm’s main product lines are small kitchen appliances and power tools. Marcia Wilcox, Intercoastal’s General Manager of Marketing, has recently completed a sales forecast. She believes the company’s sales during the first quarter of 20x1 will increase by 10 percent each month over the previous month’s sales. Then Wilcox expects sales to remain constant for several months. Intercoastal’s projected balance sheet as of December 31, 20x0, is as follows: Cash .................................................................................................................................................. $ 35,000

Accounts receivable ............................................................................................................................ 270,000

Marketable securities .......................................................................................................................... 15,000

Inventory ............................................................................................................................................ 154,000

Buildings and equipment (net of accumulated depreciation) ................................................................... 626,000

Total assets ........................................................................................................................................$1,100,000

Accounts payable ................................................................................................................................ $ 176,400

Bond interest payable .......................................................................................................................... 12,500

Property taxes payable ........................................................................................................................ 3,600

Bonds payable (10%; due in 20x6) ....................................................................................................... 300,000

Common stock ................................................................................................................................... 500,000

Retained earnings ............................................................................................................................... 107,500

Total liabilities and stockholders’ equity ................................................................................................$1,100,000

Jack Hanson, the assistant controller, is now preparing a monthly budget for the first quarter of 20x1. In the process, the following information has been accumulated:

1 . Projected sales for December of 20x0 are $400,000. Credit sales typically are 75 percent of total sales. Intercoastal’s credit experience indicates that 10 percent of the credit sales are collected dur-ing the month of sale, and the remainder are collected during the following month.

2 . Intercoastal’s cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account, and 40 percent of each month’s purchases are paid during the month of purchase. The remainder is paid during the following month. In order to have adequate stocks of inventory on hand, the firm attempts to have inventory at the end of each month equal to half of the next month’s projected cost of goods sold.

3 . Hanson has estimated that Intercoastal’s other monthly expenses will be as follows:

Sales salaries .............................................................................................................................................. $21,000

Advertising and promotion ............................................................................................................................ 16,000

Administrative salaries ................................................................................................................................. 21,000

Depreciation ................................................................................................................................................ 25,000

Interest on bonds ......................................................................................................................................... 2,500

Property taxes .............................................................................................................................................. 900

In addition, sales commissions run at the rate of 1 percent of sales. Prepare Intercoastal Electronics Company’s master budget for the first quarter of 20x1 by completing the following schedules and statements.

1 . Sales budget: 20x0 20x1 December January February March 1st Quarter

Total sales .................................................

Cash sales .................................................

Sales on account .......................................

2 . Cash receipts budget: 20x1 January February March 1st Quarter

Cash sales ................................................................

Cash collections from credit sales made during current month ...................................

Cash collections from credit sales made during preceding month ...............................

Total cash receipts ....................................................

3 . Purchases budget: 20x0 20x1 December January February March 1st Quarter

Budgeted cost of goods sold .....................................

Add: Desired ending inventory ............................

Total goods needed ............................

Less: Expected beginning inventory .......................

.Purchases .........................................

4 . Cash disbursements budget: 20x1 January February March 1st Quarter

Inventory purchases:

Cash payments for purchases during the current month* .................................

Cash payments for purchases ................................

during the preceding month† .............................

Total cash payments for inventory purchases ..........................................

Other expenses: Sales salaries .......................................................

Advertising and promotion .....................................

Administrative salaries ..........................................

Interest on bonds‡ .................................................

Property taxes‡ .....................................................

Sales commissions ...............................................

Total cash payments for other expenses .................................................

Total cash disbursements ..........................................

*40% of the current month’s purchases (schedule 3).†60% of the prior month’s purchases (schedule 3).‡Bond interest is paid every six months, on January 31 and July 31. Property taxes also are paid every six months, on February 28 and August 31.

5 . Complete the first three lines of the summary cash budget. Then do the analysis of short-term financing needs in requirement (6). Then finish requirement (5). Summary cash budget:

6. Analysis of short-term financing needs:

7. Prepare Intercoastal Electronics’ budgeted income statement for the first quarter of 20x1. (Ignore income taxes.)

8 . Prepare Intercoastal Electronics’ budgeted statement of retained earnings for the first quarter of 20x1.

9 . Prepare Intercoastal Electronics’ budgeted balance sheet as of March 31, 20x1. ( Hint: On March 31, 20x1, Bond Interest Payable is $5,000 and Property Taxes Payable is $900.)

RyRy, Inc. manufactures dance apparel. Unit sales projections for the first five months of the upcoming year are as? follows

Beginning finished goods inventory consisted of 950 units. The desired inventory of units at the end of each month in the upcoming year should equal? 25% of the following? month’s budgeted unit sales.

Each unit requires 2 yards of fabric. The company wants to have? 20% of the fabric required for the next? month’s expected production on hand at the end of each month. This inventory requirement was met at the end of the previous year. The fabric costs? $0.20 per yard.

What is the expected dollar amount of raw material purchases for the first quarter of the upcoming? year? (round to the nearest dollar and use commas where?appropriate)

Southern airline inc.announced that its net income in the first quarter jumped percent to $100 million as number of passenger climbed. The airline also booked of $40 million from the sales of 2 aircraft. According to the survey of 6 analysts average estimate of the first quarter net income for the airline was $200 miliion. After earning announcement what would be the possible movement of the company's stock. Please explain with any financial concepts and theories?