|
“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 Global Electronics Company, concluded a meeting she had called with the firm’s top management. Global 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, Global Electronics’ 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. Global’s projected balance sheet as of December 31, 20x0 is as follows: |
| Cash | $ | 50,000 | |
| Accounts receivable | 324,000 | ||
| Marketable securities | 15,000 | ||
| Inventory | 198,000 | ||
| Buildings and equipment (net of accumulated depreciation) | 633,000 | ||
| Total assets | $ | 1,220,000 | |
| Accounts payable | $ | 283,500 | |
| Bond interest payable | 12,500 | ||
| Property taxes payable | 6,000 | ||
| Bonds payable (10%; due in 20x6) | 300,000 | ||
| Common stock | 500,000 | ||
| Retained earnings | 118,000 | ||
| Total liabilities and stockholders’ equity | $ | 1,220,000 | |
| 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 $450,000. Credit sales typically are 80 percent of total sales. Global’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. |
Global Electronics’ cost of goods sold generally runs at 80 percent of sales. Inventory is purchased on account, and 25 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 Global’s other monthly expenses will be as follows: |
| Sales Salaries | 10,000 | |
| Advertising & Promotion | 5,000 | |
| Administrative Salaries | 10,000 | |
| Depreciation | 30,000 | |
| Interest on bonds | 2,500 | |
| Property taxes | 1,500 | |
| In addition, sales commissions run at the rate of 1 percent of sales. |
| 4. |
Global Electronics’ 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 warehouse 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 the company needs to keep a minimum cash balance of $25,000. If necessary, the remainder of the equipment purchases 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. |
Global Electronics’ 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 Global Electronics’ 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: | |
|
Prepare Global Electronics Company’s master budget for the first quarter of 20x1 by completing the following schedules and statements. |
| 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). |
| 6. |
Calculation of required short-term borrowing. |
| 7. |
Prepare Global Electronics’ budgeted income statement for the first quarter of 20x1. (Ignore income taxes.) |
| 8. | Prepare Global Electronics’ budgeted statement of retained earnings for the first quarter of 20x1. |
| 9. |
Prepare Global 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 $1,500.) |
In: Accounting
The FED (Central Bank in the USA) is watching the actions of the federal government and believes that federal government spending will increase next quarter which will lead to future rates of inflation greater than 3 percent.
a. Using the Money Supply Model explain how the FED will use its TOOLS and affect inflation. Define the key macro terms and the Money Supply Model in business friendly terms.
b. Businesses are concerned about both inflation and higher interests. Explain why they are concerned about higher inflation and higher interest rates.
In: Economics
In: Economics
Flagstaff Company has budgeted production units of 8,000 for July and 8,200 for August. The direct materials requirement per unit is 3 ounces (oz.). The company has determined that it wants to have safety stock of direct materials on hand at the end of each month to complete 25% of the units budgeted in the following month. There was 6,000 ounces of direct material in inventory at the start of July. The total cost of direct materials purchases for the July direct materials budget, assuming the materials cost $1.20 per ounce, is:
A) $28,800.
B) $28,980.
C) $21,600.
D) $28,620.
E) $36,180.
A sporting goods manufacturer budgets production of 55,000 pairs of ski boots in the first quarter and 46,000 pairs in the second quarter of the upcoming year. Each pair of boots require 2 kg of a key raw material. The company aims to end each quarter with ending raw materials inventory equal to 15% of the following quarter’s material needs. Beginning inventory for this material is 16,500 kg and the cost per kg is $8. What is the budgeted materials need in kg. in the first quarter?
A) 123,800 kg.
B) 107,300 kg.
C) 140,300 kg.
D) 110,000 kg.
E) 126,500 kg.
Based on a predicted level of production and sales of 16,000 units, a company anticipates total variable costs of $78,400, fixed costs of $27,200, and operating income of $34,080. Based on this information, the budgeted amount of variable costs for 13,000 units would be:
A) $165,192.
B) $27,200.
C) $61,280.
D) $63,700.
E) $78,400.
Memphis Company anticipates total sales for April, May, and June of $830,000, $930,000, and $980,000 respectively. Cash sales are normally 30% of total sales. Of the credit sales, 30% are collected in the same month as the sale, 65% are collected during the first month after the sale, and the remaining 5% are collected in the second month. Compute the amount of accounts receivable reported on the company’s budgeted balance sheet for June 30.
A) $480,200.
B) $543,900.
C) $512,750.
D) $851,950.
E) $922,950.
Ratchet Manufacturing anticipates total sales for August, September, and October of $210,000, $215,000, and $225,500 respectively. Cash sales are normally 20% of total sales and the remaining sales are on credit. All credit sales are collected in the first month after the sale. Compute the amount of cash received for September.
A) $211,000.
B) $168,000.
C) $85,000.
D) $172,000.
E) $340,000.
In: Accounting
Kirtland Corporation uses a periodic inventory system. At the end of the annual accounting period, December 31, the accounting records for the most popular item in inventory showed the following: Transactions Units Unit Cost Beginning inventory, January 1 410 $4.00 Transactions during the year: a. Purchase, January 30 310 3.50 b. Purchase, May 1 470 5.00 c. Sale ($6 each) (170) d. Sale ($6 each) (710) Required: a. Compute the amount of goods available for sale. b. & c. Compute the amount of ending inventory and cost of goods sold at December 31, under Average cost, First-in, first-out, Last-in, first-out and Specific identification inventory costing methods. For Specific identification, assume that the first sale was selected two-fifths from the beginning inventory and three-fifths from the purchase of January 30. Assume that the second sale was selected from the remainder of the beginning inventory, with the balance from the purchase of May 1.
In: Accounting
EXERCISE 9-2 Production Budget [ LO3 ]
Crystal Telecom has budgeted the sales of its innovative mobile
phone over the next four months as
follows:
Sales in Units
July. . . . . . . . . . . . . . 30,000
August . . . . . . . . . . . 45,000
September . . . . . . . . 60,000
October . . . . . . . . . . 50,000
The company is now in the process of preparing a production budget
for the third quarter. Past experience
has shown that end-of-month inventories of fi nished goods must
equal 10% of the next month’s
sales. The inventory at the end of June was 3,000 units.
Required:
Prepare a production budget for the third quarter showing the
number of units to be produced each
month and for the quarter in total.
EXERCISE 9-3 Direct Materials Budget [ LO4 ]
Micro Products, Inc., has developed a very powerful electronic
calculator. Each calculator requires
three small “chips” that cost $2 each and are purchased from an
overseas supplier. Micro Products
has prepared a production budget for the calculator by quarters for
Year 2 and for the fi rst quarter of
Year 3, as shown below:
Year 2 Year 3
First Second Third Fourth First
Budgeted production,
in calculators . . . . . . . . . . . . 60,000 90,000 150,000
100,000 80,000
The chip used in production of the calculator is sometimes hard to
get, so it is necessary to carry
large inventories as a precaution against stockouts. For this
reason, the inventory of chips at the end of
a quarter must be equal to 20% of the following quarter’s
production needs. Some 36,000 chips will
be on hand to start the fi rst quarter of Year 2.
Required:
Prepare a direct materials budget for chips, by quarter and in
total, for Year 2. At the bottom of your
budget, show the dollar amount of purchases for each quarter and
for the year in total.
EXERCISE 9-4 Direct Labor Budget [ LO5 ]
The Production Department of the Riverside Plant of Junnen
Corporation has submitted the following
forecast of units to be produced at the plant for each quarter of
the upcoming fi scal year. The plant
produces high-end outdoor barbecue grills.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units to be produced . . . . . . . . 5,000 4,400 4,500 4,900
Each unit requires 0.40 direct labor-hours and direct labor-hour
workers are paid $11 per hour.
Required:
1. Construct the company’s direct labor budget for the upcoming fi
scal year, assuming that the direct
labor workforce is adjusted each quarter to match the number of
hours required to produce
the forecasted number of units produced.
2. Construct the company’s direct labor budget for the upcoming fi
scal year, assuming that the direct
labor workforce is not adjusted each quarter. Instead, assume that
the company’s direct labor
workforce consists of permanent employees who are guaranteed to be
paid for at least 1,800
hours of work each quarter. If the number of required direct
labor-hours is less than this number,
the workers are paid for 1,800 hours anyway. Any hours worked in
excess of 1,800 hours in a
quarter are paid at the rate of 1.5 times the normal hourly rate
for direct labor.
Profi t Planning 401
EXERCISE 9-5 Manufacturing Overhead Budget [ LO6 ]
The direct labor budget of Krispin Corporation for the upcoming fi
scal year contains the following
details concerning budgeted direct labor-hours.
The company’s variable manufacturing overhead rate is $1.75 per
direct labor-hour and the company’s
fi xed manufacturing overhead is $35,000 per quarter. The only
noncash item included in the fi xed
manufacturing overhead is depreciation, which is $15,000 per
quarter.
Required:
1. Construct the company’s manufacturing overhead budget for the
upcoming fi scal year.
2. Compute the company’s manufacturing overhead rate (including
both variable and fi xed manufacturing
overhead) for the upcoming fi scal year. Round off to the nearest
whole cent.
EXERCISE 9-6 Selling and Administrative Expense Budget [ LO7
]
The budgeted unit sales of Haerve Company for the upcoming fi scal
year are provided below:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted direct labor-hours . . . . . . . 5,000 4,800 5,200
5,400
The company’s variable selling and administrative expenses per unit
are $2.75. Fixed selling and administrative
expenses include advertising expenses of $12,000 per quarter,
executive salaries of
$40,000 per quarter, and depreciation of $16,000 per quarter. In
addition, the company will make insurance
payments of $6,000 in the 2nd Quarter and $6,000 in the 4th
Quarter. Finally, property taxes
of $6,000 will be paid in the 3rd Quarter.
Required:
Prepare the company’s selling and administrative expense budget for
the upcoming fi scal year.
EXERCISE 9-7 Cash Budget Analysis [ LO8 ]
A cash budget, by quarters, is given below for a retail company
(000 omitted). The company requires
a minimum cash balance of $5,000 to start each quarter.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted unit sales . . . . . . . . 12,000 14,000 11,000
10,000
Required:
Fill in the missing amounts in the table above.
Quarter
1 2 3 4 Year
Cash balance, beginning . . . . . . . . . . . . . . . . . $ 9 $ ? $
? $ ? $ ?
Add collections from customers . . . . . . . . . . . . ? ? 125 ?
391
Total cash available . . . . . . . . . . . . . . . . . . . . . 85 ?
? ? ?
Less disbursements:
Purchases of inventory. . . . . . . . . . . . . . . . . 40 58 ? 32
?
Operating expenses . . . . . . . . . . . . . . . . . . . ? 42 54 ?
180
Equipment purchases. . . . . . . . . . . . . . . . . . 10 8 8 ?
36
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2
2 2 ?
Total disbursements . . . . . . . . . . . . . . . . . . . . . ? 110
? ? ?
Excess (defi ciency) of cash available
over disbursements . . . . . . . . . . . . . . . . . . . (3) ? 30 ?
?
Financing:
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . ? 20
— — ?
Repayments (including interest)* . . . . . . . . . — — (?) (7)
(?)
Total fi nancing . . . . . . . . . . . . . . . . . . . . . . . . .
? ? ? ? ?
Cash balance, ending . . . . . . . . . . . . . . . . . . . $ ? $ ?
$ ? $ ? $ ?
*Interest will total $4,000 for the year.
In: Accounting
Tempo Company's fixed budget (based on sales of 14,000 units)
for the first quarter of calendar year 2017 reveals the
following.
|
Fixed Budget |
||||||||
|
Sales (14,000 units) |
$ |
2,954,000 |
||||||
|
Cost of goods sold |
||||||||
|
Direct materials |
$ |
350,000 |
||||||
|
Direct labor |
588,000 |
|||||||
|
Production supplies |
378,000 |
|||||||
|
Plant manager salary |
150,000 |
1,466,000 |
||||||
|
Gross profit |
1,488,000 |
|||||||
|
Selling expenses |
||||||||
|
Sales commissions |
112,000 |
|||||||
|
Packaging |
224,000 |
|||||||
|
Advertising |
100,000 |
436,000 |
||||||
|
Administrative expenses |
||||||||
|
Administrative salaries |
200,000 |
|||||||
|
Depreciation—office equip. |
170,000 |
|||||||
|
Insurance |
140,000 |
|||||||
|
Office rent |
150,000 |
660,000 |
||||||
|
Income from operations |
$ |
392,00 |
||||||
Complete the following flexible budgets for sales volumes of 12,000, 14,000, and 16,000 units. (Round cost per unit to 2 decimal places.)
|
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Note: Please solve the problem completely.
In: Accounting
Tempo Company's fixed budget (based on sales of 14,000 units)
for the first quarter of calendar year 2017 reveals the
following.
| Fixed Budget | ||||||||
| Sales (14,000 units) | $ | 3,066,000 | ||||||
| Cost of goods sold | ||||||||
| Direct materials | $ | 336,000 | ||||||
| Direct labor | 602,000 | |||||||
| Production supplies | 364,000 | |||||||
| Plant manager salary | 136,000 | 1,438,000 | ||||||
| Gross profit | 1,628,000 | |||||||
| Selling expenses | ||||||||
| Sales commissions | 126,000 | |||||||
| Packaging | 210,000 | |||||||
| Advertising | 100,000 | 436,000 | ||||||
| Administrative expenses | ||||||||
| Administrative salaries | 186,000 | |||||||
| Depreciation—office equip. | 156,000 | |||||||
| Insurance | 126,000 | |||||||
| Office rent | 136,000 | 604,000 | ||||||
| Income from operations | $ | 588,000 | ||||||
Complete the following flexible budgets for sales volumes of 12,000, 14,000, and 16,000 units. (Round cost per unit to 2 decimal places.)
|
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In: Accounting
Exercise 21-2 Preparing flexible budgets LO P1
Tempo Company's fixed budget (based on sales of 10,000 units)
for the first quarter of calendar year 2017 reveals the
following.
| Fixed Budget | ||||||||
| Sales (10,000 units) | $ | 2,150,000 | ||||||
| Cost of goods sold | ||||||||
| Direct materials | $ | 250,000 | ||||||
| Direct labor | 420,000 | |||||||
| Production supplies | 260,000 | |||||||
| Plant manager salary | 50,000 | 980,000 | ||||||
| Gross profit | 1,170,000 | |||||||
| Selling expenses | ||||||||
| Sales commissions | 70,000 | |||||||
| Packaging | 150,000 | |||||||
| Advertising | 100,000 | 320,000 | ||||||
| Administrative expenses | ||||||||
| Administrative salaries | 100,000 | |||||||
| Depreciation—office equip. | 70,000 | |||||||
| Insurance | 40,000 | |||||||
| Office rent | 50,000 | 260,000 | ||||||
| Income from operations | $ | 590,000 | ||||||
Complete the following flexible budgets for sales volumes of 8,000,
10,000, and 12,000 units. (Round cost per unit to 2 decimal
places.)
|
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In: Accounting
Budget Prices Inc. opened for business on January 01, 2017 and has budgeted sales revenue for the first quarter of 2017 as follows: January $100,000 February $175,000 March $250,000 The company anticipates that approximately 80% of sales each month will be on credit given the nature of the business, with a collection plan as follows: 50% in the month of sale 40% in the month following the sale 10% two months following the sale Required: Prepare a monthly cash collections/receipts budget for the first quarter
In: Accounting