Pargo Company is preparing its master budget for 2020. Relevant data pertaining to its sales, production, and direct materials budgets are as follows.
| Sales. Sales for the year are expected to total 2,000,000 units. Quarterly sales are 18%, 26%, 23%, and 33%, respectively. The sales price is expected to be $38 per unit for the first three quarters and $45 per unit beginning in the fourth quarter. Sales in the first quarter of 2021 are expected to be 15% higher than the budgeted sales for the first quarter of 2020. |
| Production. Management desires to maintain the ending finished goods inventories at 25% of the next quarter’s budgeted sales volume. |
| Direct materials. Each unit requires 2 pounds of raw materials at a cost of $10 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter’s production requirements. Assume the production requirements for first quarter of 2021 are 504,000 pounds. |
Prepare the sales, production, and direct materials budgets by
quarters for 2020.
In: Accounting
RiverbedCompany is preparing its master budget for 2017. Relevant data pertaining to its sales, production, and direct materials budgets are as follows. Sales. Sales for the year are expected to total 1,400,000 units. Quarterly sales are 18%, 26%, 24%, and 32%, respectively. The sales price is expected to be $40 per unit for the first three quarters and $46 per unit beginning in the fourth quarter. Sales in the first quarter of 2018 are expected to be 10% higher than the budgeted sales for the first quarter of 2017. Production. Management desires to maintain the ending finished goods inventories at 20% of the next quarter’s budgeted sales volume. Direct materials. Each unit requires 2 pounds of raw materials at a cost of $12 per pound. Management desires to maintain raw materials inventories at 10% of the next quarter’s production requirements. Assume the production requirements for first quarter of 2018 are 505,000 pounds.
A.) Prepare the production budget by quarters for 2017.
B.) Prepare the direct materials budget by quarters for 2017.
In: Accounting
Pargo Company is preparing its master budget for 2017. Relevant
data pertaining to its sales, production, and direct materials
budgets are as follows.
Sales. Sales for the year are expected to total 1,900,000
units. Quarterly sales are 22%, 26%, 27%, and 25%, respectively.
The sales price is expected to be $41 per unit for the first three
quarters and $44 per unit beginning in the fourth quarter. Sales in
the first quarter of 2018 are expected to be 15% higher than the
budgeted sales for the first quarter of 2017.
Production. Management desires to maintain the ending
finished goods inventories at 20% of the next quarter’s budgeted
sales volume.
Direct materials. Each unit requires 2 pounds of raw
materials at a cost of $10 per pound. Management desires to
maintain raw materials inventories at 10% of the next quarter’s
production requirements. Assume the production requirements for
first quarter of 2018 are 495,000 pounds.
Prepare the sales, production, and direct materials budgets by
quarters for 2017.
In: Accounting
Question 2 Motswatswa (Pty) Ltd manufactures a special make of lounge suite covers and has compiled the following data in order to put together their first quarter operating budget for 2020: January February March April Sales (units) 35,000 31,000 38,000 29,000 Additional information: Motswatswa sells each cover for R95. Company policy is to have 30% of next month’s sales (in units) in ending finished goods inventory. This policy was met in December. Company policy is to have 40% of next month’s production needs in ending raw materials inventory. The production needs for April is 95,500. This policy was met in December. It takes three meters of material to produce each cover and the cost is R2.75/meters. Required: A. Prepare a sales budget for the January, February and March and for the first quarter in total. (4) B. Prepare a production budget for January, February and March and for the first quarter in total. (8) C. Prepare a direct material purchases budget for January, February and March and for the first quarter in total. (12)
In: Accounting
Question 2
Motswatswa (Pty) Ltd manufactures a special make of lounge suite covers and has compiled the following data in order to put together their first quarter operating budget for 2020:
January February March April
Sales (units) 35,000 31,000 38,000 29,000
Additional information:
Motswatswa sells each cover for R95.
Company policy is to have 30% of next month's sales (in units) in ending finished goods inventory. This policy was met in December.
Company policy is to have 40% of next month's production needs in ending raw materials inventory. The production needs for April is 95,500. This policy was met in December. It takes three meters of material to produce each cover and the cost is R2.75/meters.
Required:
A. Prepare a sales budget for the January, February and March and for the first quarter in total. (4)
B. Prepare a production budget for January, February and March and for the first quarter in total. (8)
C. Prepare a direct material purchases budget for January, February and March and for the first quarter in total. (12)
In: Accounting
Exercise 20-34 Budgeted income statement LO P3
Fortune, Inc., is preparing its master budget for the first
quarter. The company sells a single product at a price of $25 per
unit. Sales (in units) are forecasted at 37,000 for January, 57,000
for February, and 47,000 for March. Cost of goods sold is $12 per
unit. Other expense information for the first quarter
follows.
| Commissions | 11 | % | of sales dollars | ||
| Rent | $ | 22,000 | per month | ||
| Advertising | 14 | % | of sales dollars | ||
| Office salaries | $ | 75,000 | per month | ||
| Depreciation | $ | 52,000 | per month | ||
| Interest | 10 | % | annually on a $250,000 note payable | ||
| Tax rate | 40 | % | |||
Prepare a budgeted income statement for this first quarter.
(Round your final answers to the nearest whole
dollar.)
In: Accounting
The Grilton Tire Company manufactures racing tires for bicycles. Grilton sells tires for $50 each. Grilton is planning for next year (2020) by developing a master budget by quarters. Grilton’s balance sheet for December 31, 2019 follows:
GRILTON TIRE COMPANY
Balance Sheet
December 31, 2019
Assets
Current Assets:
Cash $ 39,000
Accounts Receivable 40,000
Raw Materials Inventory 2,400
Finished Goods Inventory 8,700
Total Current Assets $ 90,100
Property, Plant and Equipment:
Equipment 177,000
Less: Accumulated Depreciation (42,000) 135,000
Total Assets $225,100
Liabilities
Current Liabilities:
Accounts Payable $ 8,000
Stockholder’s Equity
Common Stock, no par $ 130,000
Retained Earnings 87,100
Total Stockholder’s Equity 217,100
Total Liabilities and Stockholder’s Equity $225,100
Other data for Grilton Tire Company:
| 1 | Grilton Tire Company | |||||
| Sales Budget | ||||||
| For the Year Ended December 31, 2020 | ||||||
| Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Total | ||
| Budgeted tires to be sold | 1500 | 1700 | 1900 | 2100 | 7200 | |
| Selling price per unit | $ 50 | $ 50 | $ 50 | $ 50 | $ 50 | |
| Total sales $ | 75000 | 85000 | 95000 | 105000 | 360000 | |
| 2 | Grilton Tire Company | |||||
| Schedule of Expected Cash Collections | ||||||
| For the Year Ended December 31, 2020 | ||||||
| Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Total | ||
| Sales $ | 75000 | 85000 | 95000 | 105000 | 360000 | |
| Cash sales collections (30%) | 22500 | 25500 | 28500 | 31500 | 108000 | |
| Collections for credit sales of: | ||||||
| Previous quarter (40%) | 40000 | 21000 | 23800 | 26600 | 111400 | |
| Current quarter (60%) | 31500 | 35700 | 39900 | 44100 | 151200 | |
| Collection on credit sales | 71500 | 56700 | 63700 | 70700 | 262600 | |
| Total cash collections $ | 94000 | 82200 | 92200 | 102200 | 370600 | |
| 3 | Grilton Tire Company | |||||
| Production Budget | ||||||
| For the Year Ended December 31, 2020 | ||||||
| Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Total | ||
| Budgeted tires to be sold | 1500 | 1700 | 1900 | 2100 | 7200 | |
| Add: Desired ending FG inventory | 680 | 760 | 840 | 920 | 920 | |
| Total tires needed | 2180 | 2460 | 2740 | 3020 | 8120 | |
| Less: Beginning FG inventory | 300 | 680 | 760 | 840 | 300 | |
| Budgeted tires to be produced | 1880 | 1780 | 1980 | 2180 | 7820 | |
4. Prepare a direct materials budget for each quarter and in total for the year 2020.
5. Prepare a schedule of expected cash disbursements for purchases of materials for each quarter and in total of the year 2020.
6. Prepare a budgeted Schedule of Cost of Goods Manufactured for the year of 2020.
7. Prepare a budgeted Income Statement for the year of 2020
8. Prepare a cash budget for the year of 2020.
In: Accounting
John Ovard, president of Mylar Inc., is looking forward to
receiving the company’s second-quarter income statement. He knows
the sales budget of 20,000 units sold was met during the second
quarter and that this represented a 25% increase in sales over the
first quarter. He is especially happy about the increase in sales,
since Mylar is about to approach its bank for additional loan money
for expansion purposes. He anticipates that the strong second
quarter results will be a real plus in persuading the bank to
extend the additional credit.
For this reason, Ovard is shocked when he receives the
second-quarter income statement below, which shows a substantial
drop in absorption costing operating income from the first
quarter.
|
Mylar Inc. |
||||
|---|---|---|---|---|
| Quarter 1 | Quarter 2 | |||
| Sales | $1,600,000 | $2,000,000 | ||
| Cost of goods sold: | ||||
| Opening inventory | $210,000 | $490,000 | ||
| Add: cost of goods manufactured | 1,400,000 | 980,000 | ||
| 1,610,000 | 1,470,000 | |||
| Less: ending inventory | 490,000 | 70,000 | ||
| Add: underapplied overhead | 0 | 1,120,000 | 240,000 | 1,640,000 |
| Gross margin | 480,000 | 360,000 | ||
| Selling and administrative expenses | 310,000 | 330,000 | ||
| Operating income | $170,000 | $30,000 | ||
Ovard is certain there is an error somewhere and immediately
calls the controller into his office to find the problem. The
controller states, “That operating income is correct John. Sales
went up during the second quarter, but the problem is in
production. You see, we budgeted to produce 20,000 units each
quarter, but a strike in one of our supplier’s plants forced us to
cut production back to only 14,000 units in the second quarter.
That’s what caused the drop in operating income.”
Ovard is angered by the controller’s explanation: “I call you in
here to find out why income dropped when sales went up, and talk
about production! So, what if production was off? What does that
have to do with the sales that we made? If sales go up, then income
ought to go up. If your statements can’t show a simple thing like
that, then we’re due for some changes in your area!”
Budgeted production and sales for the year, along with actual
production and sales for the first two quarters, are given
below.
| Quarter | ||||
|---|---|---|---|---|
| First | Second | Third | Fourth | |
| Budgeted sales | 16,000 | 20,000 | 20,000 | 24,000 |
| Actual sales | 16,000 | 20,000 | -- | -- |
| Budgeted production | 20,000 | 20,000 | 20,000 | 20,000 |
| Actual production | 20,000 | 14,000 | -- | -- |
The company’s plant is heavily automated, so fixed manufacturing
overhead costs total $800,000 per quarter. Variable manufacturing
costs are $30 per unit. The fixed manufacturing overhead cost is
applied to units of product at the rate of $40 per unit (based on
the budgeted production shown above). Any underapplied or
overapplied overhead is closed directly to cost of goods sold for
the quarter.
The company had 3,000 units in inventory to start the first quarter
and uses the FIFO inventory flow assumption. Variable selling and
administrative expenses are $5 per unit sold.
Assignment Instructions
Take on the role of the controller of Mylar Inc. Write a memo to Ovard to explain the following:
1-What characteristic of absorption costing caused the drop in operating income for the second quarter?
2-Prepare a contribution format income statement for each quarter using variable costing, and reconcile the resulting operating income figure to that of the absorption costing operating income for each quarter.
3-Identify and discuss the advantages and disadvantages of using the variable costing method for internal reporting purposes.
4-Provide Ovard with an example: Assume the company had introduced lean production methods at the beginning of the second quarter, resulting in zero ending inventory. (Sales and production during the first quarter were as shown above.)
5-How many units would have been produced during the second quarter under lean production?
6-Starting with the third quarter, would you expect and difference between the operating income reported under absorption costing and under variable costing? Explain why there would or would not be a difference.
In: Accounting
The small open economy of Hundred Acre Wood has a fixed exchange rate and is initially in short-run equilibrium. An outbreak of COVID-19 occurs and as a result money demand rises AND autonomous consumption falls. Suppose policy makers would like to keep fluctuations in the unemployment rate as small as possible, this implies the best policy reaction would be to:
a) increase the money supply (only)
b) Increase taxes (only)
c) Increase the money supply, cut taxes and cut government spending on goods and services
d) cut government spending on goods and services and increases taxes (ONLY)
e) Decrease the money supply, cut taxes, and cut government spending on goods and services
f) Cut government spending on goods and services (only)
g) Decrease the money supply (only)
g) INcrease the money supply, increase taxes and increase government spending on goods and services
h) INcrease government spending on goods and services and/or cut taxes (only)
i) Increase government spending on goods and services; and revalue the fixed exchange rate
j) Cut taxes and revalue the fixed exchange rate
k) Decrease the money supply, increase taxes government spending on goods and services
In: Economics
Oriole Inc. had sales of $2,260,000 for the first quarter of
2020. In making the sales, the company incurred the following costs
and expenses.
|
Variable |
Fixed |
|||
|---|---|---|---|---|
| Cost of goods sold | $925,000 | $461,000 | ||
| Selling expenses | 74,000 | 91,000 | ||
| Administrative expenses | 109,000 | 100,000 |
Prepare a CVP income statement for the quarter ended March 31,
2020.
|
ORIOLE INC. |
||
|---|---|---|
|
select an income statement item Administrative ExpensesContribution MarginCost of Goods SoldFixed CostsGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Costs |
$enter a dollar amount |
|
|
select an income statement item Administrative ExpensesContribution MarginCost of Goods SoldFixed CostsGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Costs |
enter a dollar amount |
|
|
select a summarizing line for the first part Administrative ExpensesContribution MarginCost of Goods SoldFixed CostsGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Costs |
enter a total amount for the first part |
|
|
select an income statement item Administrative ExpensesContribution MarginCost of Goods SoldFixed CostsGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Costs |
enter a dollar amount |
|
|
select a closing name for this statement Administrative ExpensesContribution MarginCost of Goods SoldFixed CostsGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Costs |
$enter a total net income or loss amount |
|
In: Accounting