Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:

Exercise 8-13 (Algo)

Beech’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $340,000, $360,000, $350,000, and $370,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 45% in the month of sale and 55% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

3. Each month’s ending inventory must equal 15% of the cost of next month’s sales. The cost of goods sold is 70% of sales. The company pays for 30% of its merchandise purchases in the month of the purchase and the remaining 70% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

4. Monthly selling and administrative expenses are always $44,000. Each month $6,000 of this total amount is depreciation expense and the remaining $38,000 relates to expenses that are paid in the month they are incurred.

5. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.

1.

Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30.

2a.

Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

2b.

Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30.

3.

Prepare an income statement for the quarter ended September 30.

4.

Prepare a balance sheet as of September 30.

The beginning inventory for Midnight Supplies and data on purchases and sales for a three month period are as follows:

You borrow $24,000 to buy a car. The loan is to be paid off in quarterly installments over four years at 10 percent interest annually. The first payment is due one quarter from today. What is the amount of each quarterly payment?

a) $1,745

b) $1,794

c) $1,838

d) $1,876

I need the hand-written formula, not the calculator input.

$66,800

$68,600

$43,800

$65,200

$60,600

Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter. The company usually has to borrow money during this quarter to support peak sales of lawn care equipment, which occur during May. The following information has been assembled to assist in preparing a cash budget for the quarter:

1. Budgeted monthly absorption costing income statements for April–July are:

*Includes $34,000 of depreciation each month.

2. Sales are 20% for cash and 80% on account.

3. Sales on account are collected over a three-month period with 10% collected in the month of sale; 70% collected in the first month following the month of sale; and the remaining 20% collected in the second month following the month of sale. February’s sales totaled $290,000, and March’s sales totaled $305,000.

4. Inventory purchases are paid for within 15 days. Therefore, 50% of a month’s inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable at March 31 for inventory purchases during March total $131,600.

5. Each month’s ending inventory must equal 20% of the cost of the merchandise to be sold in the following month. The merchandise inventory at March 31 is $92,400.

6. Dividends of $41,000 will be declared and paid in April.

7. Land costing $49,000 will be purchased for cash in May.

8. The cash balance at March 31 is $63,000; the company must maintain a cash balance of at least $40,000 at the end of each month.

9. 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, up to a total loan balance of $200,000. 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

The company’s president is interested in knowing how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. He revises the cash collection and ending inventory assumptions as follows:

1. Sales continue to be 20% for cash and 80% on credit. However, credit sales from April, May, and June are collected over a three-month period with 25% collected in the month of sale, 65% collected in the month following sale, and 10% in the second month following sale. Credit sales from February and March are collected during the second quarter using the collection percentages specified in the main section.

2. The company maintains its ending inventory levels for April, May, and June at 15% of the cost of merchandise to be sold in the following month. The merchandise inventory at March 31 remains $92,400 and accounts payable for inventory purchases at March 31 remains $131,600.

Required:

1. Using the president’s new assumptions in (a) above, prepare a schedule of expected cash collections for April, May, and June and for the quarter in total.

2. Using the president’s new assumptions in (b) above, prepare the following for merchandise inventory:

a. A merchandise purchases budget for April, May, and June

b. A schedule of expected cash disbursements for merchandise purchases for April, May, and June and for the quarter in total

3. Using the president’s new assumptions, prepare a cash budget for April, May, and June, and for the quarter in total

Business Decision Case The sales department of Donovan Manufacturing, Inc. has completed the

following sales forecast for the months of January through March 20X1 for its only two products:

50,000 units of J to be sold at $90 each and 30,000 units of K to be sold at $70 each. The desired

unit inventories at March 31, 20X1, are 10% of the next quarter’s unit sales forecast, which are

60,000 units of J and 30,000 units of K. The January 1, 20X1, unit inventories were 5,000 units of

J and 2,000 units of K.

Each unit of J requires 3 pounds of material A and 2 pounds of material B for its manufacture; K

requires 2 pounds of A and 4 pounds of B. The purchase cost of A is $9 per pound and the purchase

cost of B is $5 per pound. Materials A and B on hand at January 1, 20X1, were 19,000 pounds of A

and 7,000 pounds of B. Desired inventories at March 31, 20X1, are 14,000 pounds of A and 8,000

pounds of B.

Each unit of J requires 0.5 hours of direct labor in the factory; each unit of K requires 1.0 hour

of direct labor. The average hourly rate for direct labor is $12 per hour. Estimated manufacturing

overhead cost is $6 per direct labor hour plus $90,000 per month. Selling and administrative expenses

are estimated to be 10% of sales revenue plus $180,000 per month.

Cash sales for the first quarter are estimated to be $300,000 per month. It is forecast that 30%

of the credit sales for the quarter ended March 31, 20X1, will occur in January, 30% in February,

and 40% in March. Of credit sales (December through March), 40% will be collected as cash in the

month of sale and 55% will be collected in the following month. The remainder will be uncollectible.

Cash collected in January 20X1 from December 20X0 sales will be $1,050,000.

The January 1, 20X1, cash balance was $70,000. The minimum acceptable cash balance at

the end of each month is $60,000. Short-term borrowings (6-month term) are made in multiples of

$10,000. Interest is charged at the rate of 1% per month on short-term borrowings. The first interest

payment is made the month following the borrowing. Cash disbursements (excluding interest on

short-term borrowings) are estimated as follows:

January February March

Manufacturing costs .................... $1,500,000 $1,300,000 $1,400,000

Selling and administrative expenses ....... 390,000 410,000 400,000

Interest expense....................... 90,000 90,000 90,000

Income tax payment .................... 0 0 210,000

Capital expenditures.................... 124,000 110,000 50,000

Cash dividends........................ 300,000 0 0

Required

a. Prepare the sales budget for the quarter ended March 31, 20X1.

b. Prepare the production budget for the quarter ended March 31, 20X1.

c. Prepare the direct materials budget for the quarter ended March 31, 20X1.

d. Prepare the direct labor budget for the quarter ended March 31, 20X1.

e. Prepare the manufacturing overhead budget for the quarter ended March 31, 20X1.

f . Prepare the selling and administrative expense budget for the quarter ended March 31, 20X1.

g. Prepare a schedule of cash collected from customers for the quarter ended March 31, 20X1.

h. Prepare the cash budget for the quarter ended March 31, 20X1.

Upload Cars04-1 Cars04-1 data and use engine size to predict the car’s city gas mileage(City MPG). Answer the questions.

I) For each additional 2.0 liter in engine size how much the MPG will change? (11.11 points)

• a. It will decrease by 0.21 mpg.
• b. It will decrease by 8.21 mpg.
• c. It will be 25.49 mpg.
• d. For car with zero horse power we expect 33.7 mpg.
• e. Not applicable.

II) After performing the regression analysis you are asked to pick one number that would best answer the question: Are these two variables, engine size and city gas mileage, related or not? What is this number and why?  (11.11 points)

• a. The number is the P-value, which in this case is very low indicating a strong probability that the two variables are related.
• b. The number is the slope and it clearly indicates the relation: For each additional liter in engine size the mpg decreases.
• c. This number is R-square and since it is not close to 1 we cannot claim that these two variables are related.
• d. None of these.

III) Given a car that has the engine size of 3.0 liters use regression analysis and all available information in there, in order to predict this car’s city gas mileage. What is your interval prediction? (11.11 points)

• a. ±4.15
• b. 33.7
• c. 21.38
• d. [17.09, 25.68]
• e. Not applicable

  EngineSize	CityMPG
  1.6	28
  1.6	28
  2.2	26
  2.2	26
  2.2	26
  2	29
  2	29
  2	26
  2	27
  2	26
  2	26
  1.7	32
  1.7	36
  1.7	32
  1.6	29
  1.6	29
  1.6	29
  2	26
  2	26
  2	26
  2.4	23
  1.6	26
  1.6	25
  1.8	24
  1.8	24
  1.8	24
  1.6	28
  1.8	28
  1.8	28
  2.2	24
  2.2	26
  2.2	26
  2.2	26
  2.2	26
  2.2	26
  1.5	32
  2.3	25
  2.3	25
  2	24
  2	22
  1.8	32
  1.8	32
  1.8	32
  1.5	35
  1.5	33
  1.5	35
  3.1	20
  3.4	21
  2.2	24
  3.5	22
  3.4	21
  2.4	22
  2.4	22
  2.4	22
  2.7	21
  2.7	21
  2.4	21
  2.4	21
  2	21
  3	20
  3	19
  2.4	26
  2.4	26
  1.7	32
  2	26
  1.4	46
  2	60
  2.7	19
  2.7	19
  2.7	20
  2.3	24
  3	20
  1.6	25
  2.5	21
  2.5	23
  2.2	24
  3.4	20
  3.8	20
  2.2	24
  3	20
  2.5	22
  2.5	21
  2.5	20
  2.4	24
  3	21
  2.4	24
  3.3	20
  1.5	59
  2	24
  1.8	24
  1.9	38
  1.8	24
  2	24
  2.4	22
  1.8	22
  2.5	20
  3.8	20
  3.8	20
  3.8	18
  3.8	20
  3.8	18
  3.5	23
  3.8	18
  3.5	18
  2.7	21
  3.5	19
  2.4	21
  2.4	22
  3.5	18
  4.6	17
  4.6	17
  3	21
  3	21
  3.5	17
  3.5	17
  3.5	18
  3.5	18
  2.5	18
  1.8	22
  3.2	19
  4.6	17
  4.6	17
  3	19
  3.5	18
  3.8	18
  3.5	21
  3.5	20
  3.5	20
  3.4	20
  3.8	20
  2.5	21
  2.5	20
  3	19
  3	21
  3	21
  3.3	20
  2.8	21
  2	24
  1.8	22
  1.9	22
  3.2	20
  1.8	23
  3	20
  3	17
  3	18
  3	20
  3	18
  2.5	20
  2.5	19
  2.5	19
  3	20
  3	20
  3	20
  2.5	19
  3.8	20
  3.8	20
  3.6	18
  3.5	18
  2.7	21
  4.6	17
  3.5	18
  3.5	19
  3	18
  3.3	20
  3	18
  3	18
  3	20
  3	20
  2.6	20
  2.6	19
  3.2	19
  3.2	20
  4.6	17
  4.6	17
  2	20
  2	20
  2.3	21
  2.3	21
  3	19
  3	21
  2.8	19
  4	18
  2.5	20
  2.3	20
  2.5	18
  2.9	20
  2.5	20
  3.5	18
  3.5	18
  3	20
  3	18
  2.7	18
  4.2	17
  4.2	17
  4.2	14
  3	19
  3	20
  4.4	18
  4.4	18
  4.4	18
  3.8	18
  4.6	18
  4.6	18
  4.6	18
  4.5	17
  4.5	17
  3	18
  4.2	18
  4.2	17
  4.2	18
  4.2	18
  4.2	17
  3	18
  4.3	18
  4.3	18
  3.9	17
  3.9	17
  4.6	17
  4.6	17
  4.6	17
  3.2	16
  5	16
  5.5	13
  3.2	20
  5	17
  3.2	19
  5	16
  4.3	18
  5	16
  2	21
  2	21
  2.4	21
  2.3	20
  2.9	19

Use engine size to predict the car’s width. Answer the questions.

I) For each additional 3.0 liter in engine size how much the car’s width will change? (11.11 points)

• a. It will increase by 2.42 units.
• b. It will increase by 7.27 units.
• c. It will increase by 68.2 units.
• d. It will increase by 63.3 units.
• e. Not applicable.

II) After performing the regression analysis you are asked to pick one number that would best answer the question: Are these two variables, engine size and car width, related or not? What is this number and why? (11.11 points)

• a. The number is the slope and it clearly indicates the relation: For each additional liter in engine size the car’s width increases.
• b. This number is R-square and since it is not close to 1 we cannot claim that these two variables are related.
• c. The number is the P-value, which in this case is very low indicating a strong probability that the two variables are related.
• d. None of these.

III) Given a car that has engine size of 2.0 liters use regression analysis and all available information in there, in order to predict this car’s width. What is your interval prediction?   (11.11 points)

• a. [66.36, 70.09]
• b. ± 1.8
• c. 68.2
• d. 63.3
• e. Not applicable

1. Vertical Analysis of Income Statement

   Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:

   	Current Year		Previous Year
   Sales	$580,000		$522,000
   Cost of goods sold	324,800		261,000
   Selling expenses	104,400		104,400
   Administrative expenses	110,200		93,960
   Income tax expense	17,400		26,100

   a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers.

   Innovation Quarter Inc.
   Comparative Income Statement
   For the Years Ended December 31
   	Current year Amount	Current year Percent	Previous year Amount	Previous year Percent
   Sales	$580,000	%	$522,000	%
   Cost of goods sold	324,800	%	261,000	%
   Gross profit Income from operations Net income Total operating expenses	$	%	$	%
   Selling expenses	104,400	%	104,400	%
   Administrative expenses	110,200	%	93,960	%
   Gross profit Income from operations Net income Total operating expenses	$	%	$	%
   Gross profit Income from operations Net income Total operating expenses		%		%
   Income tax expense	17,400	%	26,100	%
   Gross profit Income from operations Net income Total operating expenses	$	%	$	%

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   b. The vertical analysis indicates that the cost of goods sold as a percent of sales

   • increased
   • decreased
   by 6 percentage points, while selling expenses
   • increased
   • decreased
   by 2 percentage points, and administrative expenses
   • increased
   • decreased
   by 1 percentage points. Thus, net income as a percent of sales
   • increased
   • decreased
   by 3 percentage points.

1. A drilling company reserves are depleting. Production is falling as are sales, costs are rising as production becomes more difficult, and earnings are expected to decline by 9% per year into perpetuity. The firm just paid a $10 dividend and the cost of equity is 6.5%. What is the value of the stock?