Master Budget Case: Wooden Pull Toys Inc. Wooden Pull Toys Ltd. is a company that manufactures and sells a single product, which they call a Baby Turtle. For planning and control purposes they utilize a quarterly master budget, which is usually developed at least six months in advance of the budget period. Their fiscal year end is December 31. During the summer of 2019, Jimmy C., the Wooden Pull Toys controller, spent considerable time with Fanny L., the Manager of Marketing, putting together a sales forecast for the first quarter of next year (January to March, 2020). Unfortunately, their collaboration worked so well they eloped to Niagara, ON, were married and settled down. Prior to their departure they e-mailed letters of resignation and a cryptic sales forecast to the President of Wooden Pull Toys. Their sales forecast consisted of these few lines: • For the year ended December 31, 2019: 475,000 units at $11.00 each* • For the year ended December 31, 2020: 500,000 units at $11.00 each • For the year ended December 31, 2021: 500,000 units at $11.00 each *Expected sales for the year ended December 31, 2019 are based on actual sales to date and budgeted sales for the duration of the year. Wooden Pull Toys’ President felt certain that the marriage wouldn’t last, and expected Chris would be back any day. But the end of the year is quickly approaching, and there is still no word from the desert. The President, desperately needing the budget completed, has approached you, a management accounting student, for help in preparing the budget for the first quarter. Your conversations with the President and your investigations of the company’s records have revealed the following information: 1. Sales of Baby Turtles are seasonal. History shows that January, March, May and June are the slowest months with only 5% of sales for each month. Sales pick up over the summer with July, August and September each contributing 6% to the total. Valentines Day in February boosts sales to 10%, and spring break in April accounts for 7%. As Christmas shopping picks up momentum, winter sales start at 10% in October, move to 15% in November and then peak at 20% in December. This pattern of sales is not expected to change in the next two years. 2. From previous experience, management has determined that an ending inventory equal to 25% of the next month’s sales is required to fit the buyer’s demands. 3. There is only one type of raw material used in the production of Baby Turtles. R700 is a very compact material that is purchased in powder form. Each Baby Turtle requires 5 kilograms of R700, at a cost of $0.45 per kilogram. The supplier of R700 tends to be somewhat erratic so Wooden Pull Toys finds it necessary to maintain an inventory balance equal to 40% of the following month’s production needs as a precaution against stock-outs. Wooden Pull Toys pays for 20% of a month’s purchases in the month of purchase, 45% in the following month and the remaining 35% two months after the month of purchase. There is no early payment discount. 4. Beginning accounts payable will consist of $167,084 arising from the following estimated direct material purchases for November and December of 2019: R700 purchases in November 2019: $173,953 R700 purchases in December 2019 $132,750 5. Wooden Pull Toys’ manufacturing process is highly automated, so their direct labour cost is low. Employees are paid on a per unit basis. Their total pay each month is, therefore, dependent on production volumes and averages $9.00 per hour. This rate already includes the employer’s portion of employee benefits. All payroll costs are paid in the period in which they are incurred. Each unit spends a total of 18 minutes in production. 6. Due to the similarity of the equipment in each of the production stages and the company’s concentration on a single product, manufacturing overhead is allocated based on volume (i.e. the units produced). The unit variable overhead manufacturing rate is $1.30, consisting of: Utilities--$0.60; Indirect Materials--$0.20; Plant maintenance--$0.30; environmental fee--$0.14; and Other--$0.06. 7. The fixed manufacturing overhead costs for the entire year are as follows: Training and development $ 43,200 Repairs and maintenance 39,000 Supervisors’ salaries 149,400 Depreciation on equipment 178,800 Plant Insurance 96,000 Other 117,600 $ 624,000 • The annual insurance premium of $96,000 will be paid at the beginning of January. There is no change in the premium from last year. • All other “cash-related” fixed manufacturing overhead costs are incurred evenly over the year and paid as incurred. • Wooden Pull Toys uses the straight line method of depreciation. 8. Selling and administrative expenses are known to be a mixed cost; however, there is a lot of uncertainty about the portion that is fixed. Previous years’ experience has provided the following information: Lowest level of sales: 375,000 units Total Operating Expenses: $778,710 Highest level of sales: 750,000 units Total Operating Expenses: $1,022,460 These costs are paid in the month in which they occur. Not included in the above expenses is bad debt expense. 9. Sales are on a cash and credit basis, with 55% collected during the month of the sale, 35% the following month, and 9.5% the month thereafter. ½ of 1% of sales are considered uncollectible (bad debt expense). 10. Sales in November and December 2019 are expected to be $783,750 and $1,045,000 respectively. Based on the above collection pattern this will result in Accounts Receivable of $539,481 at December 31, 2019 which will be collected in January and February, 2020. 11. During the fiscal year ended December 31, 2020, Wooden Pull Toys will be required to make monthly income tax installment payments of $1,500. Outstanding income taxes from the year ended December 31, 2019 must be paid in March 2020. Income tax expense is estimated to be 25% of net income. Income taxes for the year ended December 31, 2020, in excess of installment payments, will be paid in March, 2021. 12. Wooden Pull Toys is planning to acquire additional manufacturing equipment for $304,200 cash. 40% of this amount is to be paid in January 2020, the rest, in February 2020. The manufacturing overhead costs shown above already include the depreciation on this equipment. 13. An arrangement has been made with the local bank that if Wooden Pull Toys maintains a minimum balance of $20,000 in their bank account, they will be given a line of credit at a preferred rate of 6% per annum. All borrowing is considered to happen on the first day of the month, repayments are on the last day of the month. All borrowings and repayments from the bank should be in multiples of $1,000 and interest must be paid at the end of each month. Interest is calculated on the balance at the beginning of the month, which includes any amounts borrowed that month. 14. Wooden Pull Toys Ltd. has a policy of paying dividends at the end of each quarter. The President tells you that the board of directors is planning on continuing their policy of declaring dividends of $50,000 per quarter.   15. A listing of the estimated balances in the company’s ledger accounts as of December 31, 2019 is given below: Cash $ 64,165 Accounts receivable 539,481 Inventory-raw materials 28,125 Inventory-finished goods 45,625 Capital assets (net) 724,000 $ 1,401,396 Accounts payable $ 167,084 Income tax payable 21,500 Capital stock 1,000,000 Retained earnings 212,813 $ 1,401396 ________________________________________ Required: Prepare a master budget for Wooden Pull Toys for the first quarter (January, February and March) of the year ending December 31, 2020, including the following schedules: Ending Finished Goods Inventory Budget Selling and Administrative Expense Budget Cash Budget Prepare a budgeted income statement for the quarter ended March 31, 2020. Prepare a budgeted balance sheet at March 31, 2020.

Master Budget Case: Wooden Pull Toys Inc. Wooden Pull Toys Ltd. is a company that manufactures and sells a single product, which they call a Baby Turtle. For planning and control purposes they utilize a quarterly master budget, which is usually developed at least six months in advance of the budget period. Their fiscal year end is December 31. During the summer of 2019, Jimmy C., the Wooden Pull Toys controller, spent considerable time with Fanny L., the Manager of Marketing, putting together a sales forecast for the first quarter of next year (January to March, 2020). Unfortunately, their collaboration worked so well they eloped to Niagara, ON, were married and settled down. Prior to their departure they e-mailed letters of resignation and a cryptic sales forecast to the President of Wooden Pull Toys. Their sales forecast consisted of these few lines: • For the year ended December 31, 2019: 475,000 units at $11.00 each* • For the year ended December 31, 2020: 500,000 units at $11.00 each • For the year ended December 31, 2021: 500,000 units at $11.00 each *Expected sales for the year ended December 31, 2019 are based on actual sales to date and budgeted sales for the duration of the year. Wooden Pull Toys’ President felt certain that the marriage wouldn’t last, and expected Chris would be back any day. But the end of the year is quickly approaching, and there is still no word from the desert. The President, desperately needing the budget completed, has approached you, a management accounting student, for help in preparing the budget for the first quarter. Your conversations with the President and your investigations of the company’s records have revealed the following information: 1. Sales of Baby Turtles are seasonal. History shows that January, March, May and June are the slowest months with only 5% of sales for each month. Sales pick up over the summer with July, August and September each contributing 6% to the total. Valentines Day in February boosts sales to 10%, and spring break in April accounts for 7%. As Christmas shopping picks up momentum, winter sales start at 10% in October, move to 15% in November and then peak at 20% in December. This pattern of sales is not expected to change in the next two years. 2. From previous experience, management has determined that an ending inventory equal to 25% of the next month’s sales is required to fit the buyer’s demands. 3. There is only one type of raw material used in the production of Baby Turtles. R700 is a very compact material that is purchased in powder form. Each Baby Turtle requires 5 kilograms of R700, at a cost of $0.45 per kilogram. The supplier of R700 tends to be somewhat erratic so Wooden Pull Toys finds it necessary to maintain an inventory balance equal to 40% of the following month’s production needs as a precaution against stock-outs. Wooden Pull Toys pays for 20% of a month’s purchases in the month of purchase, 45% in the following month and the remaining 35% two months after the month of purchase. There is no early payment discount. 4. Beginning accounts payable will consist of $167,084 arising from the following estimated direct material purchases for November and December of 2019: R700 purchases in November 2019: $173,953 R700 purchases in December 2019 $132,750 5. Wooden Pull Toys’ manufacturing process is highly automated, so their direct labour cost is low. Employees are paid on a per unit basis. Their total pay each month is, therefore, dependent on production volumes and averages $9.00 per hour. This rate already includes the employer’s portion of employee benefits. All payroll costs are paid in the period in which they are incurred. Each unit spends a total of 18 minutes in production. 6. Due to the similarity of the equipment in each of the production stages and the company’s concentration on a single product, manufacturing overhead is allocated based on volume (i.e. the units produced). The unit variable overhead manufacturing rate is $1.30, consisting of: Utilities--$0.60; Indirect Materials--$0.20; Plant maintenance--$0.30; environmental fee--$0.14; and Other--$0.06. 7. The fixed manufacturing overhead costs for the entire year are as follows: Training and development $ 43,200 Repairs and maintenance 39,000 Supervisors’ salaries 149,400 Depreciation on equipment 178,800 Plant Insurance 96,000 Other 117,600 $ 624,000 • The annual insurance premium of $96,000 will be paid at the beginning of January. There is no change in the premium from last year. • All other “cash-related” fixed manufacturing overhead costs are incurred evenly over the year and paid as incurred. • Wooden Pull Toys uses the straight line method of depreciation. 8. Selling and administrative expenses are known to be a mixed cost; however, there is a lot of uncertainty about the portion that is fixed. Previous years’ experience has provided the following information: Lowest level of sales: 375,000 units Total Operating Expenses: $778,710 Highest level of sales: 750,000 units Total Operating Expenses: $1,022,460 These costs are paid in the month in which they occur. Not included in the above expenses is bad debt expense. 9. Sales are on a cash and credit basis, with 55% collected during the month of the sale, 35% the following month, and 9.5% the month thereafter. ½ of 1% of sales are considered uncollectible (bad debt expense). 10. Sales in November and December 2019 are expected to be $783,750 and $1,045,000 respectively. Based on the above collection pattern this will result in Accounts Receivable of $539,481 at December 31, 2019 which will be collected in January and February, 2020. 11. During the fiscal year ended December 31, 2020, Wooden Pull Toys will be required to make monthly income tax installment payments of $1,500. Outstanding income taxes from the year ended December 31, 2019 must be paid in March 2020. Income tax expense is estimated to be 25% of net income. Income taxes for the year ended December 31, 2020, in excess of installment payments, will be paid in March, 2021. 12. Wooden Pull Toys is planning to acquire additional manufacturing equipment for $304,200 cash. 40% of this amount is to be paid in January 2020, the rest, in February 2020. The manufacturing overhead costs shown above already include the depreciation on this equipment. 13. An arrangement has been made with the local bank that if Wooden Pull Toys maintains a minimum balance of $20,000 in their bank account, they will be given a line of credit at a preferred rate of 6% per annum. All borrowing is considered to happen on the first day of the month, repayments are on the last day of the month. All borrowings and repayments from the bank should be in multiples of $1,000 and interest must be paid at the end of each month. Interest is calculated on the balance at the beginning of the month, which includes any amounts borrowed that month. 14. Wooden Pull Toys Ltd. has a policy of paying dividends at the end of each quarter. The President tells you that the board of directors is planning on continuing their policy of declaring dividends of $50,000 per quarter.   15. A listing of the estimated balances in the company’s ledger accounts as of December 31, 2019 is given below: Cash $ 64,165 Accounts receivable 539,481 Inventory-raw materials 28,125 Inventory-finished goods 45,625 Capital assets (net) 724,000 $ 1,401,396 Accounts payable $ 167,084 Income tax payable 21,500 Capital stock 1,000,000 Retained earnings 212,813 $ 1,401396 ________________________________________ Required: Prepare a master budget for Wooden Pull Toys for the first quarter (January, February and March) of the year ending December 31, 2020, including the following schedules: Sales Budget Schedule of Cash Receipts Production Budget Direct Materials Budget Schedule of Cash Disbursements Direct Labour Budget Manufacturing Overhead Budget Ending Finished Goods Inventory Budget Selling and Administrative Expense Budget Cash Budget Prepare a budgeted income statement for the quarter ended March 31, 2020. Prepare a budgeted balance sheet at March 31, 2020.

Champion Motors assembles and sells motor vehicles and uses standard costing. Actual data and variable costing and absorption costing income statements relating to April and May 2017are as​ follows:

The selling price per vehicle is $21,000. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is

700 units. There are no​ price, efficiency, or spending variances. Any​ production-volume variance is written off to cost of goods sold in the month in which it occurs.

variable costing income statements

absorption costing income statements

The variable manufacturing costs per unit of Champion Motors are as​ follows:

April May

Direct material cost per unit. $6,600 $6,600

Direct manufacturing labor cost per unit 1,100 1,100

Manufacturing overhead cost per unit. 300 300

Requirement 1. Prepare income statements for Champion Motors in April and May

2017 under throughput costing.

Begin by completing the top portion of the​ statement, then the bottom portion. ​

1. What are the primary goals of inventory managers?

2. Inventory means goods held for sale in the normal course of business or used to produce goods for sale. Define the following:

Merchandise Inventory -

Finished goods inventory -

Consignment inventory -

3. How is inventory categorized on the balance sheet and why?

4. What is the value of the inventory recorded on the balance sheet?

5. When a company sells inventory what is the JE that must be recorded?

6. What is the cost of goods sold (COGS) equation?   Solve for the cost of goods sold based on the following information: Beginning inventory = $50,500, Purchases = $700,000, Ending inventory = $ 75,000.

7. Calculate COGS and ending inventory for a perpetual inventory system using the following detail:

            FIFO:

LIFO:

              Weighted Average:

8. Which inventory costing method results in the most net income and why?

9. Which inventory costing method results in the lowest ending inventory balance and why?

10. How is the inventory turnover ratio calculated, describing the purpose of this ratio and what result of this calculation indicates to management.

Problem 12-26 Close or Retain a Store [LO12-2]

Superior Markets, Inc., operates three stores in a large metropolitan area. A segmented absorption costing income statement for the company for the last quarter is given below:

The North Store has consistently shown losses over the past two years. For this reason, management is giving consideration to closing the store. The company has asked you to make a recommendation as to whether the store should be closed or kept open. The following additional information is available for your use:

1. The breakdown of the selling and administrative expenses that are shown above is as follows:

*Allocated on the basis of sales dollars.

*Allocated on the basis of sales dollars.

1. The lease on the building housing the North Store can be broken with no penalty.

2. The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed.

3. The general manager of the North Store would be retained and transferred to another position in the company if the North Store were closed. She would be filling a position that would otherwise be filled by hiring a new employee at a salary of $11,900 per quarter. The general manager of the North Store would continue to earn her normal salary of $12,900 per quarter. All other managers and employees in the North store would be discharged.

4. The company has one delivery crew that serves all three stores. One delivery person could be discharged if the North Store were closed. This person’s salary is $5,100 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use, but does eventually become obsolete.

5. The company pays employment taxes equal to 15% of their employees' salaries.

6. One-third of the insurance in the North Store is on the store’s fixtures.

7. The “General office salaries” and “General office—other” relate to the overall management of Superior Markets, Inc. If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This person’s compensation is $6,450 per quarter.

Required:

2. How much employment taxes will the company avoid if it closes the North Store?

Problem 12-26 Close or Retain a Store [LO12-2]

Superior Markets, Inc., operates three stores in a large metropolitan area. A segmented absorption costing income statement for the company for the last quarter is given below:

The North Store has consistently shown losses over the past two years. For this reason, management is giving consideration to closing the store. The company has asked you to make a recommendation as to whether the store should be closed or kept open. The following additional information is available for your use:

1. The breakdown of the selling and administrative expenses that are shown above is as follows:

*Allocated on the basis of sales dollars.

*Allocated on the basis of sales dollars.

1. The lease on the building housing the North Store can be broken with no penalty.

2. The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed.

3. The general manager of the North Store would be retained and transferred to another position in the company if the North Store were closed. She would be filling a position that would otherwise be filled by hiring a new employee at a salary of $11,900 per quarter. The general manager of the North Store would continue to earn her normal salary of $12,900 per quarter. All other managers and employees in the North store would be discharged.

4. The company has one delivery crew that serves all three stores. One delivery person could be discharged if the North Store were closed. This person’s salary is $5,100 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use, but does eventually become obsolete.

5. The company pays employment taxes equal to 15% of their employees' salaries.

6. One-third of the insurance in the North Store is on the store’s fixtures.

7. The “General office salaries” and “General office—other” relate to the overall management of Superior Markets, Inc. If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This person’s compensation is $6,450 per quarter.

Required:

4. Assuming that the North Store's floor space can’t be subleased, would you recommend closing the North Store?

Problem 12-26 Close or Retain a Store [LO12-2]

Superior Markets, Inc., operates three stores in a large metropolitan area. A segmented absorption costing income statement for the company for the last quarter is given below:

The North Store has consistently shown losses over the past two years. For this reason, management is giving consideration to closing the store. The company has asked you to make a recommendation as to whether the store should be closed or kept open. The following additional information is available for your use:

1. The breakdown of the selling and administrative expenses that are shown above is as follows:

*Allocated on the basis of sales dollars.

*Allocated on the basis of sales dollars.

1. The lease on the building housing the North Store can be broken with no penalty.

2. The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed.

3. The general manager of the North Store would be retained and transferred to another position in the company if the North Store were closed. She would be filling a position that would otherwise be filled by hiring a new employee at a salary of $11,900 per quarter. The general manager of the North Store would continue to earn her normal salary of $12,900 per quarter. All other managers and employees in the North store would be discharged.

4. The company has one delivery crew that serves all three stores. One delivery person could be discharged if the North Store were closed. This person’s salary is $5,100 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use, but does eventually become obsolete.

5. The company pays employment taxes equal to 15% of their employees' salaries.

6. One-third of the insurance in the North Store is on the store’s fixtures.

7. The “General office salaries” and “General office—other” relate to the overall management of Superior Markets, Inc. If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This person’s compensation is $6,450 per quarter.

Required:

3. What is the financial advantage (disadvantage) of closing the North Store?

Planet Corporation acquired 90 percent of Saturn Company’s voting shares of stock in 20X1. During 20X4, Planet purchased 57,000 Playday doghouses for $20 each and sold 42,000 of them to Saturn for $25 each. Saturn sold 35,000 of the doghouses to retail establishments prior to December 31, 20X4, for $40 each. Both companies use perpetual inventory systems.

Required:
a. Prepare all journal entries Planet recorded for the purchase of inventory and resale to Saturn Company in 20X4. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the purchase of inventory

2. Record the sale of playday houses

3. Record the cost of goods sold

b. Prepare the journal entries Saturn recorded for the purchase of inventory and resale to retail establishments in 20X4. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the purchase of inventory on account

2. Record the sale of playday houses

3. Record the cost of goods sold

c. Prepare the worksheet consolidation entry(ies) needed in preparing consolidated financial statements for 20X4 to remove the effects of the intercompany sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the consolidation entry

Planet Corporation acquired 90 percent of Saturn Company’s voting shares of stock in 20X1. During 20X4, Planet purchased 40,000 Playday doghouses for $32 each and sold 25,000 of them to Saturn for $40 each. Saturn sold 18,000 of the doghouses to retail establishments prior to December 31, 20X4, for $55 each. Both companies use perpetual inventory systems.

a. Prepare all journal entries Planet recorded for the purchase of inventory and resale to Saturn Company in 20X4. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Record the purchase of inventory.
• Record the sales of the Playday doghouses.
• Record the cost of goods sold.

b. Prepare the journal entries Saturn recorded for the purchase of inventory and resale to retail establishments in 20X4. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Record the purchase of inventory on account.
• Record the sales of the Playday doghouses.
• Record the cost of goods sold.

c. Prepare the worksheet consolidation entry(ies) needed in preparing consolidated financial statements for 20X4 to remove the effects of the intercompany sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Record the consolidation entry.

PLEASE HELPPP

True/False Questions.

For each question below, please answer “true” or “false” and explain why.

6. A consumer with convex preferences who is indifferent between the bundles (5,2) and (11,6) will like the bundle (8,4) at least as well as either of the first two bundles. Assume these two goods are imperfect substitutes.

7. The marginal rate of substitution is always the same constant number when the goods are imperfect substitutes and no matter how many of each good is being consumed.

8. The transformation of a utility function described as f(u) = ln⁡ (α(U(x,y))) where α=-1 will retain the ordinal preferences of bundle A preferred to bundle B.