Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter:

1. As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:

2. Actual sales for December and budgeted sales for the next four months are as follows:

3. Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales.
4. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
5. Monthly expenses are budgeted as follows: salaries and wages, $31,000 per month: advertising, $65,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,660 for the quarter.
6. Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
7. One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid in the following month.
8. During February, the company will purchase a new copy machine for $2,600 cash. During March, other equipment will be purchased for cash at a cost of $78,000.
9. During January, the company will declare and pay $45,000 in cash dividends.
10. Management wants to maintain a minimum cash balance of $30,000. 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. 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.

Required:

Using the data above, complete the following statements and schedules for the first quarter:

1. Schedule of expected cash collections:

2-a. Merchandise purchases budget:

2-b. Schedule of expected cash disbursements for merchandise purchases:

3. Cash budget:

Lies Inc. prepared the following report for the first quarter of this year:

Lie’s controller, Billy Baroo, studied the costs in detail, particularly focusing on cost behaviour. Her analysis revealed the following:

• Sixty-five percent of the cost of goods sold was variable with respect to the number of units.
• Of the selling expenses, $800,000 was fixed; the remaining was variable with respect to the number of units.
• All of the administrative expenses were fixed.

Required:

1. Express the cost of goods sold and the selling expenses in terms of cost equations. Hint: y=ax+b
2. Redo the above income statement using a contribution margin approach.

Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter:

a. As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:

b. Actual sales for December and budgeted sales for the next four months are as follows:

c. Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales.

d. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)

e. Monthly expenses are budgeted as follows: salaries and wages, $37,000 per month: advertising, $59,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, f. including depreciation on new assets acquired during the quarter, will be $45,620 for the quarter.

f. Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.

g. One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid in the following month.

h. During February, the company will purchase a new copy machine for $3,200 cash. During March, other equipment will be purchased for cash at a cost of $81,000.

i. During January, the company will declare and pay $45,000 in cash dividends.

j. Management wants to maintain a minimum cash balance of $30,000. 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. 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.

Required:

Using the data above, complete the following statements and schedules for the first quarter:

1. Schedule of expected cash collections:

2-a. Merchandise purchases budget:

2-b. Schedule of expected cash disbursements for merchandise purchases:

3. Cash budget:

4. Prepare an absorption costing income statement for the quarter ending March 31.

5. Prepare a balance sheet as of March 31.

Four grams of musk oil are required for each bottle of Mink Caress, a very popular perfume made by a small company in western Siberia. The cost of the musk oil is $1.60 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3:

Musk oil has become so popular as a perfume ingredient that it has become necessary to carry large inventories as a precaution against stock-outs. For this reason, the inventory of musk oil at the end of a quarter must be equal to 20% of the following quarter’s production needs. Some 72,000 grams of musk oil will be on hand to start the first quarter of Year 2.

Required:

Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2. (Round "Unit cost of raw materials" answers to 2 decimal places.)

8. Capital goods are treated as _______ goods and, therefore, _______ GDP.

A. final; included in

B. final; excluded from

C. intermediate; included in

D. intermediate; excluded from

9. Which of the following transactions would be included in the GDP of the United States?

A. Coca Cola produces soft drinks in England.

B. Honda produces cars in Ohio.

C. McDonalds sells hamburgers in Russia.

D. Ford Motors produces cars in Mexico

   10.  In the year 2006, Pete Rich purchases a painting done by Rembrandt in 1642 for $20 million. He also pays a one percent commission to the auction house that sold the painting. What is the contribution of this transaction to GDP in the year 2006?

A. $0

B. $200,000

C. $2 million

D. $20.2 million

   11.  The four categories of final users of GDP are:

A. businesses, firms, governments, and the foreign sector.

B. households, the Federal Reserve, governments, and the foreign sector.

C. businesses, corporations, firms, and farms.

D. households, firms, governments, and the foreign sector.

12. Total spending on final goods and services in an economy must equal total:

A. profits.

B. production.

C. revenues from all transactions.

D. investment.

13. Consumption spending includes spending on:

A. durables, nondurables, and services.

B. stocks, bonds, and other financial instruments.

C. capital goods, residential housing, and changes in inventories.

D. goods and services by federal, state, and local governments.

    14.  Spending on new capital goods, new homes, and the addition of unsold goods to company inventories is included in:

A. consumption expenditures.

B. investment.

C. government purchases.

D. service spending.

15. Government purchases include all of the following EXCEPT:

A. social security benefits paid by the federal government.

B. the construction of a new court house built by a county government.

C. the salary paid to an elementary school teacher employed by a local public school district.

D. the purchase of new military hardware by the U.S. Army.

Mama Angie’s Food Supplements, Inc.

   Mama Angie’s Food Supplements, Inc. (MAFS) manufactures a single product, Endless Energy (EE), which is an all-natural, healthy, vitamin infused dietary supplement. Endless Energy is sold only in one gallon containers.

   This year, 2018, MAFS has prospered, with projected pretax earnings of over $1.1 million on sales of $6.84 million. Management is now in the process of planning next year's activity. The marketing department has been exploring several avenues for 2019. 2018's healthy sales resulted from a modest advertising and promotional expenditure of $188,000. Marketing management now believes that a concerted digital media campaign in 2019 (that would increase selling and administrative expenses by $125,000) could substantially boost unit sales by as much as 17 percent.

   The production department has also proposed a change for 2019. It has suggested that capacity should be boosted from the current 750,000 gallons to 1.1 million gallons. The changes made for this expansion would also reduce variable manufacturing overhead to $1.95 per gallon. The cost of the expansion would be $500,000, consisting mainly of equipment to be purchased in the first quarter of 2019 and to be paid for in March. This increase to plant and equipment would be depreciated over a ten-year period, using the straight line method with no salvage value. A full year's depreciation would be expensed in the first year.

   MAFS has the following policies/practices: Ending finished goods inventory generally equals one month's sales. Raw materials are purchased and delivered on a justintime basis, so no inventory should exist. Payments on account of purchases of raw material are generally paid in the month following that in which they are incurred. All other expenditures are paid as incurred. Accounts receivable are usually collected 50% in the month of sale, 50% in the month following. All sales are on credit.

   The statement of cost of goods manufactured and sold for 2018 and the 2018 income statement (both prepared in October 2018 and reflecting best available estimates at the time) are attached, along with some additional data.

Requirements

1. Mama Angie is concerned that the expansion of production capacity may require the company to seek external sources of financing. Prepare a cash budget for the first quarter of 2019 (i.e., schedule the cash inflows and outflows for the quarter). What is the amount of financing that Mama Angie will need to arrange for the quarter? (You may find it useful to start by preparing a production schedule/budget for the first quarter).

2. Mama Angie needs to know what income will be generated for next year. Prepare a statement of budgeted cost of goods manufactured and cost of goods sold for the year 2019. Please prepare a budgeted income statement for 2019.

3. Assume that the marking department has an alternative marketing plan to reduce the price per gallon of Endless Energy by $1. They expect that sales would increase by 20 percent over the 2018 level, even without additional levels of advertising expenditures. Prepare a budgeted income statement for 2019 under this scenario.

4. Should Mama Angie accept the new marketing proposal? Please explain.

Mama Angie’s Food Supplements, Inc.

Data Table                        2018

Sales (gallons)                    570,000

Selling Price                        $12.00

Fixed Selling & Admin Expenses        $986,000.00

(includes depreciation of $36,000)

Commissions (as % of Sales Dollars)        5.00%

Shipping (as % of Sales Dollars)           3.00%

Variable Manufacturing Costs (per unit):

   Direct Materials                $4.00

   Direct Labor                    $1.00

   Variable Overhead                $2.00

   Fixed Manufacturing Costs (total,   $180,000.00

   includes depreciation of $60,000)

Total Production (gallons)            600,000

December's Production (gallons)        51,000

Inventory Summary: (gallons)

Finished Goods Inventory, Jan 1        21,000

Finished Goods Inventory, Dec 31        51,000

Budgeted cash balance, Dec 31        $50,000

Mama Angie Food Supplements, Inc.

Statement of Cost of Goods Manufactured & Sold

   for the Year Ended December 31, 2018

Cost of Goods Manufactured:

   Direct Materials                    $2,400,000.00

   Direct Labor                        600,000.00

   Variable Overhead                       1,200,000.00

   Fixed Manufacturing Cost                180,000.00

                                   $4,380,000.00

Add:

Finished Goods Inventory Jan 1               198,000.00

Total Available for Sale                   $4,578,000.00

Less:

Finished Goods Inventory Dec 31               (372,300.00)

Cost of Goods Sold                        $4,205,700.00

Income Statement

for the Year Ended December 31, 2018

   Sales                                   $6,840,000.00

   less: Cost of Goods Sold                       (4,205,700.00)

   Gross Margin                                $2,634,300.00

       Fixed Selling & Admin Expense            (986,000.00)

       Variable Selling & Admin Expense            (547,200.00)

   Operating Income                            $1,101,100.00

(a): The dividends that a firm pays to its stockholders are expected to grow at 3% per quarter for the next four quarters. From t=4 onwards, i.e. from the beginning of the fifth quarter the growth rate in dividends will drop to 1.5% per quarter, and the firm expects to be able to sustain it at this level. Assuming that the market capitalization rate is 2.5% per quarter, work out the price of the firm’s stock assuming that the dividend expected to be paid at t=1, i.e., at the end of the first quarter is $2.25

.(b): Rework your answer assuming that gH, the rate at which the dividends are expected to grow for the first four quarters is 2.5% per quarter.

Sales and Production Budgets

Berring Company produces two products: the deluxe and the standard. The deluxe sells for $40, and the standard sells for $10. Projected sales of the two models for the coming four quarters are given below.

The president of the company believes that the projected sales are realistic and can be achieved by the company. In the factory, the production supervisor has received the projected sales figures and gathered information needed to compile production budgets. He found that 1,300 deluxes and 1,170 standards were in inventory on January 1. Company policy dictates that ending inventory should equal 20 percent of the next quarter’s sales for deluxes and 10 percent of next quarter’s sales for standards.

Required:

1. Prepare a sales budget for each quarter and for the year in total. Show sales by product and in total for each time period.

2. Prepare a separate production budget for each product for each of the first three quarters of the year.

Production budget for deluxes:

Production budget for standards:

Sales and Production Budgets

Berring Company produces two products: the deluxe and the standard. The deluxe sells for $40, and the standard sells for $10. Projected sales of the two models for the coming four quarters are given below.

The president of the company believes that the projected sales are realistic and can be achieved by the company. In the factory, the production supervisor has received the projected sales figures and gathered information needed to compile production budgets. He found that 1,300 deluxes and 1,170 standards were in inventory on January 1. Company policy dictates that ending inventory should equal 20 percent of the next quarter’s sales for deluxes and 10 percent of next quarter’s sales for standards.

Required:

1. Prepare a sales budget for each quarter and for the year in total. Show sales by product and in total for each time period.

2. Prepare a separate production budget for each product for each of the first three quarters of the year.

Production budget for deluxes:

Production budget for standards:

ECONOMICS 1A: In your opinion, are you better off saving money or spending money? Why? Please explain. In terms of length of each response, I would like to see a minimum of 3-4 well-developed paragraphs per question. Of course the word count may vary. But anything less than 3-4 paragraphs is too truncated in my opinion, and will likely earn fewer points.

Hint: Given what we have learned this quarter, are you happier/better off spending money or saving money from your personal perspective? Then take the question from a more macroeconomic perspective...does your spending or saving make the economy as a whole better off (and thus indirectly you)? How or why?