The following transactions affected Alpenrose Corporation’s merchandise inventory during the month of March 2016: March 1 — Inventory on hand — 3,000 units; cost $8.00 each. March 8 — Purchased 5,000 units for $8.20 each on account. March 14 — Sold 4,000 units for $14.00 each on account. March 18 — Purchased 6,000 units for $8.40 each on account. March 25 — Sold 2,000 units for $14.00 each on account. March 31 — Inventory on hand — 8,000 units.

Alpenrose uses periodic inventory system. Determine the inventory balance Alpenrose would report on its March 31, 2016, balance sheet and the cost of goods sold it would report on its March 2016, income statement using each of the following cost flow methods:

         1.       First-in, first-out (FIFO)

         2.       Last-in, first-out (LIFO)

         3.       Average cost (round the average cost per unit to the nearest dollar)

Alberta Gauge Company, Ltd., a small manufacturing company in Calgary, Alberta, manufactures three types of electrical gauges used in a variety of machinery. For many years the company has been profitable and has operated at capacity. However, in the last two years, prices on all gauges were reduced and selling expenses increased to meet competition and keep the plant operating at capacity. Second-quarter results for the current year, which follow, typify recent experience.

Alice Carlo, the company’s president, is concerned about the results of the pricing, selling, and production prices. After reviewing the second-quarter results, she asked her management staff to consider the following three suggestions:

Discontinue the R-gauge line immediately. R-gauges would not be returned to the product line unless the problems with the gauge can be identified and resolved.

Increase quarterly sales promotion by $330,000 on the Q-gauge product line in order to increase sales volume by 15 percent.

Cut production on the E-gauge line by 50 percent, and cut the traceable advertising and promotion for this line to $75,000 each quarter.

Jason Sperry, the controller, suggested a more careful study of the financial relationships to determine the possible effects on the company’s operating results of the president’s proposed course of action. The president agreed and assigned JoAnn Brower, the assistant controller, to prepare an analysis. Brower has gathered the following information.

All three gauges are manufactured with common equipment and facilities.

The selling and administrative expense is allocated to the three gauge lines based on average sales volume over the past three years.

Special selling expenses (primarily advertising, promotion, and shipping) are incurred for each gauge as follows:

The unit manufacturing costs for the three products are as follows:

The unit sales prices for the three products are as follows:

The company is manufacturing at capacity and is selling all the gauges it produces.

Required:

2. Use the operating data presented for Alberta Gauge Company and assume that the president’s proposed course of action had been implemented at the beginning of the second quarter.

a. Calculate the net impact on income before taxes for each of the three suggestions.

b-1. Calculate contribution margin for R-gauge

b-2. Was the president correct in proposing that the R-gauge line be eliminated? Yes or No?

c-1. Calculate the contribution per direct-labor dollar for Q-gauge and E-gauge

c-2. Was the president correct in promoting the Q-gauge line rather than the E-gauge line? Yes or No?

You have recently been hired by Piepkorn Manufacturing to work in a newly established treasury department. Piepkorn Manufacturing is a small company that produces cardboard boxes in a variety of sizes for different purchasers. Gary Piepkon, the owner of the company, works primarily in the sales and production areas of the company. Currently, the company puts all receivables in one shoe box and all payables in another. Because of the disorganized system, all finance area needs work, and that’s what you’ve been brought in to do. The company currently has a cash balance of $305,000, and it plans to purchase new box-folding machinery in the fourth quarter at a cost of $525,000. The machinery will be purchased with cash because of a discount offered. The company’s policy is to maintain a minimum cash balance of $125,000. All sales and purchases are made on credit. Gary Piepkorn has projected the following gross sales for each of the next four quarters and the first quarter next year: Q1 Q2 Q3 Q4 Q1 (next year) Gross Sales $1,350,000 $1,410,000 $1,450,000 $1,530,000 $1,250,000 Piepkorn currently has an accounts receivable period of 53 days and an accounts receivable balance of $645,000. Twenty percent of the accounts receivable balance is from a company that has just entered bankruptcy, and it is likely this portion of the accounts receivable will never be collected. Piepkorn typically orders 60% of the next quarter’s projected gross sales in the current quarter, and suppliers are typically paid in 42 days. Wages, taxes, and other costs run about 30% of gross sales. The company has a quarterly interest payment of $135,000 on its long-term debt. Questions 1. Use the numbers given to complete the cash budget. 2. Rework the cash budget assuming Piepkorn changes to a minimum cash balance of $100,000. Q1 Q2 Q3 Q4 Total cash collections Total cash disbursements Net cash inflow Beginning Cash Balance Net cash inflow Ending cash balance Minimum cash balance Cumulative surplus (deficit).

Questions

1. Use the numbers given to complete the cash budget.
2. Rework the cash budget assuming Piepkorn changes to a minimum cash balance of $100,000.

Mastery Problem: Variable Costing for Management Analysis

Absorption vs. Variable

Operating income is one of the most important items reported by a company. Depending on the decision-making needs of management, operating income can be determined using absorption costing or variable costing.

Select whether the following characteristics are most often associated with absorption costing or variable costing.

Absorption Statement

Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold.

Variable Statement

Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin.

Method Comparison

Review the income statements on the Absorption Statement and Variable Statement, then complete the following table. The company’s sales price per unit is $75, and the number of units in ending inventory is 4,000. There was no beginning inventory.

Manufacturing Decisions

Whenever the units manufactured differ from the units sold, finished goods inventory is affected. In analyzing operating income, such increases and decreases could be misinterpreted as operating efficiencies or inefficiencies. Each decision-making situation should be carefully analyzed in deciding whether absorption or variable costing reporting would be more useful.

All costs are controllable in the long run by someone within a business. For a given level of management, costs may be controllable costs or noncontrollable costs.

The production manager for Saxon, Inc. is worried because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement and the Variable Statement, he notices that the operating income is higher on the absorption cost income statement. He is considering manufacturing another 10,000 units, up to the company’s capacity for manufacturing, in the coming year. He reasons that this will boost operating income and satisfy the company’s owner that the company is sufficiently profitable. Although the total units manufactured changes, assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same. Complete questions (1)-(4) that follow. If the answer is zero, enter "0".

1. Use the income statements on the Absorption Statement and Variable Statement to complete the following table for the original production level. Then prepare similar income statements at a production level 10,000 units higher and add that information to the table. Assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same at both production levels.

2. What is the change in operating income from producing 10,000 additional units under absorption costing?

$

3. What is the change in operating income from producing 10,000 additional units under variable costing?

$

Iguana, Inc., manufactures bamboo picture frames that sell for $30 each. Each frame requires 4 linear feet of bamboo, which costs $3.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $15 per hour. Iguana has the following inventory policies:

Ending finished goods inventory should be 40 percent of next month’s sales.

Ending raw materials inventory should be 30 percent of next month’s production.

Expected unit sales (frames) for the upcoming months follow:   

Variable manufacturing overhead is incurred at a rate of $0.50 per unit produced. Annual fixed manufacturing overhead is estimated to be $6,000 ($500 per month) for expected production of 3,000 units for the year. Selling and administrative expenses are estimated at $550 per month plus $0.50 per unit sold.

     Iguana, Inc., had $16,500 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale, and 50 percent is collected during the month following the sale.

     Of raw materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Raw materials purchases for March 1 totaled $5,000. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $310 in depreciation. During April, Iguana plans to pay $4,500 for a piece of equipment.

1. Compute the budgeted cash receipts for Iguana. (Do not round your intermediate calculations. Round final answers to 2 decimal places.)

2. Compute the budgeted cash payments for Iguana. (Do not round your intermediate calculations. Round final answers to 2 decimal places.)

    

3. Prepare the cash budget for Iguana. Assume the company can borrow in increments of $1,000 to maintain a $16,000 minimum cash balance.

Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $2.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $12 per hour. Iguana has the following inventory policies:

• Ending finished goods inventory should be 40 percent of next month’s sales.
• Ending raw materials inventory should be 30 percent of next month’s production.

Expected unit sales (frames) for the upcoming months follow:   

Variable manufacturing overhead is incurred at a rate of $0.20 per unit produced. Annual fixed manufacturing overhead is estimated to be $8,400 ($700 per month) for expected production of 6,000 units for the year. Selling and administrative expenses are estimated at $750 per month plus $0.50 per unit sold.

     Iguana, Inc., had $14,800 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale, and 50 percent is collected during the month following the sale.

     Of raw materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Raw materials purchases for March 1 totaled $4,500. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $280 in depreciation. During April, Iguana plans to pay $4,300 for a piece of equipment.

1. Compute the budgeted cash receipts for Iguana. (Do not round your intermediate calculations. Round final answers to 2 decimal places.)

2. Compute the budgeted cash payments for Iguana. (Do not round your intermediate calculations. Round final answers to 2 decimal places.)

3. Prepare the cash budget for Iguana. Assume the company can borrow in increments of $1,000 to maintain a $14,000 minimum cash balance

Part A

Arrange the elements in order of increasing first ionization energy: Si, F, Sn, O.

Rank elements from smallest to largest. To rank items as equivalent, overlap them.

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Part B

Arrange the isoelectronic series in order of decreasing radius: Cl−, K+, S2−, Ca2+.

Rank ions from largest to smallest. To rank items as equivalent, overlap them.

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Part C

Pick the larger species from each pair.

Match the words in the left column to the appropriate blanks in the sentences on the right.

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Part D

Rank the following elements by electron affinity, from most positive to most negative EA value.

Rank from most positive to most negative. To rank items as equivalent, overlap them.

Hints

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Sprinkler Corporation produces plastic garden sprinklers. The company is preparing its budget for 2015. The first step is to plan for the first quarter of that coming year. Sprinkler has collected the following information from the managers.

1. Sales:

Sales for November 2014                              112,500 units

Sales for December 2014                               102,100 units

Expected sales for January 2015                   113,000 units

Expected sales for February 2015                 112,500 units

Expected sales for March 2015                     116,000 units

Expected sales for April 2015                        125,000 units

Expected sales for May 2015                         137,500 units

Selling price per unit                                      $12

Sprinkler likes to keep 10% of next month’s unit sales in ending inventory. All sales are on credit. 85% of the accounts receivable are collected in the month of sale and 15% of the accounts receivable are collected in the month after sale. Accounts receivable on December 31, 2014, totaled $183,780.

2. Direct Materials:

2 pounds of direct materials is needed to produce one unit. Sprinkler likes to keep 5% of the materials needed for the next month’s production in its ending inventory. Raw materials on hand on December 31, 2014, totaled 11,295 pounds.

Payment for materials is made within 15 days. 50% is paid in the month of purchase, and 50% is paid after the month of purchase. Accounts payable on December 31, 2014, totaled $120,595.

3. Direct Labor

Labor requires 12 minutes per unit for completion and is paid at a rate of $8 per hour.

4. Manufacturing Overhead

Indirect materials                               $0.30 per labor hour

Indirect labor                                       $0.50 per labor hour

Utilities                                               $0.45 per labor hour

Maintenance                                       $0.25 per labor hour

Factory supervisor’s salary                 $42,000 per month

Factory Depreciation                          $16,800 per month

Property taxes                                    $ 2,675 per month

Insurance                                            $ 1,200 per month

Repairs                                                $ 1,300 per month

5. Selling and Administrative expenses

Salaries                                               $72,000 per month

Advertising                                         $15,000 per month

Insurance                                            $ 1,400 per month

Office Depreciation                             $ 2,500 per month

Other fixed costs                                $ 3,000 per month

Other Information

The cash balance on December 31, 2014, totaled $100,500, but management has decided it would like to maintain a cash balance of at least $800,000 beginning on January 31, 2015.

Dividends are paid each month @ $2.50 per share for 5,000 shares. The company has an open line of credit with national Bank. The terms of the agreement require borrowing to be in the increments of $1,000, and the interest rate is 8%. Sprinkler borrows on the first day of the month and repays on the last day of the month if possible.

A $500,000 equipment purchase is planned for February 2015.

Required:

Do the following for the first quarter (January, February & March) of 2015 by using EXCEL spreadsheet:

1. Prepare a Cash Budget.

Sprinkler Corporation produces plastic garden sprinklers. The company is preparing its budget for 2015. The first step is to plan for the first quarter of that coming year. Sprinkler has collected the following information from the managers.

1. Sales:

Sales for November 2014                                     112,500 units

Sales for December 2014                                     102,100 units

Expected sales for January 2015                       113,000 units

Expected sales for February 2015                     112,500 units

Expected sales for March 2015                          116,000 units

Expected sales for April 2015                             125,000 units

Expected sales for May 2015                              137,500 units

Selling price per unit                                              $12

Sprinkler likes to keep 10% of next month’s unit sales in ending inventory. All sales are on credit. 85% of the accounts receivable are collected in the month of sale and 15% of the accounts receivable are collected in the month after sale. Accounts receivable on December 31, 2014, totaled $183,780.

2. Direct Materials:

2 pounds of direct materials is needed to produce one unit. Sprinkler likes to keep 5% of the materials needed for the next month’s production in its ending inventory. Raw materials on hand on December 31, 2014, totaled 11,295 pounds.

Payment for materials is made within 15 days. 50% is paid in the month of purchase, and 50% is paid after the month of purchase. Accounts payable on December 31, 2014, totaled $120,595.

3. Direct Labor

Labor requires 12 minutes per unit for completion and is paid at a rate of $8 per hour.

4. Manufacturing Overhead

Indirect materials                                     $0.30 per labor hour

Indirect labor                                            $0.50 per labor hour

Utilities                                                        $0.45 per labor hour

Maintenance                                            $0.25 per labor hour

Factory supervisor’s salary                  $42,000 per month

Factory Depreciation                             $16,800 per month

Property taxes                                           $ 2,675 per month

Insurance                                                    $ 1,200 per month

Repairs                                                         $ 1,300 per month

5. Selling and Administrative expenses

Salaries                                                        $72,000 per month

Advertising                                                 $15,000 per month

Insurance                                                    $ 1,400 per month

Office Depreciation                                $ 2,500 per month

Other fixed costs                                      $ 3,000 per month

Other Information

The cash balance on December 31, 2014, totaled $100,500, but management has decided it would like to maintain a cash balance of at least $800,000 beginning on January 31, 2015.

Dividends are paid each month @ $2.50 per share for 5,000 shares. The company has an open line of credit with national Bank. The terms of the agreement require borrowing to be in the increments of $1,000, and the interest rate is 8%. Sprinkler borrows on the first day of the month and repays on the last day of the month if possible.

A $500,000 equipment purchase is planned for February 2015.

Required:

Do the following for the first quarter (January, February & March) of 2015 by using EXCEL spreadsheet:

1. Prepare a Direct Materials Purchase Budget

Waterways Corporation is preparing its budget for the coming year, 2020. The first step is to plan for the first quarter of that coming year. The company has gathered information from its managers in preparation of the budgeting process.

Waterways likes to keep 10% of the next month’s unit sales in ending inventory. All sales are on account. 85% of the Accounts Receivable are collected in the month of sale, and 15% of the Accounts Receivable are collected in the month after sale. Accounts receivable on December 31, 2019, totaled $181,800.

Direct Materials

Direct materials cost 80 cents per pound. Two pounds of direct materials are required to produce each unit.

Waterways likes to keep 5% of the materials needed for the next month in its ending inventory. Raw Materials on December 31, 2019, totaled 11,370 pounds. Payment for materials is made within 15 days. 50% is paid in the month of purchase, and 50% is paid in the month after purchase. Accounts Payable on December 31, 2019, totaled $102,870.

Other Information

The Cash balance on December 31, 2019, totaled $100,000, but management has decided it would like to maintain a cash balance of at least $700,000 beginning on January 31, 2020. Dividends are paid each month at the rate of $2.30 per share for 4,910 shares outstanding. The company has an open line of credit with Romney’s Bank. The terms of the agreement requires borrowing to be in $1,000 increments at 9% interest. Waterways borrows on the first day of the month and repays on the last day of the month. A $500,000 equipment purchase is planned for February.

For the first quarter of 2020, prepare a cash budget. (Round answers to 0 decimal places, e.g. 2,520.)