U Balance Corporation manufactures balance bikes for toddlers.  

Each bike requires 2 tires at a cost of $4.00 per tire, 0.5 direct labor hours and 3 machine hours. Production line works are paid $13.00 per hour. The company has estimated total manufacturing overhead of $400,000 for the year and allocates overhead on the basis of machine hours. Estimated machine hours total 80,000 for the period.  The company records $5,000 in depreciation expense each month.  

Production peaks in November as the company prepares for the gift giving season that occurs in December. The company has planned to produce the following units for the last four months of the year and January of the next year:

Desired ending inventory of the tires used on the balance bikes is 25% of the next month's production needs.

1. Create a direct materials budget for the third quarter of the year for tires used on the balance bikes. At the bottom of the budget, indicate the total cost to purchase the tires.

2. Create a direct labor budget for the third quarter of the year.

3. Calculate the predetermined overhead rate for manufacturing overhead.

4. Prepare a manufacturing overhead budget for the third quarter of the year.

A discussion question is as follow: please provide a response:

thanks for giving a clear picture on GDP figures. I was hoping you will add figures for US GDP in the second quarter of 2020 to ascertain the impact of Covid-19 on the US economy and the world overall. The US real GDP has shrunk 31.4% in the second of 2020 and yet to release the third quarter figures. This is comparable to five years of economic growth wiped out in a single quarter. I will expect the GDP to continue to decline but not too drastic. The US remains the world biggest economy in nominal GDP terms. IMF has advocated for more US government stimulus. According to IMF economist Gita Gopinath, “$2.2 trillion CARES Act approved in March would increase growth in the world's biggest economy by two percentage points next year, over the 3.1 percent GDP rise currently forecast.” (Scott and Touitou, 2020). Republicans have argued that increase in the stimulus increases debt and leads to wastage which has led to current impasse in Congress. Arguments whether to approve $1.8 trillion or 2.2 Trillion with the Democrats. Do you think the assertion by the economist is accurate and what are your thoughts?

Thank you

Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year, as shown in the company’s sales budget for the second quarter given below:

From past experience, the company has learned that 25% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 15% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $340,000, and March sales totaled $370,000.

Required:

1. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

2. What is the accounts receivable balance on June 30th?

Complete this question by entering your answers in the tabs below.

Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

David Wong, the product manager of KiKi Company, was reviewing the production schedule for the last quarter of 2020. He noted that the company planned to sell 4,000 units during the year and keep a minimum closing inventory level at 100 units on 31 December 2020. As at 30 September 2020, the following data was reported.

Units

Inventory, 1 January 2020 0

Production 3,000

Sales 2,700

Inventory, 30 September 2020 300

At the beginning of the year, the company rented a warehouse that could store its inventory up to 1,250 units. The company had a maximum production capacity of 2,300 units per quarter.

Required:

(a) Assume that KiKi Company adopted marginal costing,
(i) what is the minimum units that the company should produce during the last quarter of 2020?

(ii) will the number of units produced affect the company’s profit or loss for the year? Explain.

(b) Assume that the company adopted absorption costing and David was given an annual bonus based on the company’s reported profit. If David wanted to maximize his bonus in 2020, how many units would he produce? Explain.

(c) Advise the management of the company on the costing method that should be chosen to determine David’s bonus?

Production Budget

Palmgren Company produces consumer products. The sales budget for four months of the year is presented below.

Unit Sales   Dollar Sales
July   31,000     $970,000
August   34,500     1,063,300
September   41,000     1,197,000
October   35,500     1,142,700
Company policy requires that ending inventories for each month be 25 percent of next month’s sales. At the beginning of July, the beginning inventory of consumer products met that policy.

Required:

Prepare a production budget for the third quarter of the year. Show the number of units that should be produced each month as well as for the quarter in total.

Palmgren Company
Production Budget
For the Third Quarter
July   August   September   Total
Unit sales   fill in the blank 1
fill in the blank 2
fill in the blank 3
fill in the blank 4

fill in the blank 6
fill in the blank 7
fill in the blank 8
fill in the blank 9
Total needed   fill in the blank 10
fill in the blank 11
fill in the blank 12
fill in the blank 13

fill in the blank 15
fill in the blank 16
fill in the blank 17
fill in the blank 18
Units produced   fill in the blank 19
fill in the blank 20
fill in the blank 21
fill in the blank 22

Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year, as shown in the company’s sales budget for the second quarter given below:

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 20% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $430,000, and March sales totaled $460,000.

Required:

1. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

2. What is the accounts receivable balance on June 30th?

• Required 1

Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

• Required 2

What is the accounts receivable balance on June 30th?

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: Schedule of Cash Receipts

The company for which you work recently implemented time-driven activity-based costing (TDABC) in conjunction with its enterprise resource planning (ERP) system. Management is pleased with the revised product and customer cost information that the TDABC system produces. It is now wondering how this system can be used for budgeting purposes. You have been asked to provide an example of using time-driven activity-based budgeting, given the following information:

1. There are two resources (departments): indirect labor and computer support.
2. There are two primary activities that these resources support: handling production runs and product-level support.
3. Indirect labor support is consumed as follows:

1. To handle production runs: 10 hours/run.
2. To support products: 520 hours/product.

4. Computer support is consumed as follows:

1. To handle production runs: 0.6 hours/run.
2. To support products: 52 hours/product.

5. Resource practical capacity levels:

1. Indirect labor: 20,400 hours per quarter.
2. Computer support: 520 hours per quarter.

6. Cost of supplying resources:

1. Indirect labor: $1,060,800 per quarter.
2. Computer support: $504,400 per quarter.

Required:

1. Calculate the budgeted resource cost per hour (at practical capacity) for each of the two resources, indirect labor support and computer support.

2. Determine the budgeted cost-driver rates for each of the two activities, handle production runs and support products.

3. Suppose that the total cost of resources supplied for the quarter just ended was exactly as budgeted (i.e., $1,565,200) but that only 18,400 indirect labor hours were used along with 470 computer hours. Calculate, for each resource, the cost of idle capacity.

4. After implementing a total quality management (TQM) program, the company was able to implement process-efficiency changes, the end result of which was a 20% reduction in the indirect labor time associated with the activity handling production runs. Recalculate the indirect labor cost component of the cost to handle a production run. Also, recalculate the cost of idle capacity for indirect labor assuming the original facts but with the 20% efficiency gain. Assume that in the original case facts, 16,200 of the 18,400 hours relate to the activity handling production runs (while the remaining 2,200 hours relate to the activity product-level support).

Make-or-Buy, Traditional Analysis

Morrill Company produces two different types of gauges: a density gauge and a thickness gauge. The segmented income statement for a typical quarter follows.

The density gauge uses a subassembly that is purchased from an external supplier for $25 per unit. Each quarter, 2,260 subassemblies are purchased. All units produced are sold, and there are no ending inventories of subassemblies. Morrill is considering making the subassembly rather than buying it. Unit-level variable manufacturing costs are as follows:

No significant non-unit-level costs are incurred.

Morrill is considering two alternatives to supply the productive capacity for the subassembly.

Lease the needed space and equipment at a cost of $30,510 per quarter for the space and $11,300 per quarter for a supervisor. There are no other fixed expenses.

Drop the thickness gauge. The equipment could be adapted with virtually no cost and the existing space utilized to produce the subassembly. The direct fixed expenses, including supervision, would be $42,940, $9,040 of which is depreciation on equipment. If the thickness gauge is dropped, sales of the density gauge will not be affected.

Required:

1. Should Morrill Company make or buy the subassembly?

If it makes the subassembly, which alternative should be chosen?

Enter the relevant costs of each alternative.

2. Suppose that dropping the thickness gauge will decrease sales of the density gauge by 10 percent. What decision should now be made?

3. Assume that dropping the thickness gauge decreases sales of the density gauge by 10 percent and that 3,164 subassemblies are required per quarter. As before, assume that there are no ending inventories of subassemblies and that all units produced are sold. Assume also that the per-unit sales price and variable costs are the same as in Requirement 1. Include the leasing alternative in your consideration. Now, what is the correct decision?

Read the article

Using a PPF model, how would education (capital goods on the vertical axis and consumption goods on the horizontal axis) change the PPF? B) Aside from the article, how is the current economic recession affecting the frontier? Are we on the PPF?

ECONOMISTS have long argued that free trade makes everyone richer. But lately that view has come under attack, most notably from President Donald Trump. Economists are asking themselves some tough questions. Is free trade always a good thing? Do the losers from free trade need to be compensated? To explore the basics of free trade, The Economist spoke to John Van Reenen an economist at MIT. The conversation has been lightly edited for clarity. The Economist: At its most basic level, what is free trade? John Van Reenen: Free trade means allowing goods and services to move as freely as possible across different countries. As countries developed, they started making and swapping things among people within the borders of their own country. As transport improved, they could start buying and selling stuff abroad. For a long time, there were big barriers to international trade. At a time when governments struggled to raise tax from their own people, levying heavy import duties on things coming in from abroad was easier to implement. But economists eventually won the argument, which said that keeping those barriers as low as possible was sensible policy. With free trade, you come into more contact with foreign companies, new ideas, new people The Economist: Is free trade good for economic growth? John Van Reenen: As I see it, there are four big benefits. The first one can be traced all the way back to David Ricardo in the early 1800s. It allows countries to specialize in producing what they do best. For instance, the French are good at making wine, the British not so good. But the British are good at producing The Economist. Without trade, Britain would have to produce and consume its own its own wine. But with trade, Britain and France can focus on what they do best, with the French exchanging wine for more copies of The Economist. This is sometimes called “comparative advantage”. As time has gone by, trade is increasingly not just about exchanges in final goods—newspapers versus wine—but “intermediate” goods. Think of a car. Thousands and thousands of parts go into making a car. Increasingly what has happened is that one part is made in France, another in Germany, another in Japan, and so on. Then they can all be combined in a fourth country like Britain. Even for a complex thing like a car, nations can specialize in what they are good at. The second benefit of trade is that it makes markets bigger. If you are producing just for one country, your market is quite limited. But with trade, you can also start selling things to customers all over the world. That means that things like spending large amounts of money on research—self-driving vehicles or whatever—looks a lot more viable. The lump-sum costs of such investment are spread out, so we can get more innovation, which is the key to growing national income. Free trade increases the size of the pie. But it doesn’t mean that everyone is better off. Some get a smaller slice of the pie The third benefit relates to productivity differences between firms. Some firms are really productive, others are really poorly managed. What happens when you have trade, is that you have much stronger competition. Domestic firms are competing not just with other domestic firms but with firms all over the world. The less-efficient ones face more competition, so they shrink and they exit the market. Or they shape up. And the really innovative firms can expand. So it’s about creative destruction, really—shifting resources from less productive firms to more productive ones. The final benefit, which economists sometimes forget, relates to politics. With free trade, you come into more contact with foreign companies, new ideas, new people and so on. That’s mutually beneficial. And it is a political force for cooperation. Think of Europe. Since the second world war, those countries have had lower trade barriers, and that period has coincided with an unprecedented period of peace and cooperation. The Economist: What are the downsides of free trade? John Van Reenen: There are well-known downsides. The way I like to think about it is that free trade increases the size of the pie. The overall amount of material wellbeing expands. But just because the size of the pie expands, it doesn’t mean that everyone is better off. There are going to be some losers whose slice of the pie is so much smaller that they would have been better off with less trade. However, because the overall size of the pie has got bigger, the government can compensate the losers which can still make everyone better off. Let’s think about how this might happen. In the 1980s China began opening up to the rest of the world. China was a low-wage country, so it started selling a lot of low-end manufactured goods like clothes. Although that’s a great thing—people can buy cheaper clothes—workers in richer countries who were producing manufactured goods now faced much tougher competition. Workers in Bradford no longer just competed with those in Birmingham, but also those in Beijing. Those workers, especially less skilled ones in those industries, can be very seriously affected. It’s important to take a longer-term view. The education system needs to make people resilient to shocks I think economists underestimated the China shock. That may explain why policies to compensate the losers were insufficient—especially in America where the social safety net, such as for health care, is so threadbare. If there had been better policies, there would be much less of a political backlash against trade than we are seeing right now. The Economist: What can countries do to compensate those people who do lose out? John Van Reenen: There are lots of different options. The first thing I would emphasize is that you want to grease the wheels of mobility—to make it easier to move from one firm to another, or one industry to another, or one place to another. Putting up barriers to doing that is costly. For instance, planning regulations sometimes make housing in dynamic parts of the country very expensive, which makes it difficult for people in struggling areas to move there. You also want to help citizens get the skills to move. So-called “active labour market policies” are important here. Scandinavian countries like Denmark do these quite well. Rather than protecting jobs by increasing the costs of downsizing which ends up making employers reluctant to hire, these nations have generous unemployment-benefit systems combined with a lot of help for people who have become unemployed. Retraining is well resourced. Governments also enforce looking for work pretty strongly. It’s also important to take a longer-term view. Your education system needs to make people resilient to shocks. You want people to be well educated, and you want that education not to be too tightly linked to a particular skill. Having general skills—literacy, numeracy, social skills—is the right idea. So, when people are hit by tough times, they can reskill and move around more easily. But it is also important to be realistic. Some people, especially older people, are not going to be able to retrain if they were made unemployed by structural economic changes. For these people, there is nothing wrong with a reasonably generous welfare state and direct investment to support communities that are under stress from trade, technology or any other crisis. But remember: thanks to free trade, you can afford that, because the overall size of the pie is bigger.