World Gourmet Coffee Company (WGCC) is a distributor and processor of different blends of coffee. The

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World Gourmet Coffee Company (WGCC) is a distributor and processor of different blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. WGCC currently has 15 different coffees that it offers to gourmet shops in one-pound bags. The major cost is raw materials; however, there is a substantial amount of manufacturing overhead in the predominantly automated roasting and packing process. The company uses relatively little direct labor. Some of the coffees are very popular and sell in large volumes, while a few of the newer blends have very low volumes. WGCC prices its coffee at full product cost, including allocated overhead, plus a markup of 30 percent. If prices for certain coffees are significantly higher than market, adjustments are made. The company competes primarily on the quality of its products, but customers are price conscious as well.
Data for the 20x1 budget include manufacturing overhead of $3,000,000, which has been allocated on the basis of each product’s direct-labor cost. The budgeted direct-labor cost for 20x1 totals $600,000. Based on the sales budget and raw-material budget, purchases and use of raw materials (mostly coffee beans) will total $6,000,000. The expected prime costs for one-pound bags of two of the company’s products are as follows:
Kona Malaysian

Direct material. $3.20 $4.20

Direct labor .30 .30

WGCC’s controller believes the traditional product-costing system may be providing misleading cost information. She has developed an analysis of the 20x1 budgeted manufacturing-overhead costs shown in the following chart.

Activity Cost Driver Budgeted Activity Budgeted Cost

Purchasing ................................ Purchase orders ...........................

1,158 ..................... $ 579,000

Material handling ....................... Setups .........................................

1,800 ..................... 720,000

Quality control............................ Batches

........................................ 720 ..................... 144,000

Roasting .................................... Roasting hours

.............................. 96,100 ...................... 961,000

Blending .................................... Blending hours..............................

33,600 ...................... 336,000

Packaging ................................. Packaging hours ...........................

26,000 ...................... 260,000

Total manufacturing-overhead cost

$3,000,000

Data regarding the 20x1 production of Kona and Malaysian coffee are shown in the following table. There will be no raw-material inventory for either of these coffees at the beginning of the year.

Kona Malaysian

Budgeted sales

2,000 lb. 100,000 lb.

Batch size

500 lb. 10,000 lb.

Setups

3 per batch 3 per batch

Purchase order size

500 lb. 25,000 lb.

Roasting time

1 hr. per 100 lb. 1 hr. per 100 lb.

Blending time

.5 hr. per 100 lb. .5 hr. per 100 lb.

Packaging time

.1 hr. per 100 lb. .1 hr. per 100 lb.

1. Using WGCC’s current product-costing system:

a. Determine the company’s predetermined overhead rate using direct-labor cost as the single cost driver.

b. Determine the full product costs and selling prices of one pound of Kona coffee and one pound of Malaysian coffee.

2. Develop a new product cost, using an activity-based costing approach, for one pound of Kona coffee and one pound of Malaysian coffee.

3. What are the implications of the activity-based costing system with respect to

a. The use of direct labor as a basis for applying overhead to products?

b. The use of the existing product-costing system as the basis for pricing.

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Piscataway and vesuvius tutorial with workings in excel

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4-26

Piscataway Plastics Company manufactures a highly specialized plastic that is used extensively in the automobile industry. The following data have been compiled for the month of June. Conversion activity occurs uniformly throughout the production process.

Work in process, June 1—50,000 units:

Direct material: 100% complete cost of ......................................................................... $120,000

Conversion: 40% complete, cost of ................................................................................... 34,400

Balance in work in process, June 1 ............................................................................... $154,400

Units started during June ................................................................................................ 200,000

Units completed during June and transferred out to finished-goods inventory ............... 190,000

Work in process, June 30:

Direct material: 100% complete

Conversion: 60% complete

Costs incurred during June:

Direct material ........................................................................................................ $492,500

Conversion costs:

Direct labor .............................................................................................................. $ 87,450

Applied manufacturing overhead .............................................................................. 262,350

Total conversion costs ............................................................................................ $349,800

Required: Prepare schedules to accomplish each of the following process-costing steps for the month of June. Use the weighted-average method of process costing.

1. Analysis of physical flow of units.

2. Calculation of equivalent units.

3. Computation of unit costs.

4. Analysis of  total costs.

4-27

The following data pertain to the Vesuvius Tile Company for July.

Work in process, July 1 (in units)..................................................................................... 20,000

Units started during July........................................................................................... ?

Total units to account for.................................................................................................. 65,000

Units completed and transferred out during July............................................................... ?

Work in process, July 31 (in units)..................................................................................... 15,000

Total equivalent units: direct material................................................................................ 65,000

Total equivalent units: conversion....................................................................................... ?

Work in process, July 1: direct material........................................................................... $164,400

Work in process, July 1: conversion ............................................................................................ ?

Costs incurred during July: direct material .................................................................................. ?

Costs incurred during July: conversion ............................................................................. 659,400

Work in process, July 1: total cost ................................................................................... 244,200

Total costs incurred during July ..................................................................................... 1,031,250

Total costs to account for .............................................................................................. 1,275,450

Cost per equivalent unit: direct material ................................................................................. 8.25

Cost per equivalent unit: conversion ........................................................................................... ?

Total cost per equivalent unit ............................................................................................... 21.45

Cost of goods completed and transferred out during July ......................................................... ?

Cost remaining in ending work-in-process inventory: direct material........................................... ?

Cost remaining in ending work-in-process inventory: conversion ...................................... 79,200

Total cost of July 31 work in process ............................................................................... 202,950

Additional Information:

a. Direct material is added at the beginning of the production process, and conversion activity occurs uniformly throughout the process.

b. The company uses weighted-average process costing.

c. The July 1 work in process was 30 percent complete as to conversion.

d. The July 31 work in process was 40 percent complete as to conversion.

Required: Compute the missing amounts, and prepare the firm’s July production report.

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Bo Vonderweidt, the production manager for Sportway Corporation, had requested to have lunch with the

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Bo Vonderweidt, the production manager for Sportway Corporation, had requested to have lunch with the company president. Vonderweidt wanted to put forward his suggestion to add a new product line. As they finished lunch, Meg Thomas, the company president, said, “I’ll give your proposal some serious thought, Bo. I think you’re right about the increasing demand for skateboards. What I’m not sure about is whether the skateboard line will be better for us than our tackle boxes. Those have been our bread and butter the past few years.”
Vonderweidt responded with, “Let me get together with one of the controller’s people. We’ll run a few numbers on this skateboard idea that I think will demonstrate the line’s potential.”
Sportway is a wholesale distributor supplying a wide range of moderately priced sports equipment to large chain stores. About 60 percent of Sportway’s products are purchased from other companies while the remainder of the products is manufactured by Sportway. The company has a Plastics Department that is currently manufacturing molded fishing tackle boxes. Sportway is able to manufacture and sell 8,000 tackle boxes annually, making full use of its direct-labor capacity at available work stations. The selling price and costs associated with Sportway’s tackle boxes are as follows:
Selling price per boor …………………………………… $86.00
Costs per box:
Molded plastic …………………………………. $ 8.00
Hinges, latches, handle ………………………… 9.00
Direct labor ($15.00 per hour) …………………. 18.75
Manufacturing overhead ………………………. 12.50
Selling and administrative cost ………………… 17.00

Profit per box ………………………………………….. $20.75
Because Sportway’s sales manager believes the firm could sell 12,000 tackle boxes if it had sufficient manufacturing capacity, the company has looked into the possibility of purchasing the tackle boxes for distribution. Maple Products, a steady supplier of quality products, would be able to provide up to 9,000 tackle boxes per year at a price of $68.00 per box delivered to Sportway’s facility.
Bo Vonderweidt, Sportway’s production manager, has come to the conclusion that the company could make better use of its Plastics Department by manufacturing skateboards. Vonderweidt has a market study that indicates an expanding market for skateboards and a need for additional suppliers. Vonderweidt believes that Sportway could expect to sell 17,500 skateboards annually at a price of $45.00 per skateboard.
After his lunch with the company president, Vonderweidt worked out the following estimates with the assistant controller.
Selling price per skateboard ………………………….. $45.00
Costs per skateboard:
Molded plastic …………………………………… $5.50
Wheels, hardware 7.00
Direct labor ($15.00 per hour) …………………… 7.50
Manufacturing overhead …………………………. 5.00
Selling and administrative cost …………………… 9.00 34.00
Profit p& skateboard ………………………………. …….. $11.00
In the Plastics Department, Sportway uses direct-labor hours as the application base for manufacturing overhead. Included in the manufacturing overhead for the current year is $50,000 of factory wide, fixed manufacturing overhead that has been allocated to the Plastics Department. For each unit of product that Sportway sells. regardless of whether the product has been purchased or is manufactured by Sportway, there is an allocated $6.00 fixed overhead cost per unit lot distribution that is included in the selling and administrative cost for all products. Total selling and administrative costs for the purchased tackle boxes would be $10.00 per unit.
Required:
In order to maximize the company’s profitability, prepare an analysis that will show which product or products Sportway Corporation should manufacture or purchase.
1. First determine which of Sportway’s options makes the best use of its scarce resources. How many skateboards and tackle boxes should be manufactured? How many tackle boxes should be purchased?
2. Calculate the improvement in Sportway’s total contribution margin if it adopts the optimal strategy rather than continuing with the status quo.

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Golden Gate Construction Associates, a real estate developer and building contractor in San Francisco, has

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Question 1

Golden Gate Construction Associates, a real estate developer and building contractor in San Francisco, has two sources of long-term capital: debt and equity. The cost to Golden Gate of issuing debt is the after-tax cost of the interest payments on the debt, taking into account the fact that the interest payments are tax deductible. The cost of Golden Gate’s equity capital is the investment opportunity rate of Golden Gate’s investors, that is, the rate they could earn on investments of similar risk to that of investing in Golden Gate Construction Associates. The interest rate on Golden Gate’s $60 million of long-term debt is 10 percent, and the company’s tax rate is 40 percent. The cost of Golden Gate’s equity capital is 15 percent. Moreover, the market value (and book value) of Golden Gate’s equity is $90 million.

Required: Calculate Golden Gate Construction Associates’ weighted-average cost of capital.

Question 2

Refer to the data in the preceding exercise for Golden Gate Construction Associates. The company has two divisions: the real estate division and the construction division. The divisions’ total assets, current liabilities, and before-tax operating income for the most recent year are as follows: Division Total Assets Current Before-Tax Operating Income Liabilities Real estate ....................................................................... $100,000,000 $6,000,000 $20,000,000 Construction .................................................................... 60,000,000 4,000,000 18,000,000 Required: Calculate the economic value added (EVA) for each of Golden Gate Construction Associates’ divisions. (You will need to use the weighted-average cost of capital, which was computed in the preceding exercise.)

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Wyalusing Industries has manufactured prefabricated houses for over 20 years. The houses are constructed in

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 Question 1
Countywide Cable Services, Inc. is organized with three segments: Metro, Suburban, and Outlying.
Data for these segments for the year just ended follow.
Metro Suburban Outlying
Service revenue .......................................................................... $1,000,000 $800,000 $400,000
Variable expenses ....................................................................... 200,000 150,000 100,000
Controllable fixed expenses ......................................................... 400,000 320,000 150,000
Fixed expenses controllable by others .......................................... 230,000 200,000 90,000
In addition to the expenses listed above, the company has $95,000 of common fixed expenses.
Income-tax expense for the year is $145,000.
Required:
1. Prepare a segmented income statement for Countywide Cable Services, Inc. Use the contribution format.

Question 2
Wyalusing Industries has manufactured prefabricated houses for over 20 years. The houses are constructed in sections to be assembled on customers’ lots. Wyalusing expanded into the precut housing market when it acquired Fairmont Company, one of its suppliers. In this market, various types of lumber are precut into the appropriate lengths, banded into packages, and shipped to customers’ lots for assembly. Wyalusing designated the Fairmont Division as an investment center. Wyalusing uses return on investment (ROI) as a performance measure with investment defined as average productive assets. Management bonuses are based in part on ROI. All investments are expected to earn a minimum return of 15 percent before income taxes. Fairmont’s ROI has ranged from 19.3 to 22.1 percent since it was acquired. Fairmont had an investment opportunity in 20x1 that had an estimated ROI of 18 percent. Fairmont’s management decided against the investment because it believed the investment would decrease the division’s overall ROI. The 20x1 income statement for Fairmont Division follows. The division’s productive assets were $12,600,000 at the end of 20x1, a 5 percent increase over the balance at the beginning of the year.
Required:
1. Calculate the following performance measures for 20x1 for the Fairmont Division.
a. Return on investment (ROI).
b. Residual income.
2. Would the management of Fairmont Division have been more likely to accept the investment opportunity it had in 20x1 if residual income were used as a performance measure instead of ROI? Explain your answer.

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Houston-based Advanced Electronics manufactures audio speakers for desktop computers

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Houston-based Advanced Electronics manufactures audio speakers for desktop computers. The following data relates to the period just ended when the company produced and sold 42,000 speaker sets:
Sales $3,360,000
Variable Costs 840,000
Fixed Costs 2,280,000
Management is considering relocating its manufacturing facilities to Northern Mexico to reduce costs. Variable costs are expected to average $18 per set; annual fixed costs are anticipated to be $1,984,000. (Ingors income taxes)
1. Calculate the company's current income and determine the level of dollar sales needed to double that figure, assuming that manufacturing operations remain in the United States.
2. Determine the break even point in speaker sets if operations are shifted to Mexico
3. Assume that management desires to achieve the Mexican break even point; however, operations remain in the United States.
a) If variable costs remain constant, what must management do to fixed costs? By how much must fixed costs change?
b) If fixed costs remain constant, what must management do to the variable cost per unit? By how much must unit variable cost change?
4. Determine the impact (increase, decrease, or no effect) of the following operating changes.
a) Effect of an increase in direct material costs on the break-even point
b) Effect of an increase in fixed administration costs on the unit contribution margin.
c) Effect of an increase in the un it contribution margin on net income.
d) Effect of an decrease in the number of units sold on the break even point.

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Jonathan Macintosh is a highly successful Pennsylvania orchardman who has formed his own company

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Jonathan Macintosh is a highly successful Pennsylvania orchardman who has formed his own company to produce and package applesauce. Apples can be stored for several months in cold storage, so applesauce production is relatively uniform throughout the year. The recently hired controller for the firm is about to apply the high-low method in estimating the company’s energy cost behavior. The following costs were incurred during the past 12 months:
Month Pints of Applesauce Produced Energy Cost
January ................................................................ 35,000 .............................................. $23,400

February ............................................................... 21,000 .............................................. 22,100

March .................................................................. 22,000 .............................................. 22,000

April ..................................................................... 24,000 .............................................. 22,450

May ..................................................................... 30,000 .............................................. 22,900

June .................................................................... 32,000 .............................................. 23,350

July ...................................................................... 40,000 .............................................. 28,000

August ................................................................. 30,000 .............................................. 22,800

September ............................................................ 30,000 .............................................. 23,000

October ................................................................ 28,000 .............................................. 22,700

November ............................................................. 41,000 .............................................. 24,100

December ............................................................ 39,000 .............................................. 24,950

Required:
1. Use the high-low method to estimate the company’s energy cost behavior and express it in equation f orm.
2. Predict the energy cost for a month in which 26,000 pints of applesauce are produced.

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Finlon Upholstery, Inc. Uses a job-order costing system to accumulate manufacturing costs. The company's

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Exercise 2-28
Consider the following costs that were incurred during the current year: 1. Tire costs incurred by Ford Motor Company. 2. Sales commissions paid to the sales force of Dell Inc. 3. Wood glue consumed in the manufacture of Thomasville Furniture. 4. Hourly wages of refinery security guards employed by ExxonMobil Corporation 5. The salary of financial vice president of Hewlett Packard. 6. Advertising costs of Coca-Cola 7. Straight-line depreciation on factory machinery of Boeing Corporation 8. Wages of assembly-line personnel of Whirlpool Corporation. 9. Delivery costs on customer shipments of Ben & Jerrys' ice cream 10. Newsprint consumed in printing The New York Times. 11. Plan insurance costs of Texas Instruments. 12. Glass costs incurred in light-bulb manufacturing of General Electric. Required: Evaluate each of the preceding and determine whether the cost is (a) a product cost or a period cost, (b) variable or fixed in terms of behavior, and © for the product costs only, whether the cost is properly classified as direct material, direct labor, or manufacturing overhead. Item 1 is done as an example: Tire costs: Product cost, variable, direct material

exercise 3-46
Finlon Upholstery, Inc. Uses a job-order costing system to accumulate manufacturing costs. The company's work-in-process on December 31, 20x1, consisted of one job (no. 2077), which was carried on the year-end balance sheet at $156,800. There was no finished-goods inventory on this date. Finlon applies, manufacturing overhead to production on the basis of direct-labor cost. (The budgeted direct-labor cost is the company's practical capacity, in terms of direct-labor hours, multiplied by the budgeted direct-labor rate.) Budgeted totals for 20x2 for direct labor-manufacturing overhead are $4,200,000 and $5,460,000, respectively. Acutal results for the year follow. Direct material used $5,600,000 Direct labor 4,350,000 Indirect material used 65,000 Indrecot labor 2,860,000 Factory depreciation 1,740,000 Factory insurance 59,000 Factory utilities 830,000 Selling and administrative expenses 2,160,000 Total $17,664,000 Job no. 2077 was completed in January 20x2; there was no work in process at year-end. All jobs produced during 20x2 were sold with the exception of job no. 2043, which contained direct-material costs of $156,000 and direct -labor charges of $85,000. The company charges any under-or overapplied over-head to Cost of Goods Sold. 1. Determine the company's predetermined overhead application rate. 2. Determine the additions to the Work-In-Process Inventory account for direct material used, direct labor, and manufacturing overhead. 3. Compute the amount that the company would disclose as finished-goods inventory on the December 31, 20x2, balance sheet. 4. Prepare the journal entry needed to record the year's completed production. 5. Compute the amount of under- or overapplied overhead at year-end, and prepare the necessary journal entry to record its disposition. 6. Determine the company's 20x2 cost of good sold. 7. Would it be appropriate to include selling and administrative expenses in either manufacturing overhead or cost of goods sold? Briefly explain.

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A Theater is interested in estimating fixed and variable costs. The following data are available

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1.   The company sells a large variety of tee shirts and sweatshirts. The owner, is thinking of expanding his sales by hiring local high school students, on a commission basis, to sell sweatshirts bearing the name and mascot of the local high school.

These sweatshirts would have to be ordered from the manufacturer six weeks in advance, and they could not be returned because of the unique printing required. The sweatshirts would cost He owner $10 each with a minimum order of 80 sweatshirts. Any additional sweatshirts would have to be ordered in increments of 80.

Since the owner’s plan would not require any additional facilities, the only costs associated with the project would be the costs of the sweatshirts and the costs of the sales commissions. The selling price of the sweatshirts would be $15.00 each.  The owner would pay the students a commission of $2.00 for each shirt sold.

Assume left over shirts have no value.

Required:

A.    Assume that the venture is undertaken and an order is placed for 80 sweat shirts (at a cost of $10 per shirt). What would be he owner’s break-even point in units and in sales dollars? Show computations and explain the reasoning behind your answer.

B.     What level of sales in units and in dollars would be required to reach the target net income of $1,200? Show all computations.

C.      Assume that the purchase cost of each sweatshirt increases to $11.00 while other conditions remain the same.  What level of sales in units and in dollars would now be required to reach a target net income of $1,200? Show all computations.

  

2. A Theater is interested in estimating fixed and variable costs. The following data are available:

                                          Total Cost         No. of Tickets Sold

January                            $172,000                          20,000

February                         $176,000                          19,500

March                               $180,500                          25,500

April                                  $170,500                          21,500

May                                   $190,000                          25,000

June                                   $188,000                          26,500

Use regression analysis to estimate fixed cost per month and variable costs per ticket sold, show your output and answer the following questions:

REQUIRED:

a.       How much is the variable cost per ticket?

b.      How much is total fixed cost?

c.       What percentage of variance in Total Cost is explained by the number of tickets sold ?

d.      Write the total cost equation in good form.

e.       MovieTown Theater is considering an advertising campaign that is expected to increase annual sales by 7,000 tickets. Assume that the ticket selling price is $9. What is the expected increase in profit associated with the advertising campaign?

3. A firm allocates factory overhead using one cost pool with direct labor hours as the allocation base. The firm has two production departments (A1 and A2). The new accountant at the firm estimates that next year the total factory overhead costs will be $4,000,000 and approximately 500,000 direct labor hours will be worked. The accountant also estimates that A1 will use 150,000 direct labor hours and there will be about $2,000,000 in overhead costs in A1. A2 will use 350,000 direct labor hours and there will be $2,000,000 in overhead costs in A2. The firm has two products: R4 and R5. It takes two direct labor hours in A1 and three direct labor hours in A2 to complete one unit of R4. It takes one direct labor hour in A1 and four direct labor hours in A2 to complete one unit of R5.

REQUIRED:

What overhead cost per unit will you get using (a) plant-wide and (b) departmental pools? Which method is better and why? Support your answer with appropriate calculations.

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Weldon Industrial Gas Corporation supplies acetylene and other compressed gases to industry

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Weldon Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store’s operations are as follows:

• Sales are budgeted at $360,000 for November, $380,000 for December, and $350,000 for January.
• Collections are expected to be 75% in the month of sale, 20% in the month following the sale, and 5% uncollectible.
• The cost of goods sold is 65% of sales.
• The company purchases 60% of its merchandise in the month prior to the month of sale and 40% in the month of sale. Payment for merchandise is made in the month following the purchase.
• Other monthly expenses to be paid in cash are $21,900.
• Monthly depreciation is $20,000.
• Ignore taxes.

Statement of Financial Position

October 31

Cash………………………………………………………………………………………  $16,000
Accounts receivable
   (net of allowance for uncollectible accounts)…………………………………………..   74,000
Inventory………………………………………………………………………………       140,000
Property, plant, and equipment………………………………………………………..    1,066,000
  (net of $500,000 accumulated depreciation)
Total assets…………………………………………………………………………….  $1,296,400

Liabilities and Stockholders’ Equity

Accounts payable…………………………………………………………………… $240,000
Common stock………………………………………………………………………   640,000
Retained earnings……………………………………………………………………   416,400
Total liabilities and stockholders’ equity…………………………………………...   $1,296,400

Required:
a. Prepare a Schedule of Expected Cash Collections for November and December.
b. Prepare a Merchandise Purchases Budget for November and December.
c. Prepare Cash Budgets for November and December.
d. Prepare Budgeted Income Statements for November and December.
e. Prepare a Budgeted Balance Sheet for the end of December.

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Arrow Enterprises uses a standard costing system. The standard cost sheet for product no. 549 follows

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Chapter 6 Exercise 2
2. Schedule of cash collections
Sugarland Company sells a single product and anticipates opening a new facility in Charlotte on May 1 of the current year. Expected sales during the first three months of activity are: May, $60,000; June, $80,000; and July, $85,000. Thirty percent of all sales are for cash; the remaining 70% are on account. Credit sales have the following collection pattern:

Collected in the month of sale   60%
Collected in the month following sale 35
Uncollectible   5

a.Prepare a schedule of cash collections for May through July.
b.Compute the expected balance in Accounts Receivable as of July 31.

Chapter 6 Exercise 4
4. Production and cash-outlay computations
RPR, Inc., anticipates that 120,000 units of product K will be sold during May. Each unit of product K requires four units of raw material A. Actual inventories as of May 1 and budgeted inventories as of May 31 follow.

                                                                1-May        31-May
Product K (Units)                      55,000                 60,000
Rate Materials A (Units)                         40,000                 37,000

Each unit of raw material A costs $8; RPR pays for all purchases in the month of acquisition. Invoices that account for 80% of the cost of materials acquired will be paid within 10 days of receipt, entitling the company to a 2% cash discount.
a. Determine the number of units of product K to be manufactured in May.
b.  Compute the May cash outlay for purchases of raw material A.

Chapter 6 Exercise 5
5. Abbreviated cash budget; financing emphasis
An abbreviated cash budget for Big Chuck Enterprises follows.

                                                                July                        August                 September
Beginning cash balance                                 $10,000                 $ ?                          $ ?
Add: Cash receipts                          50,000                   63,000                   71,000
Deduct: Cash payments                                -64,000                 -58,000                 -64,000
Cash excess (deficiency) before financing  ($4,000)          $ ?                          $ ?
Financing           
Borrowing to maintain minimum balance              ?                              ?                              ?
Principal repayment       ?                              ?                              ?
Interest payment     ?                     ?                              ?
Ending cash balance                                                                        $ ?                          $ ?                          $ ?

Big Chuck wishes to maintain a $10,000 minimum cash balance at all times. Additional financing is available (and retired) in $1,000 multiples at a 12% interest rate. Assume that borrowings take place at the beginning of the month; retirements, in contrast, occur at the end of the month. Interest is paid at the time of repaying principal and computed on the portion of principal repaid.
 a. Find the unknowns in Big Chuck's abbreviated cash budget.
b.  Determine the outstanding loan balance as of September 30, after any repayments have been made.

Chapter 6 Problem 3
3. Comprehensive budgeting
The balance sheet of Watson Company as of December 31, 19X1, follows.
                                                                WATSON COMPANY
                                                                     Balance Sheet
                                                                December 31, 19X1

 Assets                       
Cash                $4,595
Accounts receivable                 10,000
Finished goods (575 units x $7.00)                 4,025
Direct materials (2,760 units x $0.50)              1,380
Plant & equipment        $50,000         
Less: Accumulated depreciation          10,000 40,000
Total assets                 $60,000
Liabilities & Stockholders' Equity                    
Accounts payable to suppliers                         $14,000
Common stock             $25,000         
Retained earnings        21,000 46,000
Total liabilities &. stockholders' equity              $60,000

                              
 The following information has been extracted from the firm's accounting records:
1.All sales are made on account at $20 per unit. Sixty percent of the sales are collected in the month of sale; the remaining 40% are collected in the following month. Forecasted sales for the first five months of 19X2 are: January, 1,500 units,- February, 1,600 units; March, 1,800 units; April, 2,000 units; May, 2,100 units.
2.Management wants to maintain the finished goods inventory at 30% of the following month's sales.
3.Watson uses four units of direct material in each finished unit. The direct material price has been stable and is expected to remain so over the next six months. Management wants to maintain the ending direct materials inventory at 60% of the following month's production needs.
4.Seventy percent of all purchases are paid in the month of purchase; the remaining 30% are paid in the subsequent month.
5.Watson's product requires 30 minutes of direct labor time. Each hour of direct labor costs $7.
Instructions:
a.  Rounding computations to the nearest dollar, prepare the following for January through March:
1) Sales budget
2) Schedule of cash collections
3) Production budget
4) Direct material purchases budget
5) Schedule of cash disbursements for material purchases
6) Direct labor budget

b.Determine the balances in the following accounts as of March 31:
1) Accounts Receivable
2) Direct Materials
3) Accounts Payable

Chapter 7 Exercise 3
3. Variances for direct materials and direct labor
Banner Company manufactures flags of various countries. Each flag has a standard of eight square feet of fabric and three hours of direct labor time. Information about recent production activity follows.

Actual cost of fabric:       $4.50 per square foot
Fabric consumed:            32,080 square feet
Standard price per square foot of fabric: $4.25
Standard direct labor rate: $10.00 per hour
Actual direct labor rate: $10.20 per hour
Actual labor hours worked:11,940
Actual production completed:  4,000 flags

a. Compute the materials price variance and the materials quantity variance.
b. Compute the labor rate variance and the labor efficiency variance.

Chapter 7 Exercise 5
5. Overhead variances
Nova Manufacturing applies factory overhead to products on the basis of direct labor hours. At the beginning of the current year, the company's accountant made the following estimates for the forthcoming period:
•Estimated variable overhead: $500,000
•Estimated fixed overhead: $400,000
•Estimated direct labor hours: 40,000

It is now 12 months later. Actual total overhead incurred in the manufacture of 7,900 units amounted to $895,100. Actual labor hours totaled 39,800. Assuming a direct labor standard of five hours per finished unit, calculate the following:
a.Variable overhead efficiency variance
b.Fixed overhead volume variance
c.Overhead spending variance

Chapter 7 Problem 1
1. P26-A1 Basic flexible budgeting (L.O. 2)
Centron, Inc., has the following budgeted production costs:
Direct materials                $0.40 per unit
Direct labor                         1.80 per unit
Variable factory overhead     2.20 per unit
Fixed factory overhead
Supervision                        $24,000
Maintenance                     18,000
Other                                    12,000

The company normally manufactures between 20,000 and 25,000 units each quarter. Should output exceed 25,000 units, maintenance and other fixed costs are expected to increase by $6,000 and $4,500, respectively.
During the recent quarter ended March 31, Centron produced 25,500 units and incurred the following costs:
Direct Materials                                $10,710               
Direct Labor                        47,175 
Variable factory overhead           51,940 
Fixed factory overhead                               
     Supervision                   24,500 
     Maintenance                                23,700 
     Other                               16,800 
Total production costs                   $174,825            

Instructions:
a.Prepare a flexible budget for 20,000, 22,500, and 25,000 units of activity.
b.Was Centron's experience in the quarter cited better or worse than anticipated? Prepare an appropriate performance report and explain your answer.
c.Explain the benefit of using flexible budgets (as opposed to static budgets) in the measurement of performance.
 
Chapter 7 Problem 5
5. P26-B3 Straightforward variance analysis (L.O. 5)
Arrow Enterprises uses a standard costing system. The standard cost sheet for product no. 549 follows.
Direct materials: 4 units @ $6.50                $26.00
Direct labor: 8 hours @ $8.50      68
Variable factory overhead: 8 hours          @ $7.00   56
Fixed factory overhead: 8 hours                @ 2.5     20
Total standard cost per unit                         $170.00

The following information pertains to activity for December:
1. Direct materials acquired during the month amounted to 26,350 units at $6.40 per unit. All materials were consumed in operations.
2.Arrow incurred an average wage rate of $8.75 for 51,400 hours of activity.
3.Total overhead incurred amounted to $508,400. Budgeted fixed overhead totals $1.8 million and is spread evenly throughout the year.
4.Actual production amounted to 6,500 completed units.

Instructions:
a.Compute Arrow's direct material variances.
b.Compute Arrow's direct labor variances.
c.Compute Arrow's variances for factory overhead.

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