Exercise 1
Jim Heston has been working on Austin Paints' cash budget for the coming year. Based on his projections for March, the beginning cash balance will be $50,016; cash collections will be $700,000; and cash disbursements will be $710,540. Austin Paints desires to maintain a $50,000 minimum cash balance. The company has a 10 percent open line of credit with its bank, which provides short-term borrowings in $500 increments. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in $500 increments). Accrued interest is paid at the time of repayment.
(a) How much will Austin Paints need to borrow from the bank at the beginning of March?
(b) Assuming that Austin Paints has $7,000 in excess cash budgeted for April, how much principal will the company plan to repay? How much interest will be repaid in April? (Round interest repaid answer to the nearest whole dollar amount, e.g. 5,275.)
Problem 2
GrowMaster Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the firm's marketing director, has completed the following sales forecast.
|
Month
|
Sales
|
Month
|
Sales
|
|
January
|
$904,900
|
July
|
$1,501,400
|
|
February
|
$1,002,000
|
August
|
$1,501,400
|
|
March
|
$904,900
|
September
|
$1,606,000
|
|
April
|
$1,154,600
|
October
|
$1,606,000
|
|
May
|
$1,260,000
|
November
|
$1,501,400
|
|
June
|
$1,406,000
|
December
|
$1,704,000
|
Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. He has gathered the following information.
? All sales are made on credit.
? GrowMaster's excellent record in accounts receivable collection is expected to continue, with 60 percent of billings collected in the month after sale and the remaining 40 percent collected two months after the sale.
? Cost of goods sold, GrowMaster's largest expense, is estimated to equal 40 percent of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30 percent during the month of sale. For example, in April, 30 percent of April cost of goods sold is purchased and 70 percent of May cost of goods sold is purchased.
? All purchases are made on account. Historically, 75 percent of accounts payable have been paid during the month of purchase, and the remaining 25 percent in the month following purchase.
? Hourly wages and fringe benefits, estimated at 30 percent of the current month's sales, are paid in the month incurred.
? General and administrative expenses are projected to be $1,575,000 for the year. A breakdown of the expenses follows. All expenditures are paid monthly throughout the year, with the exception of property taxes, which are paid in four equal installments at the end of each quarter.
|
Salaries and fringe benefits
|
$323,700
|
|
Advertising
|
378,800
|
|
Property taxes
|
142,400
|
|
Insurance
|
195,600
|
|
Utilities
|
184,800
|
|
Depreciation
|
349,700
|
|
Total
|
$1,575,000
|
? Operating income for the first quarter of the coming year is projected to be $329,100. GrowMaster is subject to a 40 percent tax rate. The company pays 100 percent of its estimated taxes in the month following the end of each quarter.
? GrowMaster maintains a minimum cash balance of $50,000. If the cash balance is less than $50,000 at the end of the month, the company borrows against its 12 percent line of credit in order to maintain the balance. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in increments of $1,000). Accrued interest is paid in full with each principal repayment. The projected cash balance on April 1 is $51,300.
Prepare the cash receipts budget for the second quarter
Prepare the purchases budget for the second quarter
Prepare the cash payments budget for the second quarter
Prepare the cash budget for the second quarter
Problem 3
Gerald/Brooke, Ltd. manufactures shirts, which it sells to customers for embroidering with various slogans and emblems. The standard cost card for the shirts is as follows.
| |
Standard Price
|
Standard Quantity
|
Standard Cost
|
|
Direct materials
|
$1.6 per yard
|
1.25 yards
|
$2
|
|
Direct labor
|
$12 per DLH
|
0.25 DLH
|
3
|
|
Variable overhead
|
$4 per DLH
|
0.25 DLH
|
1
|
|
Fixed overhead
|
$6 per DLH
|
0.25 DLH
|
1.5
|
| |
|
|
$7.50
|
Bobby Brickley, operations manager, was reviewing the results for November when he became upset by the unfavorable variances he was seeing. In an attempt to understand what had happened, Bobby asked CFO Lila Davis for more information. She provided the following overhead budgets, along with the actual results for November.
The company purchased and used 118,600 yards of fabric during the month. Fabric purchases during the month were made at $1.45 per yard. The direct labor payroll ran $260,029, with an actual hourly rate of $12.1 per direct labor hour. The annual budgets were based on the production of 1,008,670 shirts, using 254,000 direct labor hours. Though the budget for November was based on 83,100 shirts, the company actually produced 85,960 shirts during the month.
| |
Variable Overhead Budget
|
| |
Annual Budget
|
Per Shirt
|
November-Actual
|
|
Indirect material
|
$454,500
|
$0.45
|
$37,200
|
|
Indirect labor
|
300,400
|
0.3
|
34,180
|
|
Equipment repair
|
204,800
|
0.2
|
19,400
|
|
Equipment power
|
53,200
|
0.05
|
12,800
|
|
Total
|
$1,012,900
|
$1.00
|
$103,580
|
| |
Fixed Overhead Budget
|
| |
Annual Budget
|
November-Actual
|
|
Supervisory salaries
|
$262,900
|
$23,300
|
|
Insurance
|
354,100
|
29,800
|
|
Property taxes
|
84,300
|
7,600
|
|
Depreciation
|
320,400
|
37,300
|
|
Utilities
|
211,200
|
21,800
|
|
Quality inspection
|
282,200
|
31,900
|
|
Total
|
$1,515,100
|
$151,700
|
(a) Calculate the direct materials price and quantity variances for November.
(b) Calculate the direct labor rate and efficiency variances for November
(c) Calculate the variable overhead spending and efficiency variances for November
(d) Calculate the fixed overhead spending variance for November