1. AudioFile Products Ltd. is a retailer that sells sound systems. The company is planning its cash needs for the month of January, 2013. In the past, AudioFile has had to borrow money during the post-Christmas season to offset a significant decline in sales. The following information has been assembled to assist in preparing a cash flow forecast for January.
a. January 2013 forecasted income statement:
Sales $200,000
Cost of goods sold 150,000
Gross profit 50,000
Variable selling expenses $10,000
Fixed administrative expenses 20,000 30,000
Forecast net operating income $ 20,000
b. Sales are 10% for cash and 90% on credit.
c. Credit sales are collected over a three-month period with 40% collected in the month of sale, 30% in the following month, and 20% in the second month following sale. November 2012 sales totaled $300,000 and December sales totaled $500,000.
d. 40% of a month's inventory purchases are paid for in the same month. The remaining 60% are paid in the following month. Accounts payable relate solely to inventory purchases. At December 31, these totaled $400,000.
e. The company maintains its ending inventory levels at 60% of the cost of the merchandise to be sold in the following month. The merchandise inventory at December 31, 2012 was $90,000. February 2013 sales are budgeted at $150,000. Gross profit percentage is expected to remain unchanged.
f. The company pays a $10,000 monthly cash dividend to shareholders.
g. The cash balance at December 31 was $30,000; the company must maintain a cash balance of at least this amount at the end of each month.
h. The company can borrow on its operating loan in increments of $10,000 at the beginning of each month, up to a total loan balance of $500,000. The interest rate on this loan is 1% per month. There is no operating loan at December 31, 2012.
Required: Prepare a Cash Flow Forecast for AudioFile for the month of January 2013. Include appropriate supporting schedules.
2. In the past, the Roils Royally Engine Division (Roils) allocated indirect manufacturing costs based on direct labour hours. Recently, management has decided to pilot a system of time-driven activity-based costing (TDABC) to allocate these costs. The division produces three engine models: Basic, Sport, and Heavy Duty. Roils employs 300 employees to perform indirect labour functions, consisting of machine setups, engine inspections and shipping. Each employee is paid $50,000 per year on average, including benefits. On average, each employee works 1,600 hours per year. Each automated production machine is used 1,600 hours per year, including set up time. Once a machine is set up, no labour is necessary to oversee it.
The following information has been obtained from the company's records over the past year:
|
|
Basic
|
Sport
|
Heavy Duty
|
|
Units produced
|
500,000
|
150,000
|
50,000
|
|
Direct material cost per unit
|
$40
|
$50
|
$60
|
|
Direct labour cost per hour
|
$30
|
$30
|
$30
|
|
Direct labour hours incurred
|
200,000
|
225,000
|
40,000
|
|
Inspections per engine
|
2
|
3
|
4
|
|
Inspection time per engine (hrs.)
|
.1
|
.2
|
.3
|
|
Engines packed and shipped per batch
|
2,000
|
1,000
|
500
|
|
Individual engine packing time (hrs.)
|
.25
|
.3
|
.4
|
|
Additional preparation time per batch (hrs.)
|
30
|
20
|
15
|
|
Machine set-ups per year
|
240
|
180
|
60
|
|
Labour hours for each machine set-up
|
30
|
40
|
60
|
Required
a. Determine the indirect labor support costs for each engine using time-driven activity-based costing.
b. Determine the percent of unused indirect labour compared to available indirect labour hours. Draw conclusions from this analysis.