Assignment
Background Information
I SEE THE LIGHT (ISTL) is a subchapter S corporation that manufactures children's lamps/nightlights for use in bedrooms. These lamps are sold nationwide through a group of independent sales representatives who have an exclusive sales region. The business is in its tenth year and has asked you to assist in planning for next year's operations.
The lamps are ceramic figurines of animals, boats, boys and girls playing and singing, all in delightful colors. The owner of the business, Big Al, creates a drawing for the figurine and faxes it to a plant in China where a mold is created and a sample produced and hand painted. If the mold meets the expectations of Big Al an order of 500 lamp parts is placed. Each lamp kit consists of the parts required to complete one lamp; a figurine, a lamp shade and the required electrical components. There are presently 10 different figurines that come in six different colors; 60 models.
There are presently 10 workers in the plant. They are responsible for receiving the raw material, manufacturing the product, packing and shipping. In addition to Big Al there are two office workers who are responsible for all administrative duties.
Big Al had his accountant prepare the Projected Income Statement and Balance Sheet presented on page two. Big Al heard about your skills in managerial accounting and would like your assistance in the following areas:
Part 1 Fixed and Variable Cost Determinations - Unit Cost Calculations
Part 2 Cost Volume Relationships - Profit Planning
Part 3 Budgets
Part 4 Process Costing
Part 5 Job Order Costing
Part 6 Standard Costing - Variance Analysis
Part 7 Capital Decision Making
To upload your work to Big Al the file without changing the name. Pay attention to the specific location that Excel saves the file. Return to the bottom of the page that you downloaded the file from; Cybertext.com, The Book List, Building Blocks of Accounting--A Managerial Perspective, Enter password, Upload Your Excel File. If you upload an old version of the file the results will not update.
Keep two copies of your spreadsheet in two separate places in case one of Big Al's competitors sends someone to destroy your work or it is lost in transmission.
You may find it easier to work on this project if you print a hard copy of all the pages.
PART 1
Fixed and Variable Cost Determinations
Unit Cost Calculations
The projected cost of a lamp is calculated based upon the projected increases or decreases to current costs. The present costs to manufacture one lamp are:
Lamp Kit: $16.0000000 per lamp
Direct Labor: 2.0000000 per lamp (4 lamps/hr.)
Variable Overhead: 2.0000000 per lamp
Fixed Overhead: 10.0000000 per lamp (based on normal capacity of 25,000 lamps)
Cost per lamp: $30.0000000 per lamp
Expected increases for 20x2
When calculating projected increases round to TWO ($0.00) decimal places.
1. Material Costs are expected to increase by 6.50% .
2. Labor Costs are expected to increase by 5.00%.
3. Variable Overhead is expected to increase by 6.00%.
4. Fixed Overhead is expected to increase to $280,000.
5. Fixed Administrative expenses are expected to increase to $50,000.
6. Variable selling expenses (measured on a per lamp basis) are expected to increase by 2.50%.
7. Fixed selling expenses are expected to be $25,000 in 20x2.
8. Variable administrative expenses (measured a per lamp basis) are expected to increase by 4.50%.
On the following schedule develop the following figures:
1- 20x2 Projected Variable Manufacturing Unit Cost of a lamp.
2- 20x2 Projected Variable Unit Cost per lamp.
3- 20x2 Projected Fixed Costs.
PART 2
Cost Volume Relationships -
Profit Planning
Big Al is about to begin work on the budget for 20x2 and they have requested that you prepare an analysis based on the following assumptions.
Note: Remember, that we cannot sell part of a lamp, therefore to find the number of units you have to round up to the next complete unit. Furthuremore, to find the required sales in dollars it may be easier to find the number of units and then multiply by the selling price per unit.
1. For 20x2 the selling price per lamp will be $45.00. What is the projected contribution margin and contribution margin ratio for each lamp sold?
Contribution Margin per unit (Round to two places, $##.##)
Contribution Margin Ratio (Round to four places,% is two of those places ##.##%)
2. For 20x2 the selling price per lamp will be $45.00. The desired net income in 20x2 is $195,000 . What would sales in units have to be in 20x2 to reach the profit goal?
Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed)
3. For 20x2 the selling price per lamp will be $45.00. If the fixed cost increase by $75,000.00 how many lamps must be sold to breakeven?
Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed)
4. For 20x2 the selling price per lamp will be $45.00. If the variable cost increase by $7.50 a unit how many lamps must be sold to breakeven?
Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed)
5. For 20x2 the selling price per lamp will be $45.00. If the variable cost decreased by $7.50 a unit how many lamps must be sold to breakeven?
Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed)
6. If for 20x2 the selling price per lamp is increased to $52.50 a unit how many lamps must be sold to breakeven?
Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed)
7. If for 20x2 the selling price per lamp is decreased to $37.50 a unit how many lamps must be sold to breakeven?
Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed)
PART 3 : Budgets
Division N has decided to develop its budget based upon projected sales of 31,000 lamps at $47.00 per lamp.
The company has requested that you prepare a master budget for the year. This budget is to be used for planning and control of operations and should be composed of:
1. Production Budget
2. Materials Budget
3. Direct Labor Budget
4. Factory Overhead Budget
5. Selling and Administrative Budget
6. Cost of Goods Sold Budget
7. Budgeted Income Statement
8. Cash Budget
Notes for Budgeting:
The company wants to maintain the same number of units in the beginning and ending inventories of work-in-process, and electrical parts while increasing the inventory of Lamp Kits to 550 pieces and decreasing the finished goods by 20%.
Complete the following budgets
1 Production Budget
Planned Sales
Desired Ending Inventory of Finished Goods
Total Needed
Less: Beginning Inventory
Total Production
4 Factory Overhead Budget
Overhead Allocation rate based on:
1. Number of Units
Total Factory Overhead / Number of Units
(Round to two places, $##.##)
5 Cost of making one unit next year
Cost of one Lamp Kit
Labor Cost Per Lamp
Factory overhead per unit
Total cost of one unit
(Round to two places, $##.##)
6 Selling and Admin. Budget
Fixed Selling
Variable Selling (Round to two places, $##.##)
Fixed Administrative
Variable Administrative (Round to two places, $##.##)
Total Selling and Administrative (Round to two places, $##.##)
7 Cost of Goods Sold Budget - Assume FIFO (First-In, First-Out) and overhead is applied based on the number of units to be produced.
Beginning Inventory, Finished Goods
Production Costs:
Materials:
Lamp Kits:
Beginning Inventory
Purchased
Available for Use
Ending Inventory of Lamp Kits
Lamp Kits Used In Production
Total Materials:
Labor
Overhead
Cost of Goods Available
Less: Ending Inventory, Finished Goods
Cost of Goods Sold
7 Budgeted Income Statement
Sales
Cost of Goods Sold
Gross Profit
Selling Expenses & Admin. Expenses
Net Income
8 Cash Budget
Assume actual cash receipts and disbursements will follow the pattern below: (Note: Receivables and Payables of 12/31/x1 will have a cash impact in 20x2.)
1. 19.00% of sales for the year are made in November and December. Since our customers have 60 day terms those funds will be collected be collected in January and February.
2. 89.00% of material purchases will be paid during the year, the remaining portion will be paid in Januay or February.
3. All other manufacturing and operating costs are paid for when incurred.
4. The budgeted depreciation expense is equal to 0.6% of the fixed manufacturing, selling and administrative expenses.
5. Minimum Cash Balance needed for 20x2, $190,000 .
PART 4: Process Costing - Weighted Average
General Information
The I See The Light Company has a related company that produces the figurines. They use process costing in the molding department. The factory overhead is applied at a rate of 50% of direct labor dollars.
The material is added at the beginning of the process. The labor and overhead costs are assumed to be added uniformly throughout.
Month of January
Selected information for January is presented below. Note that the applied overhead rate was 50% of direct labor costs in the molding department.
Molding Department
Goods in-process as of January 1 were 3,100 figurines at a cost of $21,913.00. Of this amount, $4,588.00 was from raw materials added, $11,550.00 for labor and $5,775.00 for overhead. These 3,100 figurines were assumed to be 25.00% complete as to labor and overhead.
During January, 22,000 units were started, $35,070.00 of materials and $63,700.00 of labor costs were incurred.
The 6,000 figurines that were in-process at the end of January were assumed to be 40.00% complete to labor and overhead.
All figurines in January passed inspection.
PART 5: Job Order Costing
To keep records of the actual cost of a special order job, a Job Order Cost System has been developed.
Overhead is applied at the rate of 50% of the direct labor cost.
Job Order Costing Section
On January 1, 20x2, Division S began Job 2407 for the Client, THE BIG CHILDREN STORE. The job called for 4,000 customized lamps. The following set of transactions occurred from January 5 until the job was completed:
5-Jan Purchased 4,025 Lamp Kits @ $16.55 per kit.
9-Jan 4,125 sets of Lamp Kits were requisitioned.
17-Jan Payroll of 610 Direct Labor Hours @ $9.80 per hour.
30-Jan Payroll of 660 Direct Labor Hours @ $10.05 per hour.
30-Jan 3,990 lamps were completed and shipped. All materials requisitioned were used or scrapped, and are a cost of normal processing.
Month End Overhead Information
Actual Variable Manufacturing Overhead $1,600.20
Actual Fixed Manufacturing Overhead $40,623.45
PART 6: Standard Job Order Costing- Variance Analysis
Special order lamps are manufactured in division S. Because of the precise nature of the process a standard cost system has been developed. The following standards are used for the special orders:
Standards
Lamp Kits $16.000000 per lamp
Direct Labor 2.400000 per lamp (4 lamps/hr.)
Variable Overhead 0.250000 per lamp (4 lamps/hr.)
** Fixed Overhead 10.000000 per lamp
Total $28.650000
** Fixed overhead is based on expected production of 4,009 customized lamps each month.
To keep records of the actual cost of a job, a Job Order Cost System has been developed. Entries are made to the Job Order System at actual cost (overhead is applied based on actual labor hours) while entries are made to the accounting system at standard. Variance analysis is used to analyze the differences.
Job Order Costing Section
On January 1, 20x2, Division S began Job 1101 for the Client, THE BIG CHILDREN STORE. The job called for 4,000 customized lamps. The following set of transactions occurred from January 5 until the job was completed:
5-Jan Purchased 4,025 Lamp Kits @ $16.55 per kit.
9-Jan 4,125 sets of Lamp Kits were requisitioned.
17-Jan Payroll of 610 Direct Labor Hours @ $9.80 per hour.
30-Jan Payroll of 660 Direct Labor Hours @ $10.05 per hour.
30-Jan 3,991 lamps were completed and shipped. All materials requisitioned were used or scrapped.
Month End Overhead Information
Actual Variable Overhead $1,600.20
Actual Fixed Overhead $40,623.45
How many Lamps were completed?
Note: Show favorable variances as negative numbers
What was the total material price variance for the Lamp Kits purchased?
What was the material usage variance for Lamp Kits?
What was the direct labor efficiency variance ?
What was the direct labor rate variance?
Note: Show favorable variances as negative numbers
What was the variable overhead efficiency variance?
What was the variable OH spending variance?
What is the fixed OH volume (denominator) variance?
What is the fixed OH spending variance?
Capital Decision Making
Big Al gives his worker's a one hour lunch and two fifteen minute breaks each day. He believes that a cold soda machine would be appreciated by his workers, and an appreciated worker is a good worker. He has priced a machine at a national member only warehouse for $2,050. The machine should be usable for 5 years, after which it would be inefficient, obsolete and would have to be disposed of at the dump. Big Al believes that 9 cans a day will be purchased. The plant is open five days a week, 50 weeks per year. A case of soda (24 cans) costs $5.76 and Big Al believes that a price of $.85 per can would win him good will.
What is the estimated annual sales in cans of soda?
What is the contribution margin per can of soda? (rounded to two places, $#.##)
How many cans of soda must be sold each year to breakeven? (Round up to zero places, ###,### cans)
Annual incremental cash inflows from the soda machine? (rounded to two places, $#.##)
What is the payback period in years? (rounded to two places, #.## years)
If the time value of money is 12% per year what is the net present value? Use the tables on page 18.
What is the internal rate of return. Pick the closest interest rate from the tables on page 18.
Attachment:- wl6084_1_0_0.rar