LO23-4, LO23- Barnum Distributors wants a projection of cash receipts and cash payments for
the month of November. On November 28, a note will be payable in the
5
amount of $98,500, including interest. The cash balance on November 1 is
$29,600. Accounts payable to merchandise creditors at the end of October
PROBLEM
were $217,000.
23.3A
Budgeting for
Cash
The company’s experience indicates that 70 percent of sales will be collected
during the month of sale, 20 percent in the month following the sale, and 7
percent in the second month following the sale; 3 percent will be uncollectible.
The company sells various products at an average price of $11 per unit.
Selected sales figures are as follows:
Because purchases are payable within 15 days, approximately 50 percent of
the purchases in a given month are paid in the following month. The average
cost of units purchased is $7 per unit. Inventories at the end of each month are
maintained at a level of 2,000 units plus 10 percent of the number of units that
will be sold in the following month. The inventory on October 1 amounted to
8,000 units.
Budgeted operating expenses for November are $220,000. Of this amount,
$90,000 is considered fixed (including depreciation of $35,000). All operating
expenses, other than depreciation, are paid in the month in which they are
incurred.
The company expects to sell fully depreciated equipment in November for
$8,400 cash.
Instructions
Prepare a cash budget for the month of November, supported by schedules of
cash collections on accounts receivable and cash payments for purchases of
merchandise.
LO23-2, LO23- Snells is a retail department store. The following cost-volume relationships
were used in developing a flexible budget for the company for the current
4 through
year:
LO23-6
PROBLEM
23.7A
Preparing and
Using a Flexible
Budget
Management expected to attain a sales level of $12 million during the current
year. At the end of the year, the actual results achieved by the company were
as follows:
Instructions
1. Prepare a schedule comparing the actual results with flexible budget
amounts developed for the actual sales volume of $10,500,000.
Organize your schedule as a partial multiple-step income statement,
ending with operating income. Include separate columns for (1)
flexible budget amounts, (2) actual amounts, and (3) any amount over
(under) budget. Use the cost-volume relationships given in the
problem to compute the flexible budget amounts.
Page 1029
2. Write a statement evaluating the company’s performance in relation to
the plan reflected in the flexible budget.
LO24-3 through Heritage Furniture Co. uses a standard cost system. One of the company’s
most popular products is an oak entertainment center that looks like an old
LO24-5
icebox but houses a television, stereo, or other electronic components. The
PROBLEM
per-unit standard costs of the entertainment center, assuming a “normal”
24.7A
volume of 1,000 units per month, are as follows:
Computing,
Journalizing,
and Analyzing
Cost Variances
Page 1067
During July, 800 entertainment centers were scheduled and produced at the
following actual unit costs:
Instructions
1. Compute the following cost variances for the month of July:
1. Materials price variance
2. Materials quantity variance
3. Labor rate variance
4. Labor efficiency variance
5. Overhead spending variance
6. Volume variance
2. Prepare journal entries to assign manufacturing costs to the Work in
Process Inventory account and to record cost variances for July. Use
separate entries for (1) direct materials, (2) direct labor, and (3)
overhead costs.
3. Comment on any significant problems or areas of cost savings
revealed by your computation of cost variances. Also comment on any
possible causal relationships between significant favorable and
unfavorable cost variances.
LO24-1, LO24- Ripley Corporation has supplied the following information obtained from its
standard cost system in June:
3, LO24-4
PROBLEM
24.8A
Understanding
Cost Variances:
Solving for
Missing Data
The following journal entries were made during June with respect to Ripley’s
standard cost system:
Page 1068
Instructions
1. Determine the actual quantity of materials purchased and used in
production during June.
2. Determine the standard quantity of materials allowed for the
productive output achieved during June.
3. Determine the actual average direct labor rate in June.
4. Determine the standard direct labor hours allowed for the production
output achieved during June.
5. Determine the total overhead costs allowed for the production output
achieved during June.
6. Prepare a journal entry to record the transfer of all work in process to
finished goods at the end of June.
7. Close all cost variances directly to the Cost of Goods Sold account at
the end of June.
8. Was Ripley’s production output in June more or less than its normal
level of output? How can you tell?
LO25-2
PROBLEM
25.4A
Tootsie Roll Industries has two business segments, one for operations in the
U.S. and one for operations in Mexico and Canada. The information below (in
thousands) comes from a recent annual report. Find the ROI for each segment
for each year.
Tootsie Roll
Industries
Segment
Performance
Evaluation
Instructions
Find and analyze segment ROI by using the DuPont method described in this
chapter. Explain the performance difference between the two segments across
the two years by using the information from the DuPont breakdown of ROI.
Bob Banker is the manager of one location of the Fastwhere Inc. chain,
which is a delivery service. Banker’s location is currently earning an ROI of
14 percent on existing average capital of $750,000. The minimum required
return for Fastwhere Inc. is 12 percent. Banker is considering several
PROBLEM additional investment projects, which are independent of existing operations
and are independent of each other. The following table lists the projects:
25.5A
LO25-2
through
LO25-4
ROI and
Residual
Income
Page 1105
Instructions
1. Which of the projects would Banker choose for investment if his
objective were to maximize his location’s ROI?
2. Which projects increase the value of Fastwhere Inc.?
3. Which projects have a negative residual income?
4. Create two rankings for the projects in order of acceptability if
Banker is evaluated (1) on ROI and (2) on residual income.
5. On the basis of the projects in the list explain why underinvestment
is a problem when using ROI for evaluation purposes.
LO26-1
Marengo is a popular restaurant located in Chilton Resort. Management
feels that enlarging the facility to incorporate a large outdoor seating area
will enable Marengo to continue to attract existing customers as well as
handle large banquet parties that now must be turned away. Two proposals
PROBLEM are currently under consideration. Proposal A involves a temporary walled
structure and umbrellas used for sun protection; Proposal B entails a more
26.4A
permanent structure with a full awning cover for use even in inclement
weather. Although the useful life of each alternative is estimated to be 10
Capital
Budgeting years, Proposal B results in higher salvage value due to the awning
protection. The accounting department of Chilton Resort and the manager
Using
of Marengo have assembled the following data regarding the two proposals:
Multiple
Models
through
LO26-4
Page 1139
Instructions
1. For each proposal, compute the (1) payback period, (2) return on
average investment, and (3) net present value, discounted at
management’s required rate of return of 15 percent. (Round the
payback period to the nearest tenth of a year and the return on
investment to the nearest tenth of a percent.) Use Exhibits 26–3 and
26–4 where necessary.
2. On the basis of your analysis in part a, state which proposal you
would recommend and explain the reasons for your choice.
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