ACCT 215 Problems Solutions, Fall 2011

Chapter 08 Profit Planning Chapter 08 Profit Planning Exercise 8-2 (10 minutes) July August Sept. Quarter Budgeted sales in units........... 30,000 45,000 60,000 135,000 Add desired ending inventory*............................... 4,500 6,000 5,000 5,000 Total needs................................ 34,500 51,000 65,000 140,000 Less beginning inventory........ 3,000 4,500 6,000 3,000 Required production................ 31,500 46,500 59,000 137,000 *10% of the following month’s sales Exercise 8-4 (20 minutes) 1. Assuming that the direct labor workforce is adjusted each quarter, the direct labor budget would be: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Units to be produced.................... 5,000 4,400 4,500 4,900 Direct labor time per unit (hours) ...................................................... × 0.40 × 0.40 × 0.40 × 0.40 Total direct labor hours needed.. 2,000 1,760 1,800 1,960 Direct labor cost per hour............ × $11.00 × $11.00 × $11.00 × $11.00 Total direct labor cost................... $22,000 $19,360 $19,800 $21,560 2. Assuming that the direct labor workforce is not adjusted each quarter and that overtime wages are paid, the direct labor budget would be: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Units to be produced.................... 5,000 4,400 4,500 4,900 18,800 Direct labor time per unit (hours)......................................... × 0.40 × 0.40 × 0.40 × 0.40 × 0.40 Total direct labor hours needed......................................... 2,000 1,760 1,800 1,960 7,520 Regular hours paid....................... 1,800 1,800 1,800 1,800 7,200 8-1 Chapter 08 Profit Planning Overtime hours paid.....................     200 0 0 160 360 Wages for regular hours (@ $11.00 per hour)................... $19,800 $19,800 $19,800 $19,800 $79,200 Overtime wages (@ $11.00 per hour × 1.5 hours).................      3,300 0 0 2,640 5,940 Total direct labor cost................... $23,100 $19,800 $19,800 $22,440 $85,140 8-2 Chapter 08 Profit Planning Exercise 8-5 (15 minutes) 1. Krispin Corporation Manufacturing Overhead Budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Budgeted direct labor-hours....... 5,000 4,800 5,200 5,400 20,400 Variable overhead rate................. ×   $1.75 ×   $1.75 ×   $1.75 ×   $1.75 ×   $1.75 Variable manufacturing overhead..................................... $ 8,750 $ 8,400 $ 9,100 $ 9,450 $ 35,700 Fixed manufacturing overhead... 35,000 35,000 35,000 35,000 140,000 Total manufacturing overhead... 43,750 43,400 44,100 44,450 175,700 Less depreciation.......................... 15,000 15,000 15,000 15,000 60,000 Cash disbursements for manufacturing overhead.......... $28,750 $28,400 $29,100 $29,450 $115,700 8-3 2. Total budgeted manufacturing overhead for the year (a)...................................... $175,700 Total budgeted direct labor-hours for the year (b).................................................. 20,400 Predetermined overhead rate for the year (a) ÷ (b)................................................. $8.61 Chapter 08 Profit Planning Exercise 8-6 (15 minutes) Haerve Company Selling and Administrative Expense Budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Budgeted unit sales 12,000 14,000 11,000 10,000 47,000 Variable selling and administrative expense per unit ×   $2.75 ×   $2.75 ×   $2.75 ×   $2.75 ×   $2.75 Variable expense $   33,000 $   38,500 $   30,250 $   27,500 $129,250 Fixed selling and administrative expenses: Advertising 12,000 12,000 12,000 12,000 48,000 Executive salaries 40,000 40,000 40,000 40,000 160,000 Insurance 6,000 6,000 12,000 Property taxes 6,000 6,000 Depreciation 16,000 16,000 16,000 16,000 64,000 Total fixed selling and administrative expenses 68,000 74,000 74,000 74,000 290,000 Total selling and administrative expenses 101,000 112,500 104,250 101,500 419,250 Less depreciation 16,000 16,000 16,000 16,000 64,000 Cash disbursements for selling and administrative expenses $   85,000 $   96,500 $   88,250 $   85,500 $355,250 8-4 Chapter 08 Profit Planning Exercise 8-7 (20 minutes) Forest Outfitters Cash Budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year Cash balance, beginning............ $ 50,000 $ 30,000 $ 69,800 $ 49,800 $    50,000 Total cash receipts. 340,000 670,000 410,000 470,000 1,890,000 Total cash available............... 390,000 700,000 479,800 519,800 1,940,000 Less total cash disbursements.... 530,000 450,000 430,000 480,000 1,890,000 Excess (deficiency) of cash available over disbursements.... (140,000)   250,000 49,800 39,800 50,000 Financing: Borrowings (at beginning)*...... 170,000 170,000 Repayments (at ending).............. (170,000) (170,000) Interest§............... (10,200 ) (10,200 ) Total financing....... 170,000 (180,200) (10,200 ) Cash balance, ending.................. $   30,000 $   69,800 $   49,800 $   39,800 $       39,800 * Since the deficiency of cash available over disbursements is $140,000, the company must borrow $170,000 to maintain the desired ending cash balance of $30,000. § $170,000 × 3% × 2 quarters = $10,200 8-5 Chapter 08 Profit Planning Exercise 8-14 (30 minutes) 1. Schedule of expected cash collections: Month July August September Quarter From accounts receivable...................... $126,000 $126,000 From July sales: 30% × 200,000.............. 60,000 60,000 70% × 200,000.............. $140,000 140,000 From August sales: 30% × 220,000.............. 66,000 66,000 70% × 220,000.............. $154,000 154,000 From September sales: 30% × 210,000.............. 63,000 63,000 Total cash collections..... $186,000 $206,000 $217,000 $609,000 2. a. Merchandise purchases budget: July August Sept. Total Budgeted cost of goods sold.. $130,00 0 $143,00 0 $136,50 0 $409,50 0 Add desired ending inventory*..............................       57,200 54,600 59,800 59,800 Total needs................................ 187,200 197,600 196,300 469,300 Less beginning inventory........       52,000 57,200 54,600 52,000 Required purchases................. $135,20 0 $140,40 0 $141,70 0 $417,30 0 *At July 31: $143,000 × 40% = $57,200. b. Schedule of cash disbursements for purchases: July August Sept. Total From accounts payable......... $ 61,100 $ 61,100 For July purchases.................. 67,600 $ 67,600 135,200 For August purchases........... 70,200 $ 70,200 140,400 8-6 Chapter 08 Profit Planning For September purchases..... 70,850 70,850 Total cash disbursements..... $128,70 0 $137,800 $141,05 0 $407,550 8-7 Chapter 08 Profit Planning Exercise 8-14 (continued) 3. Colerain Corporation Income Statement For the Quarter Ended September 30 Sales ($200,000 + $220,000 + $210,000)... $630,000 Cost of goods sold (Part 2a) ...................... 409,500 Gross margin................................................ 220,500 Selling and administrative expenses ($65,000 × 3 months) ............................... 195,000 Net operating income................................. 25,500 Interest expense.......................................... 0 Net income................................................... $   25,500 4. Colerain Corporation Balance Sheet September 30 Assets Cash ($80,000 + $609,000 – $407,550 – ($60,000 × 3)).. $101,45 0 Accounts receivable ($210,000 × 70%)........................ 147,000 Inventory (Part 2a)......................................................... 59,800 Plant and equipment, net ($200,000 – ($5,000 ×3))... 185,000 Total assets..................................................................... $493,25 0 Liabilities and Stockholders’ Equity Accounts payable ($141,700 × 50%)............................ $ 70,850 Capital stock (Given)...................................................... 300,000 Retained earnings ($96,900 + $25,500)...................... 122,400 Total liabilities and stockholders’ equity..................... $493,25 0 8-8 Chapter 08 Profit Planning Problem 8-17 (60 minutes) 1. Collections on sales: July August Sept. Quarter Cash sales.................................. $ 8,000 $14,000 $10,000 $ 32,000 Credit sales: May: $30,000 × 80% × 20%... 4,800 4,800 June: $36,000 × 80% × 70%, 20%....................................... 20,160 5,760 25,920 July: $40,000 × 80% × 10%, 70%, 20%.............................. 3,200 22,400 6,400 32,000 Aug.: $70,000 × 80% × 10%, 70%....................................... 5,600 39,200 44,800 Sept.: $50,000 × 80% × 10%.. 4,000 4,000 Total cash collections............... $36,160 $47,760 $59,600 $143,520 2. a. Merchandise purchases budget: July August Sept. Oct. Budgeted cost of goods sold.. $24,000 $42,000 $30,000 $27,000 Add desired ending inventory*.............................. 31,500 22,500 20,250 Total needs................................ 55,500 64,500 50,250 Less beginning inventory........ 18,000 31,500 22,500 Required inventory purchases $37,500 $33,000 $27,750 *75% of the next month’s budgeted cost of goods sold. b. Schedule of expected cash disbursements for merchandise purchases: July August Sept. Quarter Accounts payable, June 30...... $11,700 $11,700 July purchases........................... 18,750 $18,750 37,500 August purchases..................... 16,500 $16,500 33,000 September purchases.............. 13,875 13,875 Total cash disbursements....... $30,450 $35,250 $30,375 $96,075 8-9 Chapter 08 Profit Planning Problem 8-17 (continued) 3. Janus Products, Inc. Cash Budget For the Quarter Ended September 30 July August Sept. Quarter Cash balance, beginning....... $ 8,000 $ 8,410 $ 8,020 $   8,000 Add collections from sales 36,160 47,760 59,600 143,520 Total cash available............. 44,160 56,170 67,620 151,520 Less disbursements: For inventory purchases.... 30,450 35,250 30,375 96,075 For selling expenses........... 7,200 11,700 8,500 27,400 For administrative expenses........................... 3,600 5,200 4,100 12,900 For land................................ 4,500 0 0 4,500 For dividends....................... 0 0 1,000 1,000 Total disbursements.............. 45,750 52,150 43,975 141,875 Excess (deficiency) of cash available over disbursements..................... (1,590 )       4,020 23,645 9,645 Financing: Borrowings........................... 10,000 4,000 14,000 Repayment........................... 0 0 (14,000) (14,000) Interest................................. 0 0 (380 ) (380 ) Total financing........................ 10,000 4,000 (14,380) (380 ) Cash balance, ending............ $ 8,410 $ 8,020 $ 9,265 $       9,265 * $10,000 × 1% × 3 = $300 $4,000 × 1% × 2 = 80 $380 8-10 Chapter 08 Profit Planning Problem 8-19 (60 minutes) 1. The sales budget for the third quarter: July Aug. Sept. Quarter Budgeted sales (pairs).... 6,000 7,000 5,000 18,000 Selling price per pair....... ×   $ 50 ×   $ 50 ×   $ 50 ×   $ 50 Total budgeted sales...... $300,000 $350,000 $250,000 $900,000 The schedule of expected cash collections from sales: July Aug. Sept. Quarter Accounts receivable, beginning balance....... $130,000 $130,000 July sales: $300,000 × 40%, 50%... 120,000 $150,000 270,000 August sales: $350,000 × 40%, 50%... 140,000 $175,000 315,000 September sales: $250,000 × 40%............ 100,000 100,000 Total cash collections...... $250,000 $290,000 $275,000 $815,000 2. The production budget for July through October: July Aug. Sept. Oct. Budgeted sales (pairs)....................... 6,000 7,000 5,000 4,000 Add desired ending inventory.......... 700 500 400 300 Total needs.......................................... 6,700 7,500 5,400 4,300 Less beginning inventory.................. 600 700 500 400 Required production (pairs).............. 6,100 6,800 4,900 3,900 8-11 Chapter 08 Profit Planning Problem 8-19 (continued) 3. The direct materials budget for the third quarter: July Aug. Sept. Quarter Required production— pairs (above)...................... 6,100 6,800 4,900 17,800 Raw materials needs per pair (lbs.)............................ × 2 × 2 × 2 × 2 Production needs (lbs.)....... 12,200 13,600 9,800 35,600 Add desired ending inventory............................ 2,720 1,960 1,560 * 1,560 Total needs........................... 14,920 15,560 11,360 37,160 Less beginning inventory 2,440 2,720 1,960 2,440 Raw materials to be purchased.......................... 12,480 12,840 9,400 34,720 Cost of raw materials to be purchased at $2.50 per lb.................................. $31,200 $32,100 $23,500 $86,800 *3,900 pairs (October) × 2 lbs. per pair= 7,800 lbs.; 7,800 lbs. × 20% = 1,560 lbs. The schedule of expected cash disbursements: July Aug. Sept. Quarter Accounts payable, beginning balance.................................... $11,400 $11,400 July purchases: $31,200 × 60%, 40%............... 18,720 $12,480 31,200 August purchases: $32,100 × 60%, 40%............... 19,260 $12,840 32,100 September purchases: $23,500 × 60%........................ 14,100 14,100 Total cash disbursements........ $30,120 $31,740 $26,940 $88,800 8-12 Chapter 08 Profit Planning Problem 8-26 (120 minutes) 1. Schedule of expected cash collections: January February March Quarter Cash sales............................. $28,000 $32,000 $34,000 $  94,000 Credit sales*......................... 36,000 42,000 48,000 126,000 Total collections................... $64,000 $74,000 $82,000 $220,000 *60% of the preceding month’s sales. 2. Merchandise purchases budget: January February March Quarter Budgeted cost of goods sold (70% of sales)............ $49,000 $56,000 $59,500 $164,500 Add desired ending inventory*.......................... 11,200 11,900 7,700 7,700 Total needs........................... 60,200 67,900 67,200 172,200 Less beginning inventory... 9,800 11,200 11,900 9,800 Required purchases............ $50,400 $56,700 $55,300 $162,400 *At March 30: April sales $55,000 × 70% × 20% = $7,700. Schedule of expected cash disbursements—merchandise purchases January February March Quarter December purchases.......... $32,550 $ 32,550 January purchases............... 12,600 $37,800 50,400 February purchases............ 14,175 $42,525 56,700 March purchases................. 13,825 13,825 Total disbursements............ $45,150 $51,975 $56,350 $153,475 8-13 Chapter 08 Profit Planning Problem 8-26 (continued) 3. Schedule of expected cash disbursements—selling and administrative expenses January February March Quarter Commissions........................ $12,000 $12,000 $12,000 $36,000 Rent....................................... 1,800 1,800 1,800 5,400 Other expenses.................... 5,600 6,400 6,800 18,800 Total disbursements............ $19,400 $20,200 $20,600 $60,200 4. Cash budget: January February March Quarter Cash balance, beginning.. $ 6,000 $ 5,450 $ 5,275 $  6,000 Add cash collections......... 64,000 74,000 82,000 220,000 Total cash available........ 70,000 79,450 87,275 226,000 Less cash disbursements: For inventory.................. 45,150 51,975 56,350 153,475 For operating expenses. 19,400 20,200 20,600 60,200 For equipment................ 3,000 8,000 0 11,000 Total disbursements......... 67,550 80,175 76,950 224,675 Excess (deficiency) of cash 2,450 (725 ) 10,325 1,325 Financing: Borrowings...................... 3,000 6,000 0 9,000 Repayments.................... 0 0 (5,000) (5,000) Interest*.......................... 0 0 (210 ) (210 ) Total financing................... 3,000 6,000 (5,210 )         3,790 Cash balance, ending....... $ 5,450 $ 5,275 $ 5,115 $    5,115 * $3,000 × 1% × 3 = $ 90 $6,000 × 1% × 2 = 120 Total interest $210 8-14 Chapter 08 Profit Planning Problem 8-26 (continued) 5. Picanuy Corporation Income Statement For the Quarter Ended March 31 Sales ($70,000 + $80,000 + $85,000).......... $235,000 Cost of goods sold: Beginning inventory (Given).................... $  9,800 Purchases (Part 2)..................................... 162,400 Goods available for sale........................... 172,200 Ending inventory (Part 2)......................... 7,700 164,500 * Gross margin................................................ 70,500 Selling and administrative expenses: Commissions (Part 3)................................ 36,000 Rent (Part 3)............................................... 5,400 Depreciation (Given)................................. 2,400 Other expenses (Part 3)........................... 18,800 62,600 Net operating income................................. 7,900 Interest expense.......................................... 210 Net income................................................... $       7,690 * A simpler computation would be: $235,000 × 70% = $164,500. 8-15 Chapter 08 Profit Planning Problem 8-26 (continued) 6. Picanuy Corporation Balance Sheet March 31 Assets Current assets: Cash (Part 4).................................................................... $   5,115 Accounts receivable ($85,000 × 60%)........................... 51,000 Inventory (Part 2)............................................................ 7,700 Total current assets........................................................... 63,815 Fixed assets—net ($110,885 + $3,000 + $8,000 – $2,400)......................... 119,485 Total assets......................................................................... $183,300 Liabilities and Stockholders’ Equity Accounts payable (Part 2: $55,300 × 75%)..... $ 41,475 Bank loan payable............................................ 4,000 Stockholders’ equity: Capital stock (Given)...................................... $100,000 Retained earnings*....................................... 37,825 137,825 Total liabilities and equity................................ $183,300 * Retained earnings, beginning..................... $30,135 Add net income............................................. 7,690 Retained earnings, ending.......................... $37,825 8-16