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Chapter 09

# Chapter 09 - From past experience the company has...

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Unformatted text preview: From past experience, the company has leamed-that 20% of a month’s sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored May sales totaled Jen/,4 Peak sales for Midwest Products, a wholesale distributor of leaf rakes, occur in August. The compa— -' ny’s sales budget for the third quarter showing these peak sales is given below: \$430, 000, and June sales totaled \$540, 000 - Required;; 1. 2.: Prepare a schedule of expected cash collections from sales, by month and 1n total, for the third quarter. Assume that the company will prepare a budgeted balance sheet as of September 30. Compute _ the accounts receivable as of that date. July August September Total May sales: \$430,000 x 10% ....... \$ 43,000 \$ 43,000 June sales: \$540,000 x 70%, 10% ....................... 378,000 \$ 54,000 432,000 July sales: \$600,000 x 20%, 70%, 10% .............. 120,000 420,000 \$ 60,000 600,000 August sales: \$900,000 x 20%, 70% ....................... 180,000 630,000 810,000 September sales: \$500,000 x 20% ....... 1_,_00 000 _1_,__00 000 Total cash collections.... \$511M samba 122m swims Notice that even though sales peak in August, cash collections peak in September. This occurs because the bulk of the company’s customers pay in the month following sale. The lag in collections that this creates is even more pronounced in some companies. Indeed, it is not unusual for a company to have the least cash available in the months when sales are greatest. . Accounts receivable at September 30: From August sales: \$900,000 x 10% .................... \$ 90,000 From September sales: \$500,000 x (70% + 10%) ................................. 400,000 Total accounts receivable ...................................... M 53/6 79 Micro Products, Inc., has developed a very powerful electronic calculator. Each calculator requires three small “chips” that cost \$2 each and are purchased from an overseas supplier. Micro Products has prepared a production budget for the calculator by quarters for Year 2 and for the ﬁrst quarter of Year 3, as shown below: “BudgetediproductiOn, " _' ' — , -_ _ . -_ , irt'caloulators......V...,-_... 30,000 90000 150,000: 1000700 180,000 l <‘_ The ,chip used in production of the calculator is sometimes hard to get, so it is necessary to carry large inventories as a precaution against stockouts. For this reason, the inventory of chips at the end of a quarter must be equal to 20% of the following quarter’s production needs. Some 361000 chips will be on hand to start the ﬁrst quarter of {gar 2. .. ‘ Required: Prepare a direct materials budget for chips, by quarter and in total, for Year 2. At the bottom of your budget, show the dollar amount of purchases for each quarter and for the year in total. Quarter—Year 2 Year 3 _ . ﬁrst Second Third Fo ' Requrred production of calculators .......... 60,000 90,000 150 000 106/6th [305L000 ' Number of chips per calculator ................ x 3 x 3 Ix 3 Ix 3 Ix 3 Total production needs—chips ................. M M M m m - YearZ . . First . Second 777/rd Fourth Year Pgoductlon needs—chips ............. . ........... 180,000 270,000 450,000 300,000 1200 000 a d desrred ending Inventory—chips ....... 54 000 90,000 60 000 48,000 ' 48:000 I_otal nee'dsi—chrps ............... . .................. 2 34,000 360,000 510,000 348,000 1 248 000 ess beginning lnventory—chlps .............. 36,000 54,000 90,000 60,000 I 36000 Required purchases—chips ..................... 153\$)ng QQQQQQ gggggg 2§§,QQQ 1,21g,ggg Cost of purchases at \$2 per chip ............. m m w'm m 546/4 The direct labor budget of Krispin Corporation for the upcoming ﬁscal year contains the following details concerning budgeted direct labor-hours. Budgeted di_reot.la50r¢hqurs - The company’s variable manufacturing overhead rate is \$1.75 per direct labor-hour and the company’s ﬁxed manufacturing overhead is \$35,000 per quarter. The only noncash item included in the ﬁxed manufacturing overhead is depreciation, which is \$15,000 per quarter. Required: 1. Construct the company ’8 manufacturing overhead budget for the upcoming ﬁscal year. 2. Compute the company’s manufacturing overhead rate (including both variable and ﬁxed manu- facturing overhead) for the upcoming ﬁscal year. Round off to the nearest whole cent. 1. Krispin Corporation ' Manufacturing Overhead Budget 15t 200' 3rd 4th Qua/fer Qua/fer Qua/fer Qua/fer Year Budgeted direct labor-hours ......... 5,000 4,800 5,200 5,400 20,400 Variable overhead rate ................. x \$1.75 x \$1.75 x \$1.75 x \$1.75 x \$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 manufac- turing overhead ........................ m M \$2251.99 \$22.53; w 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) .............................................. Ml: f‘f'Z/r’l Jodi Horton, president of the retailer Crestline Products, has just approached the company’s bank with a request for a \$30,000, 90-day loan. The purpose of the loan is to assist the company in acquiring inven- tones in support of peak Apn'l sales. Since the company has had some difficulty in paying off its loans in the past, the loan ofﬁcer has asked for a cash budget to help determine whether the loan should be made. The following data are available for the months AprilaJune, during which the loan will be used: a. On April 1, the start of the loan period, the cash balance will be \$26,000. Accounts receivable on April 1 will total \$151,500, of which \$141,000 will be collected during April and \$7,200 will be collected during May. The remainder will be uncollectible. b. Past experience shows that 20% ofa month’s sales are collected in the month of sale, 75% in the month following sale, and 4% in. the second month following sale. The other 1% represents bad debts that are never collected. Budgeted sales and expenses for the three—month period follow: y ,. \$300,000 -_ \$230,000 \$120,000- \$180,000 \$150,000 * \$9,000 ’ \$9,000] \$8,000; 3115,0009 015000 .f \$115,000: , rttsing; ;._.._.... .' . .; .. ,:~\$,;70;ooos \$80,000“ ’ \$60,000. ‘ ';_E mentpurchases . .,. . . ..., * \$8,000" __. '>. .~ ‘ Depreciation ..... _ ; .'. . . . ;.. \$10,000 \$10,000 \$10,000“ c. Merchandise purchases are paid in full during the month following purchase, Accounts payable for merchandise purchases on March 3l, which will be paid during April, total \$108,000. d. In preparing the cash budget, assume that the \$30,000 loan will be made in April and repaid in June. Interest on the loan will total \$1,200. Required: 1. Prepare a schedule of expected cash collections for April, May, and June and for the three months in total. 2. Prepare a cash budget, by month and in total, for the three-month period. 3. If the company needs a minimum cash balance of \$20,000 to start each month, can the loan be repaid as planned? Explain. 1. Schedule of expected cash collections: 2 Cash budget‘ Mont/7 I I ‘ April May June Qua/fer - Mont/7 :rom accounts receivable \$141,000 \$ 7,200 \$148,200 Cash balance begin AW] May June Qua/fer rom April sales: ' I - 20% x 200,000 IIIIIIIIIII 40,000 40,000 A gdngmeips ................ \$ 26,000 \$ 27,000 \$ 20,200 \$ 26,000 13% \$330,330 ........... 150,000 150,000 Conecﬁons'fmm cus- x , Fro”: May séiias: ............. \$ 8,000 81000 T tai~_'omer_«ls.i).l ................. 181,000 217,200 283,900 681,200 0 avai a e .............. , , , , 202/0 X 300,000 ........... 60,000 60,000 LESS disbursements: 207 000 244 200 303 200 707 200 F 75 A; X 3001000 ........... 225,000 225,000 Merchandise pur- rom : ' ' 20% \$3558 830 chases .................... 108,000 120,000 180,000 408,000 Total cash collectiol'is ------- M £12,? —;QQ— _.____50 000 _.____50 000 Payroll ....................... 9,000, 9,000 8,000 26,000 ...... M \$081,200. Lease payments......... 15,000 15,000 15,000 45,000 Advertismg ................ 70,000 80,000 60,000 210,000 Equtpment purchases. 8,000 — — M Total disbursements ...... 210,000 224,000 263,000 697,000 Excess (deficiency) of receipts over dis— bursements ............... __(;,000) 20,200 40,200 10,200 Financmg: Borrowings ................ 30,000 — — 30,000 Repayments ............... — — (30,000) (30,000) Interest ..................... —— — ( 1,200) 1 1,200) Total financing .............. 30,000 —— (31,200) (1,200) Cash balance, ending-J- 5:49.90. M @2092 \$4002 3. If the company needs a minimum cash balance of \$20,000 to start each month, the loan cannot be repaid in full by June 30. If the loan is repaid In full, the cash balance will drop to only \$9,000 on June 30, as shown above. Some portion of the loan balance will have to be carried over to July, at which time the cash inﬂow should be sufficient to complete re— payment. ...
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Chapter 09 - From past experience the company has...

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