Accounting 2102
Spring 2007
Johnson Company budgeted the following information for 2006:
May / June / July / AugustBudgeted purchases / $104,000 / $110,000 / $102,000 / $100,000
- Cost of goods sold is 40% of sales. Accounts payable is used only for inventory acquisitions.
- Johnson purchases and pays for merchandise 60% in the month of acquisition and 40% in the following month.
- Selling and administrative expenses are budgeted at $40,000 for May and are expected to increase 5% per month. They are paid during the month of acquisition. In addition, budgeted depreciation is $10,000 per month.
- Johnson pays $4,500 per month for its 6% note payable and interest.
- Income taxes are $38,400 for July and are paid in the month incurred.
How much are the budgeted cash disbursements for July?
Santana Company is considering investing in a project that will cost $73,000 and have no salvage value at the end of its 5-year life. It is estimated that the project will generate annual cash inflows of $20,000 each year. The company requires a 10% rate of return and uses the following compound interest table:
Present Value of an Annuity of 1
Period 6% 8% 9% 10% 11% 12% 15%
54.2123.9933.8903.7913.6963.6053.352
Instructions
(a)Compute (1) the net present value and (2) the profitability index of the project.
(b)Compute the internal rate of return on this project.
(c)Should Santana invest in this project?
Go Mix Company uses both standards and budgets. The company estimates that production for the year will be 250,000 units of Product Fast. To produce these units of Product Fast, the company expects to spend $600,000 for materials and $800,000 for labor.
Instructions
Compute the estimates for (a) a standard cost and (b) a budgeted cost.
Toto Dog Toys developed its annual manufacturing overhead budget for its master budget for 2006 as follows:
Expected annual operating capacity: 80,000 Direct Labor Hours
Variable overhead costs
Indirect labor$400,000
Indirect materials16,000
Factory supplies 48,000
Total variable costs 464,000
Fixed overhead costs
Depreciation54,000
Supervision123,000
Property taxes 11,000
Total fixed costs 188,000
Total costs$652,000
The relevant range for monthly activity is expected to be between 70,000 and 90,000 direct labor hours.
Instructions
Prepare a flexible budget for a monthly activity level of 75,000 direct labor hours.
The following direct labor data pertain to the operations of Bell Chime Manufacturing Company for the month of January:
Actual labor rate$18.40 per hr.
Actual hours used20,000
Standard labor rate$18.00 per hr.
Standard hours allowed19,000
Instructions
Prepare a matrix and calculate the labor variances
Savanna Company is considering two capital investment proposals. Relevant data on each project are as follows:
Project RedProject Blue
Capital investment$400,000$560,000
Annual net income30,00050,000
Estimated useful life8 years8 years
Depreciation is computed by the straight-line method with no salvage value. Savanna requires an 8% rate of return on all new investments. The present value of 1 for 8 periods at 8% is .540 and the present value of an annuity of 1 for 8 periods is 5.747.
Instructions
(a)Compute the cash payback period for each project.
(b)Compute the net present value for each project.
(c)Compute the annual rate of return for each project.
(d)Which project should Savanna select?
Sheller, Inc. makes and sells a single product, widgets. Three pounds of wackel are needed to make one widget. Budgeted production of widgets for the next few months follows:
September 14,500 units
October 15,500 units
The company wants to maintain monthly ending inventories of wackel equal to 20% of the following month's production needs. On August 31, 8,700 pounds of wackel were on hand. The cost of wackel is $1,25 per pound. How much is the cost of wackel to be purchased in September?
Springer, Inc. produces rulers from plastic resin. On March 1, there are 5,000 completed rulers and 5,200 pounds of resin on hand. Flyer has estimated production and sales of rulers in units for the next 4 months as:
March / April / May / JuneEstimated production / 26,000 / 22,000 / 30,000 / 32,000
Estimated sales / 25,000 / 21,000 / 33,000 / 24,000
Each ruler requires 0.25 pounds of resin. The cost of resin is $4.40 per pound. Flyer wants to have 20% of the next month’s material requirements on hand at the end of each month. Prepare a direct materials purchases budget for the May.
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