Accounting

Business

Quiz 14 :

Cost Planning

Quiz 14 :

Cost Planning

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Cash budget-part 1 PrimeTime Sportswear is a custom imprinter that began operations six months ago. Sales have exceeded management's most optimistic projections. Sales are made on account and collected as follows: 50% in the month after the sale is made and 45% in the second month after sale. Merchandise purchases and operating expenses are paid as follows: img PrimeTime Sportswear's income statement budget for each of the next four months, newly revised to reflect the success of the firm, follows: img Cash on hand August 31 is estimated to be $40,000. Collections of August 31 accounts receivable were estimated to be $20,000 in September and $15,000 in October. Payments of August 31 accounts payable and accrued expenses in September were estimated to be $24,000. Required: a. Prepare a cash budget for September. b. What is your advice to management of PrimeTime Sportswear?
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Cash budget is the budget that prepares to estimate the expected receipts and payments of cash for a particulars period. This budget is prepared based on the various operating budgets and capital expenditures incurred during that period in addition to the above dividends and interests paid, and ant other receipts are form part of cash budget
a.
Cash budget for September:
img b.
Cash budget of the company:
img The company could accelerate the collection of accounts receivable, slow down the payment of accounts payable, or use other financing activities, such as make a bank loan or issue bonds or stocks.

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Purchases budget-analytical Precious Stones, Ltd., is a retail jeweler. Most of the firm's business is in jewelry and watches. The firm's average gross profit ratio for jewelry and watches is 60% and 37.5%, respectively. The sales forecast for the next two months for each product category is as follows: img The company's policy, which is expected to be achieved at the end of April, is to have ending inventory equal to 200% of the next month's cost of goods sold. Required: a. Calculate the cost of goods sold for jewelry and watches for May and June. b. Calculate a purchases budget, in dollars, for each product for the month of May.
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a.
Cost of goods sold is a schedule used to calculate the total cost of the products, which are produced in a factory. This schedule is reports the total costs of goods sold.
img Compute the cost of goods sold of two items dealt by the company:
img b.
The ending inventory for Jewelry in April is
img .
The ending inventory for Watches in April is
img .
The ending inventory for Jewelry in May is
img .
The ending inventory for Watches in May is
img .
img Therefore, the purchase budget for Jewelry in May is
img The purchase budget for Watches in May is
img

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Purchases budget Each gallon of Old Guard, a popular aftershave lotion, requires 2 ounces of ocean scent. Budgeted production of Old Guard for the first three quarters of 2016 is as follows: img Management's policy is to have on hand at the end of every quarter enough ocean scent inventory to meet 25% of the next quarter's production needs. At the beginning of Quarter I, 5,000 ounces of ocean scent were on hand. Required: a. Calculate the number of ounces of ocean scent to be purchased in each of the first two quarters of 2016. b. Explain why management plans for an ending inventory instead of planning to purchase each quarter the amount of raw materials needed for that quarter's production.
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(a) Calculate the number of OS's ounces required to be purchased in each of the two quarters:
Steps to calculate the Usage:
• Consider the beginning inventory.
• Then, add purchases to the beginning inventory to arrive at raw materials available for use.
• Deduct the ending inventory from raw materials available for use to arrive at usage.
img Calculate the purchased amount of OS's ounces made by working backward up the model:
• Consider usage value for Quarter I and Quarter II.
• Then add the ending inventory to usage to arrive at raw materials available for use.
• Deduct the beginning inventory from raw materials available for use to arrive at Purchases.
img Hence, the numbers of ounces of ocean scent for the first two quarters are
img and
img ounces, respectively.
(b) Reason for management plans for an ending inventory instead of planning to purchase:
The management has an idea that inventory would provide a moderate support for delays or excessive production requirements in case of further production. Hence, it wants to keep an ending inventory for each quarter.

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Cash budget-part 2 Refer to the PrimeTime Sportswear data presented in Problem 14.19. Required: a. Prepare a cash budget for October and November. What are the prospects for this company if its sales growth continues at a similar rate? b. Assume now that PrimeTime Sportswear is a mature firm, and that the September-November data represent a seasonal peak in business. Prepare a cash budget for December, January, and February, assuming that the income statements for January and February are the same as December's. Explain how the cash budget would be used to support a request to a bank for a seasonal loan. Reference Problem 14.19: Cash budget-part 1 PrimeTime Sportswear is a custom imprinter that began operations six months ago. Sales have exceeded management's most optimistic projections. Sales are made on account and collected as follows: 50% in the month after the sale is made and 45% in the second month after sale. Merchandise purchases and operating expenses are paid as follows: img PrimeTime Sportswear's income statement budget for each of the next four months, newly revised to reflect the success of the firm, follows: img Cash on hand August 31 is estimated to be $40,000. Collections of August 31 accounts receivable were estimated to be $20,000 in September and $15,000 in October. Payments of August 31 accounts payable and accrued expenses in September were estimated to be $24,000. Required: a. Prepare a cash budget for September. b. What is your advice to management of PrimeTime Sportswear?
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Cash receipts budget Scottsdale Co. has actual sales for July and August and forecast sales for September, October, November, and December as follows: img Based on past experience, it is estimated that 30% of a month's sales are collected in the month of sale, 55% are collected in the month following the sale, and 10% are collected in the second month following the sale. Required: Calculate the estimated cash receipts for September, October, and November.
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Production and purchases budgets Osage, Inc., has actual sales for May and June and forecast sales for July, August, September, and October as follows: img Required: a. The firm's policy is to have finished goods inventory on hand at the end of the month that is equal to 70% of the next month's sales. It is currently estimated that there will be 4,000 units on hand at the end of June. Calculate the number of units to be produced in each of the months of July, August, and September. b. Each unit of finished product requires 6.5 pounds of raw materials. The firm's policy is to have raw material inventory on hand at the end of each month that is equal to 60% of the next month's estimated usage. It is currently estimated that 26,000 pounds of raw materials will be on hand at the end of June. Calculate the number of pounds of raw materials to be purchased in each of the months of July and August.
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Production and purchases budgets Gillman Co. is forecasting sales of 62,000 units of product for August. To make one unit of finished product, 5 pounds of raw materials are required. Actual beginning and desired ending inventories of raw materials and finished goods are as follows: img Required: a. Calculate the number of units of product to be produced during August. b. Calculate the number of pounds of raw materials to be purchased during August.
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Cash receipts analysis In addition to the information presented in Mini-Exercise 14.1, the selling price for each unit is $18. Based on past experience, ABC expects that 30% of a month's sales will be collected in the month of sale, 60% in the following month, and 8% in the second month following the sale. Required: Prepare an analysis of cash receipts from sales for ABC Company for August. Reference Mini-Exercise 14.1: Production budget ABC Company's budgeted sales for June, July, and August are 12,000, 16,000, and 14,000 units, respectively. ABC requires 30% of the next month's budgeted unit sales as finished goods inventory each month. Budgeted ending finished goods inventory for May is 3,600 units. Required: Calculate the number of units to be produced in June and July.
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Developing raw material cost standards Lakeway Manufacturing Co. manufactures and sells household cleaning products. The company's research department has developed a new cleaner for which a standard cost must be determined. The new cleaner is made by mixing 11 quarts of triphate solution and 4 pounds of sobase granules and boiling the mixture for several minutes. After the solution has cooled, 2 ounces of methage are added. This "recipe" produces 10 quarts of the cleaner, which is then packaged in 1-quart plastic dispenser bottles. Raw material costs are as follows: img Required: a. Using the preceding data, calculate the raw material cost for one bottle of the new cleaner. b. Assume that the preceding costs are the current best estimates of the costs at which required quantities of the raw material can be purchased. Would you recommend that any other factors be considered in establishing the raw material cost standard for the new cleaner? c. Explain the process that would be used to develop the direct labor cost standard for the new product.
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Standard product cost In addition to the information presented in Mini-Exercises 14.1 and 14.2, ABC Company currently pays a standard rate of $1 per pound for raw materials. Each unit should be produced in 15 minutes of direct labor time at a standard direct labor rate of $12 per hour. Manufacturing overhead is applied at the standard rate of $16 per direct labor hour. Required: Calculate the standard cost per unit for ABC Company. Reference Mini-Exercise 14.1: Production budget ABC Company's budgeted sales for June, July, and August are 12,000, 16,000, and 14,000 units, respectively. ABC requires 30% of the next month's budgeted unit sales as finished goods inventory each month. Budgeted ending finished goods inventory for May is 3,600 units. Required: Calculate the number of units to be produced in June and July. Reference Mini-Exercise 14.2: Purchases budget In addition to the information presented in Mini-Exercise 14.1, each unit that ABC Company produces uses 3 pounds of raw material. ABC requires 25% of the next month's budgeted production as raw material inventory each month. Required: Calculate the number of pounds of raw material to be purchased in June.
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Standard absorption cost per unit A cost analyst for Stamper Manufacturing Co. has assembled the following data about the Model 24 stamp pad: The piece of sheet metal from which eight pad cases can be made costs $0.14. This amount is based on the number of sheets in a 3,000-pound bundle of sheet metal, which is the usual purchase quantity. The foam pad that is put in the case costs $0.02, based on the number of pads that can be cut from a large roll of foam. Production standards, based on engineering analysis recognizing attainable performance, provide for the manufacture of 1,800 pads by two workers in an eight-hour shift. The standard direct labor pay rate is $11 per hour. Manufacturing overhead is applied to units produced using a predetermined overhead application rate of $16 per direct labor hour, of which $7 per hour is fixed manufacturing overhead. Required: a. Calculate the standard absorption cost of a package of 12 stamp pads. b. Stamper Manufacturing Co.'s management is considering a special promotion that would result in increased sales of 2,000 packages of 12 pads per package. Calculate the cost per package that is relevant for this analysis.
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Developing direct labor cost standards Brass Creations Co. makes decorative candle pedestals. An industrial engineer consultant developed ideal time standards for one unit of the Cambridge model pedestal. The standards follow, along with the cost accountant's determination of current labor pay rates: img Required: a. Using the preceding data, calculate the direct labor cost for a Cambridge model pedestal. b. Would it be appropriate to use the cost calculated in part a as a standard cost for evaluating direct labor performance and valuing inventory? Explain your answer.
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Production budget ABC Company's budgeted sales for June, July, and August are 12,000, 16,000, and 14,000 units, respectively. ABC requires 30% of the next month's budgeted unit sales as finished goods inventory each month. Budgeted ending finished goods inventory for May is 3,600 units. Required: Calculate the number of units to be produced in June and July.
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Purchases budget In addition to the information presented in Mini-Exercise 14.1, each unit that ABC Company produces uses 3 pounds of raw material. ABC requires 25% of the next month's budgeted production as raw material inventory each month. Required: Calculate the number of pounds of raw material to be purchased in June. Reference Mini-Exercise 14.1: Production budget ABC Company's budgeted sales for June, July, and August are 12,000, 16,000, and 14,000 units, respectively. ABC requires 30% of the next month's budgeted unit sales as finished goods inventory each month. Budgeted ending finished goods inventory for May is 3,600 units. Required: Calculate the number of units to be produced in June and July.
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Production and purchases budgets Olympia Productions, Inc., makes award medallions that are attached to ribbons. Each medallion requires 18 inches of ribbon. The sales forecast for February is 2,000 medallions. Estimated beginning inventories and desired ending inventories for February are as follows: img Required: a. Calculate the number of medallions to be produced in February. b. Calculate the number of yards of ribbon to be purchased in February.
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Operating expense budget In addition to the information presented in Mini-Exercise 14.1, the following cost behavior patterns are budgeted for ABC Company's operating expenses each month: Fixed costs: salaries, $2,000; rent, $5,000; depreciation, $2,400; advertising, $3,200 Mixed costs: utilities, $3,000 + $0.50 per unit Variable costs per unit sold: sales commissions, $2.00; marketing promotions, $1.00; supplies, $0.75; bad debt expense, $0.25 Required: Prepare ABC Company's operating expense budget for June, July, and August. Reference Mini-Exercise 14.1: Production budget ABC Company's budgeted sales for June, July, and August are 12,000, 16,000, and 14,000 units, respectively. ABC requires 30% of the next month's budgeted unit sales as finished goods inventory each month. Budgeted ending finished goods inventory for May is 3,600 units. Required: Calculate the number of units to be produced in June and July.
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Cash receipts budget Fox Trail Center's sales are all made on account. The firm's collection experience has been that 30% of a month's sales are collected in the month the sale is made, 50% are collected in the month following the sale, and 18% are collected in the second month following the sale. The sales forecast for the months of May through August is as follows: img Required: Calculate the cash collections that would be included in the cash budgets for July and August.
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Standard absorption cost per unit DMA, Inc., processes corn into corn starch and corn syrup. The company's productivity and cost standards follow: From every bushel of corn processed, 12 pounds of starch and 3 pounds of syrup should be produced. Standard direct labor and variable overhead total $0.42 per bushel of corn processed. Standard fixed overhead (the predetermined fixed overhead application rate) is $0.35 per bushel processed. Required: a. Calculate the standard absorption cost per pound for the starch and syrup produced from the processing of 15,000 bushels of corn if the average cost per bushel is $2.83. b. Comment about the usefulness of this standard cost for management planning and control purposes.
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Cash budget In addition to the information presented in Mini-Exercise 14.4, ABC Company has a cash balance of $25,000 on August 1 and requires a minimum ending cash balance of $20,000. Cash disbursements budgeted for August include inventory purchases, $40,000; other manufacturing expenses, $98,000; operating expenses, $76,200; bond retirements, $50,000; and dividend payments, $15,000. Required: Prepare a cash budget for ABC Company for August. Reference Mini-Exercise 14.4: Cash receipts analysis In addition to the information presented in Mini-Exercise 14.1, the selling price for each unit is $18. Based on past experience, ABC expects that 30% of a month's sales will be collected in the month of sale, 60% in the following month, and 8% in the second month following the sale. Required: Prepare an analysis of cash receipts from sales for ABC Company for August. Reference Mini-Exercise 14.1: Production budget ABC Company's budgeted sales for June, July, and August are 12,000, 16,000, and 14,000 units, respectively. ABC requires 30% of the next month's budgeted unit sales as finished goods inventory each month. Budgeted ending finished goods inventory for May is 3,600 units. Required: Calculate the number of units to be produced in June and July.
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Purchases budget Brooklyn Furniture, a retail store, has an average gross profit ratio of 46%. The sales forecast for the next four months follows: img Management's inventory policy is to have ending inventory equal to 300% of the cost of sales for the subsequent month, although it is estimated that the cost of inventory at June 30 will be $410,000. Required: Calculate the purchases budget, in dollars, for the months of July and August.
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