Week 10 Exercises
1.
Garden Depot is a retailer that provided the following budgeted cash flows for next year:
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |
|---|---|---|---|---|
| Total cash receipts | $ 330,000 | $ 450,000 | $ 380,000 | $ 400,000 |
| Total cash disbursements | $ 379,000 | $ 349,000 | $ 339,000 | $ 359,000 |
The company’s beginning cash balance for next year will be $22,000. The company requires a minimum cash balance of $10,000 and may borrow money at the beginning of any quarter and may repay any part of its loans at the end of any quarter. Interest payments, based on a quarterly interest rate of 3%, are due on any principal at the time it is repaid. For simplicity, assume interest is not compounded.
Required:
Prepare the company’s cash budget for next year.
Note: Repayments, interest, and cash deficiencies should be indicated by a minus sign.
Explanation
Borrowings (at beginnings of quarters): Since the deficiency of cash available over disbursements is $27,000, the company must borrow $37,000 to maintain the desired ending cash balance of $10,000.
Interest: $37,000 × 3% × 2 = $2,220
2
Yuvwell Corporation’s direct labor budget for next year contained the following information:
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |
|---|---|---|---|---|
| Budgeted direct labor-hours | 9,600 | 9,000 | 9,300 | 10,100 |
The company uses direct labor-hours as its overhead allocation base. The variable portion of its predetermined manufacturing overhead rate is $4.00 per direct labor-hour and its total fixed manufacturing overhead is $64,000 per quarter. The only noncash item included in fixed manufacturing overhead is depreciation of $16,000 per quarter.
Required:
- Prepare the company’s manufacturing overhead budget for next year.
- Compute the company’s predetermined overhead rate (including both variable and fixed manufacturing overhead) for next year.
Complete this question by entering your answers in the tabs below.
Required 1
Prepare the company’s manufacturing overhead budget for next year.
Note: Round “Variable manufacturing overhead rate” answers to 2 decimal places.
Explanation
- 1st Quarter2nd Quarter3rd Quarter4th QuarterYearBudgeted direct labor-hours9,6009,0009,30010,10038,000Variable manufacturing overhead rate× $ 4.00× $ 4.00× $ 4.00× $ 4.00× $ 4.00Variable manufacturing overhead$ 38,400$ 36,000$ 37,200$ 40,400$ 152,000
- Total budgeted manufacturing overhead for the year (a)$ 408,000Budgeted direct labor-hours for the year (b)38,000Predetermined overhead rate for the year (a) ÷ (b)$ 10.74
Required 2
Explanation
- 1st Quarter2nd Quarter3rd Quarter4th QuarterYearBudgeted direct labor-hours9,6009,0009,30010,10038,000Variable manufacturing overhead rate× $ 4.00× $ 4.00× $ 4.00× $ 4.00× $ 4.00Variable manufacturing overhead$ 38,400$ 36,000$ 37,200$ 40,400$ 152,000
- Total budgeted manufacturing overhead for the year (a)$ 408,000Budgeted direct labor-hours for the year (b)38,000Predetermined overhead rate for the year (a) ÷ (b)$ 10.74
3
Two grams of musk oil are required for each bottle of Mink Caress, a popular perfume made by a company in western Siberia. The cost of the musk oil is $1.70 per gram. Budgeted quarterly production of Mink Caress is given below for Year 2 and the first quarter of Year 3:
| Year 2 | Year 3 | ||||
|---|---|---|---|---|---|
| First | Second | Third | Fourth | First | |
| Budgeted production, in bottles | 78,000 | 108,000 | 168,000 | 118,000 | 88,000 |
The inventory of musk oil at the end of a quarter must equal 20% of the following quarter’s production needs. A total of 31,200 grams of musk oil will be on hand to start the first quarter of Year 2.
Required:
Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2.
Explanation
Desired units of ending raw materials inventory:
Fourth quarter: 88,000 units × 2 grams per unit × 20% = 35,200 grams.
4.
Weller Company’s budgeted unit sales for next year are provided below:
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |
|---|---|---|---|---|
| Budgeted unit sales | 28,000 | 29,000 | 21,000 | 26,000 |
The company’s variable selling and administrative expense per unit is $2.70. Fixed selling and administrative expenses include advertising expenses of $13,000 per quarter, executive salaries of $47,000 per quarter, and depreciation of $27,000 per quarter. In addition, the company will make insurance payments of $4,000 in the first quarter and $4,000 in the third quarter. Finally, property taxes of $6,800 will be paid in the second quarter.
Required:
Prepare the company’s selling and administrative expense budget for next year.
Note: Round “Per Unit” answers to 2 decimal places.
Explanation
No further explanation details are available for this problem.
5
Gig Harbor Boating is the wholesale distributor of a recreational sailboat. Management provided the following data for budgeting purposes:
| Budgeted unit sales | 600 |
|---|---|
| Selling price per unit | $ 2,020 |
| Cost per unit | $ 1,670 |
| Variable selling and administrative expense (per unit) | $ 55 |
| Fixed selling and administrative expense (per year) | $ 107,000 |
| Interest expense for the year | $ 18,000 |
Required:
Prepare a budgeted income statement for the year.
Explanation
Sales: (600 units × $2,020 per unit) = $1,212,000
Cost of goods sold: (600 units × $1,670 per unit) = $1,002,000
Selling and administrative expenses: (600 units × $55 per unit) + $107,000 = $140,000
6
Puget Sound Divers provides diving services, such as underwater ship repairs, to its clients. The company’s planning budget for May appears below:
| Budgeted diving-hours (q) | 250 |
|---|---|
| Revenue ($470.00q) | $ 117,500 |
| Expenses: | |
| Wages and salaries ($11,400 + $122.00q) | 41,900 |
| Supplies ($6.00q) | 1,500 |
| Equipment rental ($2,200 + $23.00q) | 7,950 |
| Insurance ($4,100) | 4,100 |
| Miscellaneous ($510 + $1.48q) | 880 |
| Total expenses | 56,330 |
| Net operating income | $ 61,170 |
During May, the company’s actual activity was 240 diving-hours.
Required:
Prepare a flexible budget for May.
Note: Round your answers to the nearest whole number.
Explanation
Revenue ($470.00 × 240) = $112,800
Wages and salaries ($11,400 + ($122.00 × 240)) = $40,680
Supplies ($6.00 × 240) = $1,440
Equipment rental ($2,200 + ($23.00 × 240)) = $7,720
Miscellaneous ($510 + ($1.48 × 240)) = $865
7.
Lavage Rapide owns and operates a large automatic car wash facility near Montreal. The following table provides estimates concerning the company’s costs:
| Fixed Cost per Month | Cost per Car Washed | |
|---|---|---|
| Cleaning supplies | $ 0.40 | |
| Electricity | $ 1,500 | $ 0.05 |
| Maintenance | $ 0.20 | |
| Wages and salaries | $ 4,700 | $ 0.30 |
| Depreciation | $ 8,400 | |
| Rent | $ 2,000 | |
| Administrative expenses | $ 1,300 | $ 0.01 |
For example, electricity costs should be $1,500 per month plus $0.05 per car washed. The company actually washed 8,400 cars in August and collected an average of $6.30 per car washed. This average matches the budgeted revenue per car.
Required:
Prepare the company’s flexible budget for August.
Explanation
Revenue ($6.30 × 8,400) = $52,920
Cleaning supplies ($0.40 × 8,400) = $3,360
Electricity ($1,500 + ($0.05 × 8,400)) = $1,920
Maintenance ($0.20 × 8,400) = $1,680
Wages and salaries ($4,700 + ($0.30 × 8,400)) = $7,220
Administrative expenses ($1,300 + ($0.01 × 8,400)) = $1,384
8
Flight Café prepares in-flight meals for airlines and its planning budget for July appears below:
| Budgeted meals (q) | 24,000 |
|---|---|
| Revenue ($4.40q) | $ 105,600 |
| Expenses: | |
| Raw materials ($2.20q) | 52,800 |
| Wages and salaries ($6,300 + $0.20q) | 11,100 |
| Utilities ($1,800 + $0.05q) | 3,000 |
| Facility rent ($3,600) | 3,600 |
| Insurance ($2,600) | 2,600 |
| Miscellaneous ($300 + $0.10q) | 2,700 |
| Total expenses | 75,800 |
| Net operating income | $ 29,800 |
In July, 25,000 meals were actually served. The company’s flexible budget for this level of activity appears below:
| Budgeted meals (q) | 25,000 |
|---|---|
| Revenue ($4.40q) | $ 110,000 |
| Expenses: | |
| Raw materials ($2.20q) | 55,000 |
| Wages and salaries ($6,300+ $0.20q) | 11,300 |
| Utilities ($1,800 + $0.05q) | 3,050 |
| Facility rent ($3,600) | 3,600 |
| Insurance ($2,600) | 2,600 |
| Miscellaneous ($300 + $0.10q) | 2,800 |
| Total expenses | 78,350 |
| Net operating income | $ 31,650 |
Required:
1. Calculate the company’s activity variances for July.
Note: Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values.
9
Jake’s Roof Repair provided the following data concerning its costs:
| Fixed Cost per Month | Cost per Repair-Hour | |
|---|---|---|
| Wages and salaries | $ 21,400 | $ 15.00 |
| Parts and supplies | $ 7.40 | |
| Equipment depreciation | $ 2,740 | $ 0.30 |
| Truck operating expenses | $ 5,790 | $ 1.50 |
| Rent | $ 4,670 | |
| Administrative expenses | $ 3,860 | $ 0.60 |
For example, wages and salaries should be $21,400 plus $15.00 per repair-hour. The company expected to work 2,700 repair-hours in May but actually worked 2,600 repair-hours. The company expects its sales to be $54.00 per repair-hour.
Required:
Compute the company’s activity variances for May.
Note: Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Input all amounts as positive values.
10.
Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier. Management identified two cost drivers for budgeting purposes—the number of cruises and the number of passengers. The company publishes a schedule of day cruises that it may supplement with special sailings if there is sufficient demand. Up to 82 passengers can be accommodated on the tour boat. Data concerning the company’s cost formulas appear below:
| Fixed Cost per Month | Cost per Cruise | Cost per Passenger | |
|---|---|---|---|
| Vessel operating costs | $ 6,100 | $ 473.00 | $ 3.50 |
| Advertising | $ 2,500 | ||
| Administrative costs | $ 5,900 | $ 34.00 | $ 1.50 |
| Insurance | $ 3,100 |
For example, vessel operating costs should be $6,100 per month plus $473.00 per cruise plus $3.50 per passenger. The company’s sales should average $35.00 per passenger. In July, the company provided 58 cruises for a total of 3,150 passengers.
Required:
Prepare the company’s flexible budget for July.
