AFM102 Lecture Notes - Lecture 16: Financial Statement, Income Statement, Fixed Cost

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apricottoad869

15 Oct 2015

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM102

Professor

Peter Blake

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Document Summary

Buy for ,500 sell for ,500; in november sell 60. Business decisions choosing between alternatives, run the numbers more profitable with one offer on the other. Costs that are the same for each alternative are irrelevant (often the fixed cost such as rent) Focus on the relevant costs, but some costs are always irrelevant: special offer. Abc jewellers makes jewelry; offered an opportunity to provide 20 wedding. Special engraving and custom tools which costs and will increase dl by /bracelet. Won"t reuse the tool; bracelets go into special box, costs each. Costco asks for price quote on a special order for 60% of current volume. Variable costs + minimum margin you"re willing to accept. Example: +,000: make or buy a component. Manufacturer has the capability to make some of the parts they need must choose whether to make or buy.

Related Questions

PROBLEM 2-19 Contribution Format versus Traditional Income Statement [LO2-6] Marwick's Pianos, Inc., purchases pianos from a large manufacturer and sells them at the retail level. The pianos cost, on the average, $2,450 each from the manufacturer. Marwick's Pianos, Inc., sells the pianos to its customers at an average price of $3,125 each. The selling and administrative costs that the company incurs in a typical month are presented below: Costs Cost Formula Selling Advertising ........ Sales salaries and commissions ... Delivery of pianos to customers .... Utilities ....... Depreciation of sales facilities ..... Administrative: Executive salaries .............. Insurance ... Clerical .. Depreciation of office equipment...... $700 per month $950 per month, plus 8% of sales $30 per piano sold $350 per month $800 per month $2,500 per month $400 per month $1,000 per month, plus $20 per piano sold $300 per month During August, Marwick's Pianos, Inc., sold and delivered 40 pianos. Required: 1. Prepare an income statement for Marwick's Pianos, Inc., for August. Use the traditional for- mat, with costs organized by function. 2. Redo (1) above, this time using the contribution format, with costs organized by behavior. Show costs and revenues on both a total and a per unit basis down through contribution margin. 3. Refer to the income statement you prepared in (2) above. Why might it be misleading to show the fixed costs on a per unit basis?

Data P2 Part II-2:
Marwick's Pianos, Inc.purchases pianos from a large manufacturer and sells them at theretail level. The
pianos cost, on the average,$2,450 each from the manufacturer. Marwick's Pianos, Inc., sellsthe pianos
to its customers at an averageprice of $3,125 each. The selling and administrative costs that thecompany
incurs in a typical month are presentedbelow:

MARWICK'S PIANOS, INC.

Costs	Cost Formula
Selling:
Advertising	$700	per month
Sales salaries and commissions	$950	per month plus	8%	of sales
Delivery of pianos to customers	$30	per piano sold
Utilities	$350	per month
Depreciation of sales facilities	$800	per month
Administrative:
Executive salaries	$2,500	per month
Insurance	$400	per month
Clerical	$1,000	per month plus	$20	per piano sold
Depreciation of office equipment	$300	per month

Average sales price of piano	$3,125
Average cost of piano	$2,450
Organs sold & delivered in August	40



Required:
1. Prepare an income statementfor Marwick's Pianos, Inc., for August. Use the traditional format,with costs
organized byfunction.
2. Redo (1) above, this timeusing the contribution margin format, with costs organized bybehavior.
Show costsand revenues on both a total and a per unit basis down throughcontribution margin.
3. Refer to the incomestatement you prepared in (2) above. Why might it be misleading toshow the fixed
costs on a per unitbasis?

ambercoyote947

Flexible Budget for Selling and Administrative Expenses for aService Company

Morningside Technologies Inc. uses flexible budgets that arebased on the following data:

Sales commissions	7% of sales
Advertising expense	25% of sales
Miscellaneous administrative expense	$1,850 per month plus 3% of sales
Office salaries expense	$17,000 per month
Customer support expenses	$2,600 plus 4% of sales
Research and development expense	5,750 per month

Prepare a flexible selling and administrative expenses budgetfor April for sales volumes of $115,000, $145,000, and $175,000.Enter all amounts as positive numbers.

Morningside Technologies Inc.
Flexible Selling and Administrative ExpensesBudget
Forthe Month Ending April 30
Total sales	$115,000	$145,000	$175,000
Variable cost:
Sales commissions	$	$	$
Advertising expense
Miscellaneousadministrative expense
Customer support expense
Total variable cost	$	$	$
Fixed cost:
Miscellaneous administrative expense	$	$	$
Office salaries expense
Customer support expense
Research and development expense
Total fixed cost	$	$	$
Total selling and administrativeexpenses	$	$	$

Sales and Production Budgets

Sonic Inc. manufactures two models of speakers, Rumble andThunder. Based on the following production and sales data for June,prepare (a) a sales budget and (b) a production budget.

	Rumble	Thunder
Estimated inventory (units), June 1	278	77
Desired inventory (units), June 30	319	67
Expected sales volume (units):
East Region	4,100	4,600
West Region	5,000	4,350
Unit sales price	$115	$185

a. Prepare a sales budget.

SonicInc.
SalesBudget
Forthe Month Ending June 30
Product and Area	Unit Sales Volume	Unit Selling Price	Total Sales
Model Rumble:
East Region		$	$
West Region
Total			$
Model Thunder:
East Region		$	$
West Region
Total			$
Total revenue from sales			$

Cash Budget

The controller of Sonoma Housewares Inc. instructs you toprepare a monthly cash budget for the next three months. You arepresented with the following budget information:

	May	June	July
Sales	$90,000	$111,000	$142,000
Manufacturing costs	38,000	48,000	51,000
Selling and administrative expenses	26,000	30,000	31,000
Capital expenditures	_	_	34,000

The company expects to sell about 10% of its merchandise forcash. Of sales on account, 60% are expected to be collected in themonth following the sale and the remainder the following month(second month following sale). Depreciation, insurance, andproperty tax expense represent $9,000 of the estimated monthlymanufacturing costs. The annual insurance premium is paid inSeptember, and the annual property taxes are paid in November. Ofthe remainder of the manufacturing costs, 75% are expected to bepaid in the month in which they are incurred and the balance in thefollowing month.

Current assets as of May 1 include cash of $34,000, marketablesecurities of $49,000, and accounts receivable of $107,800 ($79,000from April sales and $28,800 from March sales). Sales on accountfor March and April were $72,000 and $79,000, respectively. Currentliabilities as of May 1 include $10,000 of accounts payableincurred in April for manufacturing costs. All selling andadministrative expenses are paid in cash in the period they areincurred. An estimated income tax payment of $13,000 will be madein June. Sonomaâs regular quarterly dividend of $9,000 is expectedto be declared in June and paid in July. Management wants tomaintain a minimum cash balance of $27,000.

Required:

1. Prepare a monthly cash budget and supportingschedules for May, June, and July. Input all amounts as positivevalues except overall cash decrease and deficiency which should beindicated with a minus sign.

Sonoma Housewares Inc.
CashBudget
Forthe Three Months Ending July 31
	May	June	July
Estimated cash receipts from:
Cash sales	$	$	$
Collection of accounts receivable
Total cash receipts	$	$	$
Estimated cash payments for:
Manufacturing costs	$	$	$
Selling and administrative expenses
Capital expenditures
Other purposes:
Income tax
Dividends
Total cash payments	$	$	$
Cash increase or (decrease)	$	$	$
Cash balance at beginning of month
Cash balance at end of month	$	$	$
Minimum cash balance
Excess or (deficiency)	$	$	$

Factory Overhead Cost Budget

Sweet Tooth Company budgeted the following costs for anticipatedproduction for August:

Advertising expenses	$259,400
Manufacturing supplies	14,220
Power and light	42,400
Sales commissions	290,020
Factory insurance	24,690
Production supervisor wages	124,710
Production control wages	32,420
Executive officer salaries	264,390
Materials management wages	35,670
Factory depreciation	20,210

Prepare a factory overhead cost budget, separating variable andfixed costs. Assume that factory insurance and depreciation are theonly fixed factory costs.

SweetTooth Company
Factory Overhead Cost Budget
Forthe Month Ending August 31
Variable factory overhead costs:
Manufacturingsupplies	$
Power and light
Production supervisorwages
Production controlwages
Materials managementwages
Total variable factory overhead costs		$
Fixed factory overhead costs:
Factory insurance	$
Factory depreciation
Total fixed factory overhead costs
Total factory overhead costs		$

skyllama414

AFM102 Lecture Notes - Lecture 16: Financial Statement, Income Statement, Fixed Cost

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