ACCT30210 Lecture Notes - Lecture 9: Gross Margin, Total Absorption Costing, Fixed Cost

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ochrecricket616

19 Mar 2017

School

Department

Accountancy

Course

ACCT30210

Professor

Vera- Munoz

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Document Summary

Make sure to note that sales are constant at 20,000 books. Have to say if any for production-volume variance because if you sell the same amount of units that you produce, you won"t have vv. Overproduced 6,000 books so they overallocated by 6,000. Allocated a rate of / book. So the fixed cost should be 600. So (books sold - books produced) * fixed allocated rate = adjustment for pvv = 6,000 * 30 = 180,000. Make it negative because need to adjust it down to make it the way it should be plus the sum has to equal 600 as stated below. 30,000 books (30,000 - 20,000) * 30 = 900,000. The net has to be 600,000 (allocated fixed moh + Big picture take away: something doesn"t add up here. She"s (the manager) overproducing because she has been given the incentive to overproduce because her bonus is based on gross margin. Don"t use absorption costing for performance evaluation.

Related Questions

** I am mostly interested in the process for the cash budget in question #2. However, I would still like to see how the entire problem works though. I am really struggling with this so please make your steps as simple and easy to follow as possible. Thank you for your time.

ACCT 2302 Managerial Accounting

Master Budget Project

A. Information to be used in preparation of master budget: Ryan Richards, controller for Grange Retailers, has assembled the following data to assist

in the preparation of a cash budget for the third quarter of 2016: a. Sales: May (actual) $100,000 June (actual) 120,000 July (estimated) 90,000 August (estimated) 100,000 September (estimated) 135,000 October (estimated) 110,000

b. Each month, 30 percent of sales are for cash and 70 percent are on credit. The collection pattern for credit sales is 20 percent in the month of sale, 50 percent in the following month, and 30 percent in the second month following the sale.

c. Each month, the ending inventory exactly equals 50 percent of the cost of next monthâs sales. The markup on goods is 25 percent of cost.

d. Inventory purchases are paid for in the month following the purchase.

e. Recurring monthly expenses are as follows: Salaries and wages $10,000 Depreciation on plant and equipment 4,000 Utilities 1,000 Other 1,700

f. Property taxes of $15,000 are due and payable on July 15, 2016.

g. Advertising fees of $6,000 must be paid on August 20, 2016.

h. A lease on a new storage facility is scheduled to begin on September 2, 2016. Monthly payments are $5,000.

i. The company has a policy to maintain a minimum cash balance of $10,000. If necessary, it will borrow to meet its short-term needs. All borrowing is done at the beginning of the month. All payments on principal and interest are made at the end of a month. The annual interest rate is 9 percent. The company must borrow in multiples of $1,000.

j. A partially completed balance sheet as of June 30, 2016, follows. (Accounts payable is for inventory purchases only.) Cash $ ? Accounts receivable ? Inventory ? Plant and equipment 425,000 Accounts payable $ ? Common stock 210,000 Retained earnings ________ 268,750 Total $ ? $ ?

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B. Requirements

1. Complete the balance sheet given in item j.

2. Prepare a cash budget for each month in the third quarter and for the quarter in total (the third quarter begins on July 1). Provide a supporting schedule of cash collections.

3. Prepare a pro-forma balance sheet as of September 30, 2016.

4. Provide 3 different ways in which the company may increase net income. In fulfilling this requirement, you should use as many concepts from the course as possible, identify and explain each concept used, and provide pro-forma excel spreadsheets to support your recommendations.

carminemosquito70

College Painters was founded by Sam and Dean, two seniors in high school, to help pay their way through college. Fully bonded and insured, College Painters specializes in faux finishes, such as marbleizing, sponging, ragging and washing. While Sam and Dean used to do all the work themselves, now ten years later, they have crews performing the work. They visit worksites every day to be sure that jobs meet their quality standards and well as meeting prospective customers and preparing bids.

Sam and Dean budget for 25,000 square feet (sf) of business a month. The average job is 500 sf., and for such a job, Sam and Dean expect to incur the following costs:

Materials (paint)	1.6 gallons @ $25.00 per gallon
Materials (supplies)	$10.00
Labor (includes surface prep and applying the paint and faux finish)	16 hours @ $15.00 per hour

To arrive at a selling price, Sam and Dean mark up the budgeted paint cost by 50% and the budgeted labor cost by 100% and the budgeted cost of supplies. Thus the starting point for constructing a bid is:

$550 = (1.5 x 1.6 x $25) + (2.00 x 16 x $15) + 10

Of course, Sam and Dean adjust the starting price to reflect prevailing market conditions. For example, they charge more for a rush job or provide a discount if a customer is unhappy with the result. Finally, Sam and Dean budget $2,000 per month for fixed costs such as office rent, phones, advertising, and the company car.

For this past month (October), College Painters earned $25,333 in revenues for several different jobs totaling 24,000 sf. College Painters used 72 gallons and 765 hours of labor during the month. The 765 hours of labor cost $11,475, which includes the 32 hours it took to clean up the mess in a customerâs home because a painter accidentally tripped over a full can of paint.

According to their paint supply store, they spent $2,160 on paint and $480 on supplies during the month. The bill for paint for October was higher than normal because Sam and Dean decided to try a newer, more expensive paint in the hope that it would lead to improved paint and labor efficiencies. They did not think this would affect the amount of supplies used). Finally, they spent $2,250 on fixed costs during October.

5-1. What was College Paintersâ master budget profit and actual profit for October? What was their total profit variance?

5-2. Prepare a budget reconciliation report for October. Your report should include all the variances that make up the total profit variance (see notes). For this part, do not consider the costs of the accident separately.

5-3. Considering each variance, determine costs related to the accident involving the spilled can of paint. Separate the costs into out-of-pocket and opportunity costs. Revise the budget reconciliation report for October to highlight the cost of the accident.

5-4. Did switching paint increase College Paintersâ profit for October? Which variances help you in assessing the quality of this decision?

orchidkoala528

ACCT30210 Lecture Notes - Lecture 9: Gross Margin, Total Absorption Costing, Fixed Cost

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