ACC 110 Chapter Notes - Chapter 4: Accounts Payable, Profit Margin, Current Liability
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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 | $ | $ | $ |
2.
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 | $ |
3.
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) | $ | $ | $ |
4.
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 | $ |
Overview: Classifying a companyâs costs allows for an in-depthanalysis of the impact that changes in output have on revenues,costs, and net income or net loss. A cost-volume-profit (CVP)analysis will be completed in order to determine the breakevenpoint. Relevant costs will be used to prepare a flexible budget.Additionally, an appropriate costing system should be selected andthe choice should be substantiated with reasonable rationale.Finally, a memo should be prepared for management that summarizesthe results of the quantitative analysis and makes recommendationsfor an optimal costing system to be ethically used by key decisionmakers. For Milestone One, you will use the MDE ManufacturingBudget (Table I) to analyze costs, contribution margin, andbreakeven point for the bird feeder division of the company. In Tab1 of your Student Workbook, classify costs as either product orperiod costs. Briefly explain the difference between the types ofcosts. Then, analyze the actual costs and, using Tab 2 of yourStudent Workbook, complete a cost-volume-profit analysis todetermine how many bird feeders must be sold at the current costand sales price level to earn a 10% profit and how much the salesprice would have to increase to earn a 10% profit at the same costand sales volume level. Submit the Student Workbook with Tabs 1 and2 completed with your cost calculations and a 1â2 page Worddocument that explains the implications of your findings andaddresses all of the critical elements in Section I.
I. Salesand Manufacturing Expenses: Budget and Actual (2014)
You will use this table to complete Milestones One and Two.
Budget ($) | Actual ($) | |
Sales | 1,050,000 | 991,700 |
Expenses | ||
Materials â Cedar | 225,000 | 248,160 |
Materials â Plastic | 37,500 | 37,741 |
Factory Worker Labor | 300,000 | 332,760 |
Materials â Indirect | 3,000 | 2,585 |
Factory Depreciation | 78,000 | 78,000 |
Factory Utilities | 12,000 | 12,000 |
Factory Maintenance and Repairs | 5,000 | 4,500 |
Shipping ($2.25/each) | 112,500 | 105,750 |
Sales Commissions ($2.00/unitsold) | 100,000 | 94,000 |
Office Rent | 12,000 | 12,000 |
Advertising | 20,000 | 20,000 |
Liability insurance | 5,000 | 5,000 |
Office Depreciation | 1,000 | 1,000 |
Office Salaries | 48,000 | 48,000 |
Total Expenses | 959,000 | 1,001,496 |
II. Contribution Margin: Static Budget and Actual Results (2014)
You will use this table to complete Milestone Two.
Actual Results | Static Budget Amount | |
Units Sold | 47,000 | 50,000 |
Revenues ($) | 991,700 | 1,050,000 |
Manufacturing Costs ($) | ||
Variable | 621,246 | 565,500 |
Fixed | 94,500 | 95,000 |
Gross Margin | 275,954 | 389,500 |
Milestone One,Part I | ||
Product Costs | ||
Period Costs | ||
Totals | Totals | ||||||||||
Budget | Actual | ||||||||||
Sales Price per Unit | |||||||||||
Variable Costs | |||||||||||
Materials - Cedar | |||||||||||
Materials - Plastic | |||||||||||
Factory Worker Labor | |||||||||||
Materials - Indirect | |||||||||||
Shipping ($2.25/ea) | |||||||||||
Sales Commissions ($2/unit sold) | |||||||||||
Variable Cost per Unit | |||||||||||
Contribution Margin | |||||||||||
Fixed Costs | |||||||||||
Factory Depreciation | |||||||||||
Factory Utilities | |||||||||||
Factory Maintenance and Repairs | |||||||||||
Office Rent | |||||||||||
Advertising | |||||||||||
Liability Insurance | |||||||||||
Office Depreciation | |||||||||||
Office Salaries | |||||||||||
Total Fixed Costs | |||||||||||
Using Budgeted Amounts | |||||||||||
Breakeven Point - | Breakeven Point - | ||||||||||
Using Actual Amounts | Units at Current Sales Price | ||||||||||
+ 10,000 profit | |||||||||||
Using actual amounts | New Contribution Margin | ||||||||||
+ 10,000 profit | Current Variable Costs | ||||||||||
New Sales Price |