P20-2A



P20-2A

LaRussa Inc. is preparing its annual budgets for the year ending Dec 31, 2011. Accting assts furnish the data shown below.

Product Product

JB 50 JB 60

Sales budget:

Anticipated volume in unites 400,000 200,000

Unit selling price $20 $25

Production budget:

Desired ending finished goods units 25,000 15,000

Beginning finished goods units 30,000 10,000

Direct material budget:

Direct materials per unit(pounds) 2 3

Desired ending direct materials pounds 30,000 15,000

Beginning direct materials pounds 40,000 10,000

Cost per pound $3 $4

Direct labor budget:

Direct labor time per unit 0.4 0.6

Direct labor rate per hour $12 $12

Budgeted income statement:

Total unit cost $12 $21

An acting asst. has prepared the detailed manufacturing overhead budget and the selling and administrative expense budget. The latter shows selling expenses of $660,000 for product JB50 and

$360,000 for product JB60, and administrative expenses of $540,000 for product JB50 and $340,000 for product JB60. Income taxes are expected to be 30%.

Instructions

Prepare the following budgets for the year. Show data for each product. Quarterly budgets should not be prepared. A. sales B. Production C. Direct material D. Direct labor and E. Income statement(note: income taxes are not allocated to the products.)

AND

P20-4A

Haas Company prepares monthly cash budgets. Relevant data from operating budgets for 2011 are:

JANUARY February

Sales $350,000 $400,000

Direct materials purchases 110,000 130,000

Direct labor 90,000 100,000

Manufacturing overhead 70,000 75,000

Selling and administrative expenses 79,000 86,000

All sales are on account. Collections are expected to be 50% in the month of sale, 30% in the first month following the sale, and 20% in the second month following the sale. Sixty percent (60%) of direct materials purchases are paid in cash in the month of purchase, and the balance due is paid in the month following the purchase. All other items above are paid in the month incurred except for selling and administrative expenses that include $1,000 of depreciation per month.

Other data:

1. Credit sales: Nov 2010, 260,000; Dec 2010, $320,000.

2. Purchases of direct materials: Dec 2010, $100,000.

3. Other receipts: Jan-collection of Dec 31, 2010, notes receivable $15,000; Feb-proceeds from sale of securities $6,000.

4. Other disbursements: Feb…Withdrawal of $5,000 cash for personal use of owner, Dewey Yaeger:

The company’s cash balance on Jan 1, 2011, is expected to be $60,000. The company wants to maintain a minimum cash balance of $50,000.

Instruction

a. Prepare schedules for (1) expected collections from customers and (2) expected payments for direct materials purchases.

b. Prepare a cash budget for Jan and Feb in columnar form.

AND

P21-2A

Fultz Company manufactures tablecloths. Sales have grown rapidly over the past 2 years. As a result, the president has installed a budgetary control system for 2010. The following data were used in developing the master manufacturing overhead budget for the Ironing Dept, which is based on an activity index of direct labor hours.

Variable Costs Rate per Direct Annual Fixed Costs

Indirect labor $0.40 Supervision $42,000

Indirect materials .50 Depreciation 18,000

Factory utilities .30 Insurance 12,000

Factory repairs .20 Rent 24,000

The master overhead budget was prepared on the expectation that 480,000 direct labor hours will be worked during the year In June, 42,000 direct labor hours were worked. At that level of activity, actual costs were as shown below.

Variable-per direct labor hour: Indirect labor $0.43, Indirect materials $0.49. Factory utilities $0.32, and Factory repairs $0.24.

Fixed : same as budgeted

Instructions

A. Prepare a monthly manufacturing overhead flexible budget for the year ending Dec 31, 2010, assuming production levels range from 35,000 to 50,000 direct labor hours. Use increments of 5,000 direct labor hours.

B. Prepare a budget report for June comparing actual results with budget data based on the flexible budget.

C. Were costs effectively controlled? Explain.

D. State the formula for computing the total budgeted cost for the Ironing Department.

E. Prepare the flexible budget graph, showing total budgets costs at 35,000 and 45,000 direct labor hours. Use increments of 5,000 direct labor hours on the horizontal axis and increments of $10,000 on the vertical axis.

Solutions

P20-2A)

(a) LARUSSA INC.

Sales Budget

For the Year Ending December 31, 2009

| | | |JB 50 | |JB 60 | |Total |

| | | | | | | | |

| |Expected unit sales | |   400,000 | |   200,000 | | |

| |Unit selling price | |   X $20 | |   X $25 | |000,000,0 |

| |Total sales | |$8,000,000 | |$5,000,000 | |$13,000,000 |

(b) LARUSSA INC.

Production Budget

For the Year Ending December 31, 2009

| | | |JB 50 | |JB 60 | |Total |

| | | | | | | | |

| |Expected unit sales | |400,000 | |200,000 | | |

| |Add: Desired ending finished | | | | | | |

| |  goods units | | 25,000 | | 15,000 | | |

| |Total required units | |425,000 | |215,000 | | |

| |Less: Beginning finished goods | | | | | | |

| |  units | | 30,000 | | 10,000 | | |

| |Required production units | |395,000 | |205,000 | |600,000 |

(c) LARUSSA INC.

Direct Materials Budget

For the Year Ending December 31, 2009

| | | |JB 50 | |JB 60 | |Total |

| | | | | | | | |

| |Units to be produced | |   395,000 | |   205,000 | | |

| |Direct materials per unit | |      X 2 | |      X 3 | | |

| |Total pounds needed for | | | | | | |

| |  production | |   790,000 | |   615,000 | | |

| |Add: Desired ending direct | | | | | | |

| |  materials (pounds) | |    30,000 | |    15,000 | | |

| |Total materials required | |   820,000 | |   630,000 | | |

| |Less: Beginning direct | | | | | | |

| |  materials (pounds) | |    40,000 | |10,000 | | |

| |Direct materials purchases | |   780,000 | |   620,000 | | |

| |Cost per pound | |     X $3 | |     X $4 | | |

| |Total cost of direct materials | | | | | | |

| |  purchases | |$2,340,000 | |$2,480,000 | |$4,820,000 |

(d) LARUSSA INC.

Direct Labor Budget

For the Year Ending December 31, 2009

| | | |JB 50 | |JB 60 | |Total |

| | | | | | | | |

| |Units to be produced | | 395,000 | |   205,000 | |   650,000 |

| |Direct labor time (hours) per | | | | | | |

| |  unit | |      X .4 | |      X .6 | |— |

| |Total required direct labor | | | | | | |

| |  hours | |158,000 | |   123,000 | |   301,000 |

| |Direct labor cost per hour | |    X $12 | |    X $12 | |X $10 |

| |Total direct labor cost | |$1,896,000 | |$1,476,000 | |$3,372,000 |

(e) LARUSSA INC.

Budgeted Income Statement

For the Year Ending December 31, 2009

| | | |JB 50 | |JB 60 | |Total |

| | | | | | | | |

| |Sales | |$8,000,000 | |$5,000,000 | |$13,000,000 |

| |Cost of goods sold | | 4,800,000 |(1)|4,200,000 |(2)|  9,000,000 |

| |Gross profit | | 3,200,000 | |  800,000 | |  4,000,000 |

| |Operating expenses | | | | | | |

| |  Selling expenses | |   660,000 | |   360,000 | |  1,020,000 |

| |  Administrative | | | | | | |

| |    expenses | |   540,000 | |   340,000 | |    880,000 |

| |      Total operating | | | | | | |

| |        expenses | | 1,200,000 | |   700,000 | |  1,900,000 |

| |Income before income | | | | | | |

| |  taxes | |$2,000,000 | |$  100,000 | |  2,100,000 |

| |Income tax expense | | | | | | |

| |  (30%) | | | | | |    630,000 |

| |Net income | | | | | |$ 1,470,000 |

(1)400,000 X $12.

(2)200,000 X $21.

P20-4A)

(a) (1) Expected Collections from Customers

| | | | |January | |February |

| | | | | | | |

| | |November ($260,000) | |$ 52,000 | |$ 0 |

| | |December ($320,000) | |  96,000 | |  64,000 |

| | |January ($350,000) | | 175,000 | | 105,000 |

| | |February ($400,000) | |. | | 200,000 |

| | |Total collections | |$323,000 | |$369,000 |

(2) Expected Payments for Direct Materials

| | | | |January | |February |

| | | | | | | |

| | |December ($100,000) | |$ 40,000 | |$ 0 |

| | |January ($110,000) | |  66,000 | |  44,000 |

| | |February ($130,000) | |. | |78,000 |

| | |Total payments | |$106,000 | |$122,000 |

(b) HAAS COMPANY

Cash Budget

For the Two Months Ending February 28, 2011

| | | |January | |February |

| | | | | | |

| |Beginning cash balance | |$ 60,000 | |$ 54,000 |

| |Add: Receipts | | | | |

| |  Collections from customers | | 323,000 | | 369,000 |

| |    [See Schedule (1)] | | | | |

| |  Notes receivable | |  15,000 | | |

| |  Sale of securities | |                | |   6,000 |

| |      Total receipts | | 338,000 | | 375,000 |

| |Total available cash | | 398,000 | | 429,000 |

| |Less: Disbursements | | | | |

| |  Direct materials | | 106,000 | | 122,000 |

| |    [See Schedule 2] | | | | |

| |  Direct labor | |  90,000 | | 100,000 |

| |  Manufacturing overhead | |  70,000 | |  75,000 |

| |  Selling and administrative | | | | |

| |    expenses* | |  78,000 | |  85,000 |

| |  Withdrawal by owner | |                | |   5,000 |

| |      Total disbursements | | 344,000 | | 387,000 |

| |Excess (deficiency) of available cash | | | | |

| |  over cash disbursements | |  54,000 | |  42,000 |

| |Financing | | | | |

| |Borrowings | |       0 | |  8,000 |

| |Repayments | |0 | |0 |

| |Ending cash balance | |$ 54,000 | |$ 50,000 |

*Selling and administrative expenses less $1,000 depreciation.

P21-2A)

(a) FULTZ COMPANY

Monthly Manufacturing Overhead Flexible Budget

Ironing Department

For the Year 2008

| |Activity level | | | | | | | |

| |Direct labor hours | 35,000 | | 40,000 | | 45,000 | | 50,000 |

| |Variable costs | | | | | | | |

| |Indirect labor ($.40) |$14,000 | |$16,000 | |$18,000 | |$20,000 |

| |Indirect materials ($.50) | 17,500 | | 20,000 | | 22,500 | | 25,000 |

| |Factory utilities ($.30) | 10,500 | | 12,000 | | 13,500 | | 15,000 |

| |Factory repairs ($.20) |7,000 | |8,000 | |9,000 | |10,000 |

| |Total variable costs ($1.40) |49,000 | |56,000 | |63,000 | |70,000 |

| |Fixed costs | | | | | | | |

| |Supervision |  3,500 | |  3,500 | |  3,500 | |  3,500 |

| |Depreciation |  1,500 | |  1,500 | |  1,500 | |  1,500 |

| |Insurance |  1,000 | |  1,000 | |  1,000 | |  1,000 |

| |Rent |2,000 | |2,000 | |2,000 | |2,000 |

| |Total fixed costs |8,000 | |8,000 | |8,000 | |8,000 |

| |Total costs |$57,000 | |$64,000 | |$71,000 | |$78,000 |

(b) FULTZ COMPANY

Ironing Department

Manufacturing Overhead Flexible Budget Report

For the Month Ended June 30, 2008

| | | | | | | |Difference |

| | | | | | | | |

| | | |Budget at | |Actual Costs | |Favorable F |

| |Direct labor hours (DLH) | |42,000 DLH | |42,000 DLH | |Unfavorable U |

| |Variable costs | | | | | | |

| |Indirect labor | |$16,800 (1) | |$18,060 (5) | |$1,260 U |

| |Indirect materials | | 21,000 (2) | | 20,580 (6) | |   420 F |

| |Factory utilities | | 12,600 (3) | | 13,440 (7) | |   840 U |

| |Factory repairs | |8,400 (4) | |10,080 (8) | |1,680 U |

| |Total variable costs | |58,800 | |62,160 | |3,360 U |

| |Fixed costs | | | | | | |

| |Supervision | |  3,500 | |  3,500 | |     0 U |

| |Depreciation | |  1,500 | |  1,500 | |     0 U |

| |Insurance | |  1,000 | |  1,000 | |     0 U |

| |Rent | |2,000 | |2,000 | |0 U |

| |Total fixed costs | |8,000 | |8,000 | |0 U |

| |Total costs | |$66,800 | |$70,160 | |$3,360 U |

(1) 42,000 X $0.40 (2) 42,000 X $0.50 (3) 42,000 X $0.30 (4) 42,000 X $0.20

(5) 42,000 X $0.43 (6) 42,000 X $0.49 (7) 42,000 X $0.32 (8) 42,000 X $0.24

(c) The manager was ineffective in controlling variable costs ($3,360 U). Fixed costs were effectively controlled.

(d) The formula is fixed costs of $8,000 plus total variable costs of $1.40 per direct labor hour.

|(e) | | |$80 | | | |

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