Solved by verified expert :Assignment 4
Chapter
10
1. The
following information pertains to the operating budget for Opa Locka Stuff Corporation.
·
Sales
for August were $170,000
·
Sales
for September were $190,000
·
Budgeted
sales for October is $180,000 and for November is $220,000.
·
Cash
sales are 10% of total sales
·
Collections
for sales on account are 50% in the month of sale, 40% the next month, 8% in
the third month.
·
Gross
margin is 40% of sales.
·
Purchases are paid 30% in the month of purchase and 70% in the
next month. Merchandise is bought and
sold in the same month. There is no beginning or ending inventory.
·
Operating,
general & administrative costs are $60,000 each month, $5,000 of which is
depreciation expense.
·
A
quarterly insurance payment is due on October 5th in the amount of
$15,000.
·
Opa
Locka policy is to end each month with $20,000 cash on hand.
·
Beginning
cash balance on October 1 is $20,000.
·
The
outstanding loan balance on October 1 is $30,000.
What
are . . .
Collections from sales for October
_____________ November _____________
Disbursements for purchases October
_____________ November _____________
Cash balance at the end of October
_____________ November _____________
Loan balance at the end of October
_____________ November _____________
Operating income for October
_____________ November _____________
Cash flow for October
_____________ November _____________
Uncollected balance from sales
November
_____________
Unpaid balance from purchases
November
_____________
2. Miami Gardens Manufacturing Corp. makes
a specialty product and has developed the following standard costing information:
Direct
materials 2 lbs $ 8.50 per
lb.
Direct
labor 1.5
hrs $11.00 per hour
Variable
support rate $28.50
per direct labor hour
Actual
production for September used the following resources:
Units
manufactured 3,000
Direct
materials used in production 6,125
lbs $ 51,756.25
Direct
labor 4,435
hrs $ 49,893.75
Actual
variable support $128,526.30
Calculate
the following variances:
a) Direct material price variance
b) Direct material quantity variance
c) Total direct material variance
d) Direct labor rate variance
e) Direct labor efficiency variance
f) Total direct labor variance
g) Variable support rate variance
h) Variable support efficiency variance
i) Total variable support variance
3. Cutler Ridge Company prepared the
following performance report for September. Cutler Ridge would like you to prepare the flexible budget and help
them understand the results of operations.
Actual Master
Results Budget
Sales
volume (in units) 30,000 28,000
Manufacturing
costs:
Direct
materials $285,000 $252,000
Direct
labor $96,000 $91,000
Fixed
manufacturing suppot 310,000 300,000
Total $ 691,000 $ 643,000
Required:
Prepare the
flexible budget for Cutler Ridge based on the information provided above. Calculate the flexible budget variances and
the planning variances for each cost item as well as the total variance. Indicate whether the variances are favorable
or unfavorable.
Which
variances require the attention of management?
Explain.
Chapter 11
5. Sedano’s
Supermarket has prepared the following segmented income statement for three of
its departments in it’s flagship store in late 2006. Agustin Herrán is contemplating dropping the
magazines and selling the pharmacy business to Navarro Discount
Pharmacies. He sees that those two
departments are losing money and the bread department is only marginally
profitable and may be able to do better if he could expand the space. Corporate costs are allocated equally among
all departments.
Bread Magazines Pharmacy Total
Sales $350,000 $120,000 $350,000 $820,000
Variable
expenses 220,000 95,000 290,000 605,000
Contribution
margin 130,000 25,000 60,000 215,000
Other
costs 60,000 10,000 65,000 135,000
Segment
margin 70,000 15,000 (5,000) 80,000
Allocated
avoidable costs 18,000 10,000 20,000 48,000
Segment
income 52,000 5,000 (25,000) 32,000
Allocated
corporate costs 50,000 50,000 50,000 150,000
Corporate
profit $ 2,000 $(45,000) ($75,000) ($118,000)
a) Prepare
a more useful and understandable segmented income statement for Sr. Herrán.
b) What
financial and non-financial information should be considered in making these
decisions?
c) Should
Sr. Herrán drop the magazine department?
Why or why not?
d) Should
Sr. Herrán sell the pharmacy? Why or why
not?
6. Homestead Farming Company’s last year sales
were $6,200,000, operating income was $320,000, and the investment was $1,600,000. The cost of capital is 12%.
a) Calculate the company’s ROI efficiency.
b) Calculate the company’s ROI productivity.
c) Calculate the company’s ROI.
Homestead
Farming has the opportunity to buy adjoining land for $1,000,000 that will
increase sales by $4,000,000 and net income by $130,000. Homestead Farming is a division of Dole Fresh
Foods and Homestead’s management is evaluated on ROI.
Would
management make the investment? Explain.
Suppose
management is evaluated on residual income.
Would management make the investment?
Explain.
Which
decision benefits Dole Fresh Foods?
Explain.
