ACCTCY 2036 Chapter Notes - Chapter 11: Cash Flow Statement, Income Statement

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4 Dec 2016

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Developing a business plan for a manufacturing company: budgeting. Add discipline, or order, to the planning process. Help managers identify and avoid potential operating problems. Create a (cid:498)benchmarks(cid:499) for evaluating the company"s performance. The budget framework for planning in a manufacturing company. Sales budget shows the amount of inventory that the company expects to sell in each month of the budget period and the related revenues that the company expects to earn from each month"s sales. The production budget is a schedule showing how many units the company should product during each budget period both to satisfy expected sales for that period and to end each period with a desired finished goods inventory level. The direct materials purchases budget is a schedule that shows the number of direct material units that much be purchased in each budget period to meet production and ending direct materials inventory requirements.

Related Questions

Completing a comprehensive budgeting problemâmanufacturingcompany

The Arthur Tire Company manufactures racing tires for bicycles.Arthur sells tires for $55 each. Arthur is

planning for the next year by developing a master budget byquarters. Arthurâs balance sheet for December

31, 2014, follows:

ARTHUR TIRE COMPANY

Balance Sheet December 31, 2014

Assets

Current Assets:

Cash $ 22,000

Accounts Receivable 22,000

Raw Materials Inventory 3,200

Finished Goods Inventory 7,250

Total Current Assets $ 54,450

Property, Plant, and Equipment:

Equipment 175,000

Less: Accumulated Depreciation (55,000)120,000

Total Assets $ 174,450

Liabilities

Current Liabilities:

Accounts Payable $ 7,500

Stockholders' Equity

Common Stock $ 135,000

Retained Earnings 31,950

Total Stockholders' Equity 166,950

Total Liabilities and Stockholders' Equity $ 174,450

Other data for Arthur Tire Company:

a. Budgeted sales are 800 tires for the first quarter andexpected to increase by 100 tires per quarter. Cash

sales are expected to be 30% of total sales, with the remaining70% sales on account.

b. Finished Goods Inventory on December 31 consists of 250 tiresat $29 each.

c. Desired ending Finished Goods Inventory is 30% of the nextquarterâs sales; first quarter sales for 2016

are expected be 1,200 tires; FIFO inventory costing method isused.

d. Direct materials cost is $16 per tire.

e. Desired ending Raw Materials Inventory is 20% of the nextquarterâs direct materials needed for

production; desired ending inventory for December 31 is $3,000;indirect materials are insignificant and not

considered for budgeting purposes.

f. Each tire requires 0.20 hours of direct labor; direct laborcosts average $20 per hour.

g. Variable manufacturing overhead is $2 per tire.

h. Fixed manufacturing overhead includes $3,000 per quarter indepreciation and $4,820 per quarter for

other costs, such as utilities, insurance, and propertytaxes.

i. Fixed selling and administrative expenses include $10,000 perquarter for salaries; $1,800 per quarter for

rent; $500 per quarter for insurance; and $600 per quarter fordepreciation.

j. Variable selling and administrative expenses include suppliesat 1% of sales.

k. Capital expenditures include $30,000 for new manufacturingequipment, to be purchased and paid in the

first quarter.

l. Cash receipts for sales on account are 50% in the quarter ofthe sale and 50% in the quarter following the

sale; December 31, 2014, Accounts Receivable is received in thefirst quarter of 2015; uncollectible

accounts are considered insignificant and not considered forbudgeting purposes.

m. Direct materials purchases are paid 75% in the quarterpurchased and 25% in the following quarter;

December 31, 2014, Accounts Payable is paid in the first quarterof 2015.

n. Direct labor, manufacturing overhead, and selling andadministrative costs are paid in the quarter

incurred.

o. Income tax expense is projected at $2,000 per quarter and ispaid in the quarter incurred.

p. Arthur desires to maintain a minimum cash balance of $30,000and borrows from the local bank as

needed in increments of $1,000 at the beginning of the quarter;principal repayments are made at the

beginning of the quarter when excess funds are available and inincrements of $1,000; interest is 12% per

year and paid at the beginning of the quarter based on theamount outstanding from the previous quarter.

Requirements

1. Prepare Arthurâs operating budget and cash budget for 2015,by quarter. Required schedules and

budgets include: sales budget, production budget, directmaterials budget, direct labor budget,

manufacturing overhead budget, cost of goods sold budget,selling and administrative expense budget,

cash receipts, cash payments, and cash budget. Manufacturingoverhead costs are allocated based on

direct labor hours.

2. Prepare Arthurâs annual financial budget for 2015, includingbudgeted income statement, budgeted

balance sheet, and budgeted statement of cash flows.

coralotter853

Case 3

Part 1 Master Budgets

Pizza L.L.C. operates pizza delivery and carry-out restaurants.The annual report describes its business as follows: We offer afocused menu of high-quality, value-priced pizza with three typesof crust (Hand-Tossed, Thin Crust, and Deep Dish), made from freshdough produced in our regional distribution centers. We prepareevery pizza using real cheese, pizza sauce made from freshtomatoes, and a choice of high-quality meat and vegetable toconsistently and efficiently produce the highest-quality pizza.

Over the 41 years since our founding, we have developed asimple, cost-efficient model. We offer a limited menu, our storesare designed for delivery and carry-out, and we do not generallyoffer dine-in service. As a result, our stores require relativelysmall, lower-rent locations and limited capital expenditures.

How would a master budget support planning, directing, andcontrol for Pizza LLC? Include the three major objectives ofbudgeting? Under what circumstances would a static budget beappropriate?

Briefly describe the type of human behavior problems that mightarise if budget goals are set too tightly? Too loosely? Or ifconflicting goals within the budget?

Why should the production requirements set forth in theproduction budget be carefully coordinated with the sales budgetAND Why should the timing of direct materials purchases be closelycoordinated with the production budget?

Budget performance report

The Box Company (BC) manufactures boxes for the pizza industry.The cost standards per 100 boxes are:

Cost Category Standard cost per 100 boxes

Direct labor 2.00

Direct materials 9.10

Factory overhead .55

Total 11.65

At the beginning of July, BC management planned sales andproduction of 400,000 boxes. The actual number of boxes sold andproduced for July was 406,000 boxes.

The actual production costs for July of the current year were asfollows:

Cost Category Standard cost per 100 boxes

Direct labor 7540

Direct materials 35750

Factory overhead 2680

Total 45970

Prepare the July manufacturing standard cost budget (directlabor, direct materials, and overhead) for BC, assuming plannedproduction.

Prepare a budget performance report for manufacturing costs,showing the total cost variances for direct materials, directlabor, and factory overhead for July.

Interpret the budget performance report.

Part 2 Evaluating Divisional Performance and Capital InvestmentAnalysis

The three divisions of a Foods Co. are Snacks, Morning Foods,and Frozen. The divisions are structured as investment centers. Thefollowing responsibility reports were prepared for the threedivisions for the prior year:

Snack Morning Foods Frozen

Revenues 2200000 2520000 2100000

Operating Expenses 1366600 1122000 976800

Income from Op

Before service dept 833400 1398000 1123300

Service dept charges

Promotion 300000 600000 468000

Legal 137400 243600 235200

Total Service Dept charges 437400 843600 703200

Income from Operations 396000 554400 420000

Invested Assets 2000000 1680000 1750000

Which division is making the best use of invested assets andshould be given priority for future capital investments? ConsiderROI, the acceptable and rate of return.

Assuming that the minimum acceptable rate of return on newprojects is 19%, would all investments that produce a return inexcess of 19% be accepted by the divisions?

Can you identify opportunities for improving the company'sfinancial performance?

Category	Points	Description
Understanding	10	Demonstrate a strong grasp of the problem at hand. Demonstrateunderstanding of how the course concepts apply to the problem.
Analysis	20	Apply original thought to solving the business problem. Applyconcepts from the course material correctly toward solving thebusiness problem.
Execution	20	Write your answer clearly and succinctly using strongorganization and proper grammar. Use citations correctly.
Total	50	A quality paper will meet or exceed all of the aboverequirements.

olivetermite600

Comprehensive budgeting problem; activity-based costing,operating and financial budgets. Tyva makes a very popular undyedcloth sandal in one style, but in Regular and Deluxe. The Regularsandals have cloth soles and the Deluxe sandals have cloth-coveredwooden soles. Tyva is preparing its budget for June 2015 and hasestimated sales based on past experience.

Other information for the month of June follows:

Input Prices

Direct materials

Cloth $5.25 per yard

Wood $7.50 per board foot

Direct manufacturing labor $15 per direct manufacturinglabor-hour

Input Quantities per Unit of Output (per pair ofsandals)

	Regular	Deluxe
Direct materials
Cloth	1.3 yards	1.5 yards
Wood	0	2 b.f.
Direct manufacturing labor-hours	5 hours	7 hours
Setup hours per batch	2 hours	3 hours

Inventory Information, Direct Materials

	Cloth	Wood
Beginning inventory	610 yards	800 b.f.
Target ending inventory	386 yards	295 b.f.
Cost of beginning inventory	$3,219	$6,060

Tyva accounts for direct materials using a FIFO cost flowassumption.

Sales and Inventory Information, FinishedGoods

	Regular	Deluxe
Expected sales in units (pairs of sandals)	2,000	3.000
Selling price	$120	$195
Target ending inventory in units	400	600
Beginning inventory in units	250	650
Beginning inventory in dollars	$23,250	$92,625

Tyva uses a FIFO cost flow assumption for finished goodsinventory.

All the sandals are made in batches of 50 pairs of sandals. Tyvaincurs manufacturing overhead costs, marketing and generaladministration, and shipping costs. Besides materials and labor,manufacturing costs include setup, processing, and inspectioncosts. Tyva ships 40 pairs of sandals per shipment. Tyva usesactivity-based costing and has classified all overhead costs forthe month of June as shown in the following chart:

Cost Type	Denominator Activity	Rate
Manufacturing
Setup	Setup hours	$18 per setup hour
Processing	Direct man. Labor-hours	$1.80 per DMLH
Inspection	Number of pairs of sandals	$1.35 per pair
Nonmanufacturing
Marketing & general admin	Sales revenue	8%
Shipping	Number of shipments	$15 per shipment

Questions

1.Prepareeach of the following for June:

a.Revenuesbudget

b.Productionbudget in units

c.Directmaterial usage budget and direct material purchases budget in bothunits and dollars, round to dollars

d.Directmanufacturing labor cost budget

e.Manufacturing overhead cost budgets forsetup, processing, and inspection activities

f.Budgetedunit cost of ending finished goods inventory and ending inventoriesbudget

g.Cost ofgoods sold budget

h.Marketingand general administration and shipping costs budget

Tyvaâs balance sheet for May 31 follows.

TYVA BALANCE SHEET AS OF MAY 31

Assets
Cash		9,435
Accounts Receivable	324,000
Less: allowance for bad debts	16,200	307,800
Inventories
Direct materials		9,279
Finished goods		115,875
Fixed assets	870,000
Less: accumulated depreciation	136,335	733,665
Total assets		1,176,054

Liabilities and Equity

Liabilities and Equity
Accounts payable	15,600
Taxes payable	10,800
Interest payable	750
Long-term debt	150,000
Common stock	300,000
Retained earnings	698,904
Total liabilities & equity	1,176,054

Use the balance sheet and the following information to prepare acash budget for Tyva for June. Round to dollars.

All sales are on account; 60% are collected in the month of thesale, 38% are collected the following month, and 2% are nevercollected and written off as bad debts.

All purchases of materials are on account. Tyva pays for 80% ofpurchases in the month of purchase and 20% in the followingmonth.

All other costs are paid in the month incurred, including thedeclaration and payment of a $15,000 cash dividend in June.

Tyva is making monthly interest payments of 0.5% (6%per year) ona $150,000 long-term loan.

Tyva plans to pay the $10,800 of taxes owed as of May 31 in themonth of June. Income tax expense for June is zero.

30% of processing, setup, and inspection costs and 10% ofmarketing and general administration and shipping costs aredepreciation.

Prepare a budgeted income statement for June and a budgetedbalance sheet for Tyva as of June 30, 2015.

Listed below are the answers to the first question. Ijust need help with preparing a cash budget for June, and abudgeted income statement and budgeted balance sheet as of June30.

1
a.	Revenue Budget
	For the Month of June 2015
				Regular	Deluxe
	Expected sales in units			2,000	3,000
	Selling price			120	195
	Total sales			$240,000	$585,000

b.	Production Budget in Units
	For the Month of June 2015
						Regular	Deluxe
	Budgeted unit sales					2,000	3,000
	Add: target ending finished goods inventory					400	600
	Total required units					2,400	3,600
	Deduct: beginning finished goods inventory					250	650
	Units of finished goods to be produced					2,150	2,950

c.	Direct Material Usage Budget in Units andDollars
	For the Month of June 2015
	Direct materials required for
			Cloth	Wood	Cloth	Wood
		Units	Yards	B.F.	Total	Total
	Regular	2,150	1.3	0	2,795	0
	Deluxe	2,950	1.5	2	4,425	5,900
					7,220	5,900
	Cost Budget - to be purchased
			Beg.	Need to	Cost to
			Inv.	purchase	purchase
	Cloth	7,220	610	6,610	5.25	34,703
	Wood	5,900	800	5,100	7.5	38,250
						72,953

	Cost of direct materials to be used thisperiod
			available from beginning inventory				Total
	Cloth	34,703	3,219				37,922
	Wood	38,250	6,060				44,310
							82,232

	Direct Materials Purchases Budget
	For the Month of June 2015
						Cloth	Wood	Total
	Physical units budget
	To be used in production					7,220	5,900
	Add: target ending direct material inventory					386	295
	Total requirements					7,606	6,195
	Deduct: beginning direct material inventory					610	800
	Purchases to be made					6,996	5,395
	Cost of product					5.25	7.5
	Totals					36,729	40,463	77,192

d.	Direct Manufacturing Labor Cost Budget
	For the Month of June 2015
		Output	Labor hrs	Total	Wage	Total
		units	per unit	hours	rate
	Regular	2,150	5	10,750	15	161,250
	Deluxe	2,950	7	20,650	15	309,750
				31,400		471,000

e.	Manufacturing Overhead Cost Budget for Setup,Processing, and Inspection Activities
	For the Month of June 2015
	Total production		2,150	2,950	5,100
	Total sales		2,000	3,000	5,000
	No. of setup hours		86	118	204
	No. of shipments		50	75	125
	Labor hours		10,750	20,650	31,400

			Setup	Processing	Inspection	Total
	Allocation		Setup hrs	Labor hrs	No. pairs
	Rate		18	1.8	1.35
	No. of Activity		204	31,400	5,100
	Total		3,672	56,520	6,885	67,077

f.	Budgeted Unit Cost of Ending Finished GoodsInventory
	For the Month of June 2015
				Cost per	Regular	Total	Deluxe	Total
				Unit of	Input per		Input per
				Input	Unit		Unit
					Output		Output
	Cloth			5.25	1.3	6.825	1.5	7.875
	Wood			7.5	0	0	2	15
	Direct Manufacturing hours			15	5	75	7	105
	Machine setup			18	0.04	0.72	0.06	1.08
	Processing			1.8	5	9	7	12.6
	Inspection			1.35	1	1.35	1	1.35
	Total					92.895		142.905

	Ending Inventories Budget
	For the Month of June 2015
			Quantity	Cost per		Total
				Unit
	Direct materials
	Cloth		386	5.25	2026.5
	Wood		295	7.5	2212.5	4239
	Finished goods
	Regular		400	92.895	37158
	Deluxe		600	142.905	85743	122901
	Total ending inv.					127140

g.	Cost of Goods Sold Budget
	For the Month of June 2015
						Regular	Deluxe
	Beginning finished goods inventory, Jun 1					23250	92625		115875
	Direct materials used (c)							82232
	Direct manufacturing labor (d)							471000
	Manufacturing overhead (e)							67077
	Cost of goods manufactured								620309
	Cost of goods available for sale								736184
	Deduct ending finished goods inventory, June 30(f)								122901
	Cost of goods sold								613283

h.	Nonmanufacturing Costs Budget
	For the Month of June 2015
	Marketing and general administration				825000	0.08	66000
	Shipping
	(5,000 pairs / 40 pairs per shipment)				125	15	1875
	Total						67875

Again, I just need help with the cash budget question, and thebudgeted income statement and budgeted balance sheet as ofJune.

Thank you!

fuchsiacrow438

ACCTCY 2036 Chapter Notes - Chapter 11: Cash Flow Statement, Income Statement

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