Q1)  Sales are budgeted at $360,000 for November, $380,000 for December, and $370,000 for January. The cost of goods sold is 74% of sales. The company desires an ending merchandise inventory equal to 75% of the cost of goods sold in the following month. Payment for merchandise is made in the month following the purchase. Other monthly expenses to be paid in cash are $22,400. Monthly depreciation is $22,200. Ignore taxes. Balance Sheet October 31 Assets     Cash $ 23,200 Accounts receivable   84,200 Merchandise inventory   199,800 Property, plant and equipment (net of $606,000 accumulated depreciation)   1,016,000 Total assets $ 1,323,200       Liabilities and Stockholders' Equity     Accounts payable $ 197,200 Common stock   610,000 Retained earnings   516,000 Total liabilities and stockholders' equity $ 1,323,200   Required: (need these two parts) d. Prepare Budgeted Income Statements for November and December. e. Prepare a Budgeted Balance Sheet for the end of December

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Q1) 

  • Sales are budgeted at $360,000 for November, $380,000 for December, and $370,000 for January.
  • The cost of goods sold is 74% of sales.
  • The company desires an ending merchandise inventory equal to 75% of the cost of goods sold in the following month.
  • Payment for merchandise is made in the month following the purchase.
  • Other monthly expenses to be paid in cash are $22,400.
  • Monthly depreciation is $22,200.
  • Ignore taxes.
Balance Sheet
October 31
Assets    
Cash $ 23,200
Accounts receivable   84,200
Merchandise inventory   199,800
Property, plant and equipment (net of $606,000 accumulated depreciation)   1,016,000
Total assets $ 1,323,200
     
Liabilities and Stockholders' Equity    
Accounts payable $ 197,200
Common stock   610,000
Retained earnings   516,000
Total liabilities and stockholders' equity $ 1,323,200
 

Required:

(need these two parts)
d. Prepare Budgeted Income Statements for November and December.

e. Prepare a Budgeted Balance Sheet for the end of December

Q2)

Zwinger Nursery plans to sell a similar fertilizer/weedkiller compound through its regional nursery chain under its own private label. Zwinger does not have manufacturing facilities of its own, so it has asked Wesco (and several other companies) to submit a bid for manufacturing and delivering a 34,000-pound order of the private brand compound to Zwinger. While the chemical composition of the Zwinger compound differs from that of GrowNWeed, the manufacturing processes are very similar. The Zwinger compound would be produced in 1,000-pound lots. Each lot would require 30 direct labor-hours and the following chemicals:

Chemicals Quantity in Pounds
AG-5 300
KL-2 290
CW-7 200
DF-6 210
 

 

The first three chemicals (AG-5, KL-2, and CW-7) are all used in the production of GrowNWeed. DF-6 was used in another compound that Wesco discontinued several months ago. The supply of DF-6 that Wesco had on hand when the other compound was discontinued was not discarded. Wesco could sell its supply of DF-6 at the prevailing market price less $0.11 per pound selling and handling expenses.Wesco also has on hand a chemical called BH-3, which was manufactured for use in another product that is no longer produced. BH-3, which cannot be used in GrowNWeed, can be substituted for AG-5 on a one-for-one basis without affecting the quality of the Zwinger compound. The BH-3 in inventory has a salvage value of $470. Inventory and cost data for the chemicals that can be used to produce the Zwinger compound are shown below:

 

Raw Material Pounds in
Inventory
Actual Price
per Pound
When
Purchased
Current
Market
Price per
Pound
AG-5 18,000 $ 0.63 $ 0.73
KL-2 5,000 $ 0.45 $ 0.50
CW-7 7,900 $ 1.37 $ 1.57
DF-6 5,640 $ 0.53 $ 0.55
BH-3 4,500 $ 0.62 (Salvage)
 

The current direct labor wage rate is $18 per hour. The predetermined overhead rate is based on direct labor-hours (DLH). The predetermined overhead rate for the current year, based on a two-shift capacity with no overtime, is as follows:

 

       
Variable manufacturing overhead $ 4.20 per DLH
Fixed manufacturing overhead   7.30 per DLH
Combined predetermined overhead rate $ 11.50 per DLH
 

Wesco’s production manager reports that the present equipment and facilities are adequate to manufacture the Zwinger compound. Therefore, the order would have no effect on total fixed manufacturing overhead costs. However, Wesco is within 130 hours of its two-shift capacity this month. Any additional hours beyond the 130 hours must be done in overtime. If need be, the Zwinger compound could be produced on regular time by shifting a portion of GrowNWeed production to overtime. Wesco’s direct labor wage rate for overtime is $27 per hour. There is no allowance for any overtime premium in the predetermined overhead rate.

Required:

1. Wesco has decided to submit a bid for the 34,000 pound order of Zwinger’s new compound. The order must be delivered by the end of the current month. Zwinger has indicated that this is a one-time order that will not be repeated. Calculate the lowest price that Wesco could bid for the order and still exactly cover its incremental manufacturing costs. 2. Refer to the original data. Assume that Zwinger Nursery plans to place regular orders for 34,000-pound lots of the new compound. Wesco expects the demand for GrowNWeed to remain strong. Therefore, the recurring orders from Zwinger would put Wesco over its two-shift capacity. However, production could be scheduled so that 60% of each Zwinger order could be completed during regular hours. As another option, some GrowNWeed production could be shifted temporarily to overtime so that the Zwinger orders could be produced on regular time. Current market prices are the best available estimates of future market prices. Wesco’s standard markup policy for new products is 40% of the full manufacturing cost, including fixed manufacturing overhead. Calculate the price that Wesco, Inc., would quote Zwinger Nursery for each 34,000 pound lot of the new compound, assuming that it is to be treated as a new product and this pricing policy is followed.

(PLEASE SOLVE ALL ON EXCEL)

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