September October November Sales $119,000 $143,000 $199,000 Manufacturing costs 50,000 61,000 72,000 Selling and administrative expenses 42,000 43,000 76,000 Capital expenditures _ _ 48,000 The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $8,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in January, and the annual property taxes are paid in December. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month. The controller of Bridgeport Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information: Current assets as of September 1 include cash of $45,000, marketable securities of $64,000, and accounts receivable of $132,500 ($104,000 from July sales and $28,500 from August sales). Sales on account for July and August were $95,000 and $104,000, respectively. Current liabilities as of September 1 include $8,000 of accounts payable incurred in August for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $17,000 will be made in October. Bridgeport’s regular quarterly dividend of $8,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $44,000.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
| September | October | November | ||||
| Sales | $119,000 | $143,000 | $199,000 | |||
| 50,000 | 61,000 | 72,000 | ||||
| Selling and administrative expenses | 42,000 | 43,000 | 76,000 | |||
| Capital expenditures | _ | _ | 48,000 |
The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $8,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in January, and the annual property taxes are paid in December. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month.
The controller of Bridgeport Housewares Inc. instructs you to prepare a monthly
Current assets as of September 1 include cash of $45,000, marketable securities of $64,000, and accounts receivable of $132,500 ($104,000 from July sales and $28,500 from August sales). Sales on account for July and August were $95,000 and $104,000, respectively. Current liabilities as of September 1 include $8,000 of accounts payable incurred in August for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $17,000 will be made in October. Bridgeport’s regular quarterly dividend of $8,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $44,000.
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