The income statement for the Stylo Company for the past year is: Sales (150000 units @ $30) $4,500,000 Cost of Goods Sold: Materials $1,050,000 Labour 1,500,000 Variable FOH 450,000 Fixed FOH 500,000 3,500,000 Gross Profit $1,000,000 Variable Marketing Expenses $ 135,000 Fixed Marketing Expenses 185,000 Fixed Administrative Expenses 180,000 500,000 Income before Tax $ 500,000 Income Tax 250,000 Net Inco me $ 250,000 Woodstock is preparing its budget for the coming year and has made the following predictions about cost increases: material 5%, labour 8%, all other costs including fixed 6%. Productive capacity is 200,000 units. The president has been offered various proposals by the division managers as follows: Maintain the present volume and sales price Produce and sell at capacity and reduce the unit price $28. Raise the unit price to $32, spend an extra # 300,000 on advertising, and produce and sell 180,000 un Required: Recommended action, based on quantification of alternatives
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Q # 1: The income statement for the Stylo Company for the past year is: |
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Sales (150000 units @ $30) |
$4,500,000 |
|
Cost of Goods Sold: |
|
|
Materials |
$1,050,000 |
|
Labour |
1,500,000 |
|
Variable FOH |
450,000 |
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Fixed FOH |
500,000 3,500,000 |
|
Gross Profit |
$1,000,000 |
|
Variable Marketing Expenses |
$ 135,000 |
|
Fixed Marketing Expenses |
185,000 |
|
Fixed Administrative Expenses |
180,000 500,000 |
|
Income before Tax |
$ 500,000 |
|
Income Tax |
250,000 |
|
Net Inco me |
$ 250,000 |
Woodstock is preparing its budget for the coming year and has made the following predictions about cost increases: material 5%, labour
8%, all other costs including fixed 6%. Productive capacity is 200,000 units.
The president has been offered various proposals by the division managers as follows:
- Maintain the present volume and sales price
- Produce and sell at capacity and reduce the unit price $28.
- Raise the unit price to $32, spend an extra # 300,000 on advertising, and produce and sell 180,000 un
Required:
Recommended action, based on quantification of alternatives
Q # 2: The Redman Company manufacturers a product whose
Direct Materials: 24kg @ $3.00............................ $ 72.00
Direct Labour: 6 hours @ $6.50.............................. 39.00
Factory overhead: 6 hours @ $0.75........................... 4.50
Total unit standard cost...................................... $ 115.50
The factory overhead was based on the following flexible budget, in which 90% is normal capacity.
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80% |
90% |
100% |
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Hours (direct labour).................................. 40,000 |
45,000 |
50,000 |
|
Variable expenses.................................. $20,000 |
$22,500 |
$25,000 |
Actual data for November:
Fixed Expenses..................................... 11,250 11,250 11,250
Total Factory
Planned production, 7,500 units
Material put into production 192410kg @ $ 3.04 (average cost) Direct Labour 46,830 hours @ $6.60 average labour cost Actual FOH $ 36,340
Other data:
Beginning inventory, work in process, 80 units, all material, 50% converted Ending inventory, work in process, 100 units, all material, 50% converted Started in process during November 7,850 units
Required:
A
- Material (Overall, Price and Usage)
- FOH (Overall, Spending and Capacity)
Q # 3:
Steel Craft Manufactures and sells a seasonal product that has peak sales in the third quarter. The following information concerns operations for Year 2—the coming year—and for the first two quarters of Year 3:
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Year 2 Quarter |
Year 3 Quarter |
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1 |
2 |
3 |
4 |
5 |
6 |
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Budgeted unit Sales |
50000 |
70000 |
110000 |
60000 |
80000 |
90000 |
Sales are collected in the following pattern: 60% in the quarter the sales are made, and the remaining 20% & 20% in the following quarter. On January 1, Year 2, the company’s
The company desires an ending finished goods inventory at the end of each quarter equal to 35% of the budgeted unit sales for the next quarter. On December 31, Year 1, the company had 22,000 units on hand.
Five pounds of raw materials are required to complete one unit of product. The company requires ending raw materials inventory at the end of each quarter equal to 10% of the following quarter’s production needs. On December 31, Year 1, the company had 23,000 pounds of raw materials on hand.
The raw material costs $0.75 per pound. Raw material purchases are paid for in the following pattern: 55% paid in the quarter the purchases are made, and the remaining 45% paid in the following quarter. On January 1, Year 2, the company’s balance sheet showed $71,500 in accounts payable for raw material purchases, all of which will be paid for in the first two quarter (50% in each quarter) of the year.
Required:
Prepare the following budgets and schedules for the year, showing both quarterly and total figures:
- A sales budget and a schedule of expected cash collections
- A production
- A direct materials budget and a schedule of expected cash payments for purchases of material.
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