ACCT-The following information pertains to the operating budget for Opa Locka Stuff Corporation.
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.
Sales volume (in units) 30,000 28,000
Direct materials $285,000 $252,000
Direct labor $96,000 $91,000
Fixed manufacturing suppot 310,000 300,000
Total $ 691,000 $ 643,000
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.
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.
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