Connect - Managerial Accounting Exam (Ch 7-9)

Questions 1-8

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The management of Zigby Manufacturing prepared the following estimated balance sheet for March, 2013:

   

ZIGBY MANUFACTURING Estimated Balance Sheet March 31, 2013
Assets
Cash	$	57,000
Accounts receivable		464,000
Raw materials inventory		91,600
Finished goods inventory		380,480
Total current assets		993,080
Equipment, gross		634,000
Accumulated depreciation		(167,000)
Equipment, net		467,000
Total assets	$	1,460,080
Liabilities and Equity
Accounts payable		206,300
Short-term notes payable		29,000
Total current liabilities	$	235,300
Long-term note payable		520,000
Total liabilities		755,300
Common stock		352,000
Retained earnings		352,780
Total stockholders’ equity		704,780
Total liabilities and equity	$	1,460,080

To prepare a master budget for April, May, and June of 2013, management gathers the following information.

  

a.	Sales for March total 23,200 units. Forecasted sales in units are as follows: April, 23,200; May, 17,100; June, 21,900; July, 23,200. Sales of 257,000 units are forecasted for the entire year. The product’s selling price is $25.00 per unit and its total product cost is $20.50 per unit.
b.	Company policy calls for a given month’s ending raw materials inventory to equal 50% of the next month’s materials requirements. The March 31 raw materials inventory is 4,580 units, which complies with the policy. The expected June 30 ending raw materials inventory is 5,700 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials.
c.	Company policy calls for a given month’s ending finished goods inventory to equal 80% of the next month’s expected unit sales. The March 31 finished goods inventory is 18,560 units, which complies with the policy
d.	Each finished unit requires 0.50 hours of direct labor at a rate of $13 per hour.
e.	Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $4.40 per direct labor hour. Depreciation of $37,320 per month is treated as fixed factory overhead.
f.	Sales representatives’ commissions are 5% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $4,700 per month.
g.	Monthly general and administrative expenses include $29,000 administrative salaries and 0.8%  monthly interest on the long-term note payable.
h.	The company expects 20% of sales to be for cash and the remaining 80% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of the sale).
i.	All raw materials purchases are on credit, and no payables arise from any other transactions. One month’s raw materials purchases are fully paid in the next month.
J.	The minimum ending cash balance for all months is $99,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.
K.	Dividends of $27,000 are to be declared and paid in May.

l.	No cash payments for income taxes are to be made during the second calendar quarter. Income tax will be assessed at 40% in the quarter and paid in the third calendar quarter.
m.	Equipment purchases of $147,000 are budgeted for the last day of June.

Required:

Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the second calendar quarter, except as otherwise noted below. Round calculations up to the nearest whole dollar, except for the amount of cash sales, which should be rounded down to the nearest whole dollar:

1.

1.	Sales budgets. (Round budgeted unit price answer to 2 decimal places.)

	ZIGBY MANUFACTURING Sales Budget April, May, and June 2013 Budgeted Unit Sales Budgeted Unit Price Budgeted Total Dollars April 2013 23,200 $25.00 580,000 May 2013 17,100 25.00 427,500 June 2013 21,900 25.00 547,500 Totals for the quarter 62,200 $25.00 1,555,000

2.

2.	Production budget.

ZIGBY MANUFACTURING Production Budget April, May, and June 2013 April May June Total Next month's budgeted sales (units) 17,100 21,900 23,200 Ratio of inventory to future sales 80% 80% 80% Budgeted ending inventory (units) 13,680 17,520 18,560 Budgeted units sales for month 23,200 17,100 21,900 Required units of available production 36,880 34,620 40,460 Beginning inventory (units) (18,560) (13,680) (17,520) Units to be produced 18,320 20,940 22,940 62,200

Beginning inventory (units) = Budgeted units sales for month * Ratio of inventory to future sales
Ex: 18560 = 23200 *80%

3.

3.	Raw materials budget. (Round Materials requirements per unit answers to 2 decimal places.)

ZIGBY MANUFACTURING Raw Materials Budget April, May, and June 2013 April May June Total Production budget (units) 18,320 20,940 22,940 Materials requirements per unit 0.50 0.50 0.50 Materials needed for production 9,160 10,470 11,470 Budgeted ending inventory 5,235 5,735 5,700 Total materials requirements (units) 14,395 16,205 17,170 Beginning inventory (4,580) (5,235) (5,735) Materials to be purchased 9,815 10,970 11,435 32,220 Material price per unit $20 $20 $20 $20 Total cost of direct material purchases $196,300 $219,400 $228,700 $644,400

4.

4.	Direct labor budget. (Round Labor requirements per unit answers to 2 decimal places.)

	ZIGBY MANUFACTURING Direct Labor Budget April, May, and June 2013 April May June Total Budgeted production (units) 18,320 20,940 22,940 Labor requirements per unit (hours) 0.50 0.50 0.50 Total labor hours needed 9,160 10,470 11,470 31,100 Labor rate (per hour) $13 $13 $13 $13 Labor dollars $119,080 $136,110 $149,110 $404,300

5.

5.	Factory overhead budget. (Round Variable factory overhead rate answers to 2 decimal places.)

	ZIGBY MANUFACTURING Factory Overhead Budget April, May, and June 2013 April May June Total Labor hours needed 9,160 10,470 11,470 Variable factory overhead rate 4.40 4.40 4.40 Budgeted variable overhead $40,304 $46,068 $50,468 $136,840 Budgeted fixed overhead 37,320 37,320 37,320 111,960 Budgeted total overhead $77,624 $83,388 $87,788 $248,800

6.

6.	Selling expense budget.

	ZIGBY MANUFACTURING Selling Expense Budget April, May, and June 2013 April May June Total Budgeted sales $580,000 $427,500 $547,500 Sales commission percent 5% 5% 5% Sales commissions $29,000 $21,375 $27,375 $77,750 Sales salaries 4,700 4,700 4,700 14,100 Total selling expenses $33,700 $26,075 $32,075 $91,850

7.

7.	General and administrative expense budget.

	ZIGBY MANUFACTURING General and Administrative Expense Budgets April, May, and June 2013 April May June Total Salaries $29,000 $29,000 $29,000 $87,000 Interest on long-term note 4,160 4,160 4,160 12,480 Total expenses $33,160 $33,160 $33,160 $99,480

8.

8.	Cash budget. (Leave no cells blank - be certain to enter "0" wherever required.)

	Calculation of Cash receipts from customers: April May June Total budgeted sales $580,000 $427,500 $547,500 Cash sales 20% 116,000 85,500 109,500 Sales on credit 80% $464,000 $342,000 $438,000 Total cash receipts from customers April May June Current month's cash sales $116,000 $85,500 $109,500 Collections of receivables 464,000 464,000 342,000 Total cash receipts $580,000 $549,500 $451,500

ZIGBY MANUFACTURING Cash Budget April, May, and June 2013 April May June Beginning cash balance $57,000 $175,166 $259,953 Cash receipts from customers 580,000 549,500 451,500 Total cash available 637,000 724,666 711,453 Cash disbursements: Payments for raw materials 206,300 196,300 219,400 Payments for direct labor 119,080 136,110 149,110 Payments for variable overhead 40,304 46,068 50,468 Sales commissions 29,000 21,375 27,375 Sales salaries 4,700 4,700 4,700 General & administrative salaries 29,000 29,000 29,000 Dividends 27,000 Loan interest 290 Long-term note interest 4,160 4,160 4,160 Purchases of equipment 147,000 Taxes paid 0 0 0 Total cash disbursements 432,834 464,713 631,213 Preliminary cash balance 204,166 259,953 80,240 Additional loan (loan repayment) (29,000) 18,760 Ending cash balance $175,166 $259,953 $99,000 Loan balance April May June Loan balance - Beginning of month $29,000 $0 $0 Additional loan (loan repayment) (29,000) 18,760 Loan balance - End of month $0 $0 $18,760

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Questions 9-12

[The following information applies to the questions displayed below.]

  

Antuan Company set the following standard costs for one unit of its product.

Direct materials ((3.0 Ibs. @ $4.0 per Ib.)	$	12.00
Direct labor (1.6 hrs. @ $12.0 per hr.)		19.20
Overhead (1.6 hrs. @ $18.50 per hr.)		29.60
Total standard cost	$	60.80

The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% level.

  

Overhead Budget (75% Capacity)

Variable overhead costs
Indirect materials	$	15,000
Indirect labor		75,000
Power		15,000
Repairs and maintenance		30,000
Total variable overhead costs				$	135,000
Fixed overhead costs
Depreciation—building		23,000
Depreciation—machinery		72,000
Taxes and insurance		18,000
Supervision		196,000
Total fixed overhead costs					309,000
Total overhead costs				$	444,000

The company incurred the following actual costs when it operated at 75% of capacity in October.

Direct materials (46,500 Ibs. @ $4.20 per lb.)				$	195,300
Direct labor (32,000 hrs. @ $12.40 per hr.)					396,800
Overhead costs
Indirect materials	$	14,700
Indirect labor		73,500
Power		14,700
Repairs and maintenance		30,600
Depreciation—building		23,000
Depreciation—machinery		70,560
Taxes and insurance		17,640
Supervision		199,920			444,620
Total costs				$	1,036,720

9.

Required:
1&2.	Prepare flexible overhead budgets for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels and classify all items listed in the fixed budget as variable or fixed.

ANTUAN COMPANY Flexible Overhead Budgets For Month Ended October 31 Flexible Budget Flexible Budget for Variable Amount per Unit Total Fixed Cost 65% of capacity 75% of capacity 85% of capacity Sales (in units) 13,000 15,000 17,000 Variable costs Indirect materials $1.00 13,000 15,000 17,000 Indirect labor 5.00 65,000 75,000 85,000 Power 1.00 13,000 15,000 17,000 Repairs and maintenance 2.00 26,000 30,000 34,000 Total variable costs $9.00 117,000 135,000 153,000 Fixed costs Depreciation—Building $23,000 23,000 23,000 23,000 Depreciation—Machinery 72,000 72,000 72,000 72,000 Taxes and insurance 18,000 18,000 18,000 18,000 Supervision 196,000 196,000 196,000 196,000 Total fixed costs $309,000 309,000 309,000 309,000 Total overhead costs $426,000 $444,000 $462,000

10.

3.	Compute the direct materials cost variance, including its price and quantity variances.(Round actual price to 2 decimal places.)

	Actual Cost 9300 6000 Standard Cost AQ x AP AQ x SP SQ x SP 46,500 x $4.20 46,500 x $4.00 45,000 x $4.00 $195,300 $186,000 $180,000 $9,300 15300 $6,000 Direct materials price variance $9,300 Unfavorable Direct materials quantity variance 6,000 Unfavorable Total direct materials variance $15,300 Unfavorable

11.

4.	Compute the direct labor cost variance, including its rate and efficiency variances.(Round actual rate to 2 decimal places.)

	Actual Cost 12800 96000 Standard Cost AH x AR AH x SR SH x SR 32,000 x $12.40 32,000 x $12.00 24,000 x $12.00 $396,800 $384,000 $288,000 $12,800 108800 $96,000 Direct labor rate variance $12,800 Unfavorable Direct labor efficiency variance 96,000 Unfavorable Total direct labor variance $108,800 Unfavorable

12.

5.	Prepare a detailed overhead variance report that shows the variances for individual items of overhead.

ANTUAN COMPANY Overhead Variance Report For Month Ended October 31 Expected production volume 75% of capacity Production level achieved 75% of capacity Volume variance No variance Flexible Budget Actual Results Variances Fav. / Unfav. Variable costs Indirect materials $15,000 $14,700 $300 Favorable Indirect labor 75,000 73,500 1,500 Favorable Power 15,000 14,700 300 Favorable Repairs and maintenance 30,000 30,600 600 Unfavorable Total variable costs 135,000 133,500 1,500 Favorable Fixed costs Depreciation—Building 23,000 23,000 No variance Depreciation—Machinery 72,000 70,560 1,440 Favorable Taxes and insurance 18,000 17,640 360 Favorable Supervision 196,000 199,920 3,920 Unfavorable Total fixed costs 309,000 311,120 2,120 Unfavorable Total overhead costs $444,000 $444,620 $620 Unfavorable

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13.

Trico Company set the following standard unit costs for its single product.

Direct materials (23 Ibs. @ $4.40 per Ib.)	$	101.20
Direct labor (6 hrs. @ $7.50 per hr.)		45.00
Factory overhead — variable (6 hrs. @ $5.80 per hr.)		34.80
Factory overhead — fixed (6 hrs. @ $7.50 per hr.)		45.00
Total standard cost	$	226.00

  

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 69,000 units per quarter. The following flexible budget information is available.

  

	Operating Levels
		70%		80%		90%
Production in units		48,300		55,200		62,100
Standard direct labor hours		289,800		331,200		372,600
Budgeted overhead
Fixed factory overhead	$	2,484,000	$	2,484,000	$	2,484,000
Variable factory overhead	$	1,680,840	$	1,920,960	$	2,161,080

  

During the current quarter, the company operated at 70% of capacity and produced 48,300 units of product; actual direct labor totaled 287,800 hours. Units produced were assigned the following standard costs:

Direct materials (1,110,900 Ibs. @ $4.40 per Ib.)	$	4,887,960
Direct labor (289,800 hrs. @ $7.50 per hr.)		2,173,500
Factory overhead (289,800 hrs. @ $13.30 per hr.)		3,854,340
Total standard cost	$	10,915,800

  

Actual costs incurred during the current quarter follow:

Direct materials (1,051,900 Ibs. @ $4.68)	$	4,922,892
Direct labor (287,800 hrs. @ $7.27)		2,092,306
Fixed factory overhead costs		2,438,000
Variable factory overhead costs		1,626,070
Total actual costs	$	11,079,268
Required: (a) Compute the variable overhead spending and efficiency variances. (Round "AVR" and "SVR" answers to 2 decimal places.)

	Actual Variable OH Cost -1 Flexible Budget -1 Standard Cost (VOH applied) AH x AVR AH x SVR SH x SVR 287,800 x $5.65 287,800 x $5.80 289,800 x $5.80 $1,626,070 $1,669,240 $1,680,840 $43,170 2 $11,600 -1 Variable overhead spending variance $43,170 Favorable Variable overhead efficiency variance 11,600 Favorable

(b)	Compute the fixed overhead spending and volume variances. (Round "AFR" and "SFR" answers to 2 decimal places.)

	Actual Fixed OH Cost -1 Budgeted Overhead 1 Standard Cost (FOH applied) AH x AFR SH SFR 287,800 x $8.47 289,800 $7.50 $2,438,000 $2,484,000 $2,173,500 $46,000 0 $310,500 1 Fixed overhead spending variance $46,000 Favorable Fixed overhead volume variance 310,500 Unfavorable Total fixed overhead cost variance $264,500 Unfavorable

(c)	Compute the total overhead controllable variance.

	Overhead controllable variance Total overhead variance $209,730 Unfavorable Fixed overhead volume variance 310,500 Unfavorable Overhead controllable variance $100,770 Favorable

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Questions 14-15
[The following information applies to the questions displayed below.]

National Bank has several departments that occupy both floors of a two-story building. The departmental accounting system has a single account, Building Occupancy Cost, in its ledger. The types and amounts of occupancy costs recorded in this account for the current period follow.

Depreciation—Building	$	22,500
Interest—Building mortgage		33,750
Taxes—Building and land		10,000
Gas (heating) expense		3,125
Lighting expense		3,750
Maintenance expense		6,875
Total occupancy cost	$	80,000

  

The building has 5,000 square feet on each floor. In prior periods, the accounting manager merely divided the $80,000 occupancy cost by 10,000 square feet to find an average cost of $8 per square foot and then charged each department a building occupancy cost equal to this rate times the number of square feet that it occupied.

Diane Linder manages a first-floor department that occupies 1,000 square feet, and Juan Chiro manages a second-floor department that occupies 1,800 square feet of floor space. In discussing the departmental reports, the second-floor manager questions whether using the same rate per square foot for all departments makes sense because the first-floor space is more valuable. This manager also references a recent real estate study of average local rental costs for similar space that shows first-floor space worth $40 per square foot and second-floor space worth $10 per square foot (excluding costs for heating, lighting, and maintenance).

14.

Required:

1.	Allocate occupancy costs to the Linder and Chiro departments using the current allocation method.(Round cost answers to 2 decimal places.)

	Department Square Footage Rate Total Linder’s Dept. 1,000 $8.00 $8,000 Chiro’s Dept. 1,800 8.00 $14,400

15.

2.

Allocate the depreciation, interest, and taxes occupancy costs to the Linder and Chiro departments in proportion to the relative market values of the floor space. Allocate the heating, lighting, and maintenance costs to the Linder and Chiro departments in proportion to the square feet occupied (ignoring floor space market values). (Round your "percent of market value" calculations to 2 decimal places.)

	Department Square Footage Rate Total Linder’s Dept. 1,000 $11.98 $11,980 Chiro’s Dept. 1,800 4.03 $7,254

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16.

Advertising and purchasing department expenses of Cozy Bookstore are allocated to operating departments on the basis of dollar sales and purchase orders, respectively. The purchasing department had total expenses of $46,700 and the advertising department had total expenses of $26,700. Information about the allocation bases for the three operating departments follows.

Department	Sales		Purchase Orders
Books	$	180,400		1,290
Magazines		123,000		690
Newspapers		106,600		1,020
Total	$	410,000		3,000

Complete the following table by allocating the expenses of the two service departments (advertising and purchasing) to the three operating departments (see the expenses below).

Advertising Allocation Base Percent of Allocation Base Cost to be allocated Allocated Cost Department Sales Numerator Denominator % of Total Books Dept $180,400 $180,400 $410,000 44 $26,700 $11,748 Magazines Dept 123,000 123,000 410,000 30 26,700 8,010 Newspapers Dept 106,600 106,600 410,000 26 26,700 6,942 Totals 410,000 100 $26,700 Purchasing Allocation Base Percent of Allocation Base Cost to be allocated Allocated Cost Department Number of orders Numerator Denominator % of Total Books Dept 1,290 1,290 3,000 43 $46,700 $20,081 Magazines Dept 690 690 3,000 23 46,700 10,741 Newspapers Dept 1,020 1,020 3,000 34 46,700 15,878 Totals 3,000 100 $46,700

	COZY BOOKSTORE Departmental Expense Allocation Spreadsheet Expense Totals Advertising Purchasing Books Magazines Newspapers Total dept. exp. $0 $26,700 $46,700 $140,100 $133,400 $320,100 Service Dept. Expenses Advertising Dept. (26,700) 11,748 8,010 6,942 Purchasing Dept. (46,700) 20,081 10,741 15,878 Total expenses allocated $0 $0 $0 $171,929 $152,151 $342,920