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SUBDOMAIN 308.1 - COST/MANAGERIAL ACCOUNTING
Competency 308.1.7: Developing Budgets - The student can develop various
forms of operating budgets, including a flexible budget system.
Objective 308.1.7-02: Develop a cash receipts budget for a firm selling on both a
cash and a credit basis.
Objective 308.1.7-08: Develop a selling and administrative budget.
Objective 308.1.7-09: Develop a schedule of borrowing and repayment of loans.
Given:
Note: This is the second of two budgeting tasks that must be completed in order. If
you have not finished the first task (308.1.7-01), please do so before beginning this
task.
Company A is a high-end ceiling fan manufacturer established six years ago. It has
one luxury fan model that is unique and has wide market acceptance.
Sales Data
Actual Sales Data Year 10 (last 2 months) Projected Sales Data Year 11 (first 5
months)
Month Units Sold
November, X6 3,000
December, X6 2,400
January, X7 3,500
February, X7 4,000
March, X7 3,500
April, X7 3,400
May, X7 4,000
Selling price is $100 per unit.
All sales are on credit.
Ending Inventory
Raw materials: Outlined in direct materials below
Work in process: No work in process inventory; all work completed on last day of
quarter
Finished goods: 20% of next months sales projection Average unit cost in Year 10: $64 Inventory method used: FIFO
Direct Cost Data
Direct Materials:
Motors are purchased ready to use from an outside supplier at a cost of $14
each. Company As management desires to maintain a motor inventory based on 20% of next months projected production.
Blades are produced in the plant. Each fan requires 10 blades. The material is
purchased in 4 ft. x 8 ft. sheets at $24 per sheet. Fifteen blades can be cut out of
each sheet. Experience has shown that, on average, the number of defective
blades produced by the cutting process is equal to 6% of the number of good
blades. Defective blades must be discarded. In case of machine breakdowns,
management desires an ending inventory of finished blades each month equal to
10% of the next months projection of total blades for production.
Direct Labor:
Total payroll expense including benefits is $63 per hour for the production
workers required to operate the blade-cutting machine and $63 per hour for the
workers required to staff the assembly/packing workstation. The standard labor
allowance is 0.2 hours per fan on the blade-cutting machine and 0.2 hours per
fan at the assembly/packing workstation.
Overhead:
Variable manufacturing overhead and fixed overhead items are presented below.
Accounts Receivable
All sales are made on credit. Historically, 26% of receivables have been collected
during the month of sale, 50% collected in the month following the sale, and 20%
collected two months after the sale. The company has experienced a 4% bad debt on
its credit sales.
Accounts Payable
All materials are purchased on credit. Normally one half of the purchases are paid
during the month in which they were purchased and one half paid the following
month. The accounts payable balance shown on the Year 10 balance sheet
represents one half of the December purchases. The company does not receive any
purchase discounts from its suppliers.
Indirect Labor Costs
Company Sales Representatives 3% commission on sales each month
Sales Manager $5,000/mo. plus 50% override on sales
commission
Production Supervisor $4,000/mo.
Administrative Expenses
(salaries)
$8,000/mo.
Other Expenses
Yearly Insurance Premiums $36,000 on October 1; 80% related to factory
operations
Factory Utilities January $15,000; February $17,000; March $15,200
Usage estimated at 90% factory and 10%
administrative
Advertising Expenses 7% of monthly sales
Factory Building Mortgage
(20 years at 8%)
Building purchased four years ago for $430,000 (total
cost)
Down payment of $190,000
Mortgage paid at the end of each quarter
Travel Expenses 4% of monthly sales
Factory Maintenance 10% of monthly blade material costs
Factory Janitor Services $3,000/mo.
Cash Control
The cash on hand at the beginning of each month must be maintained at $60,000 for
any contingencies that might arise. If the operations do not provide this balance, the
company will use its preapproved line of credit at 8% and borrow sufficient funds to
meet the minimum required cash balance. When there is a credit line balance due, it
will be paid in the next month that generates a projected cash balance over the
$60,000 minimum.
Depreciable Assets
The factory building was purchased on January 1, Year 3. It is being depreciated
using straight line depreciation for 20 years. Salvage value of the building is
estimated at $70,000.
The blade-cutting machine was purchased on December 31, Year 10, for $240,000
cash. It is being depreciated over eight years using the double declining balance
method. Depreciation is recognized on long-term assets at the end of each quarter.
Dividend Policy
The company declares $58,000 annual dividend to its shareholders in the first month
of the quarter. Dividends are paid in the second month of the quarter.
Task:
A. Using the attached Accounting Forms Template and the information provided in the attached given, complete the following accounting forms for the first three
months of Year 11:
1. Selling and administrative budget
2. Accounts receivable receipt schedule
3. Accounts payable payment schedule
4. Cash budget including a schedule of borrowing and repayment of loans
Note: Please save word-processing documents as *.rtf (Rich Text Format) or *.pdf
(Portable Document Format) files.
Note: For definitions of terms commonly used in the rubric, see the attached Rubric
Terms.
Note: When using sources to support ideas and elements in a paper or project, the
submission MUST include APA formatted in-text citations with a corresponding
reference list for any direct quotes or paraphrasing. It is not necessary to list sources
that were consulted if they have not been quoted or paraphrased in the text of the
paper or project.
Note: No more than a combined total of 30% of a submission can be directly quoted
or closely paraphrased from sources, even if cited correctly. For tips on using APA
style, please refer to the APA Handout web link included in the APA Guidelines
section.