Acct 3320: Management Accounting I Assignmen

Q1) Master Budget with Supporting Schedules

Knockoffs Unlimited, a nationwide distributor of low-cost imitation designer necklaces, has an exclusive franchise on the distribution of the necklaces, and sales have grown so rapidly over the past few years that it has become necessary to add new members to the management team. To date, the company’s budgeting practices have been inferior, and, at times, the company has experienced a cash shortage. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April 1.

You are anxious to make a favourable impression on the president and have assembled the information below.

 

The necklaces are sold to retailers for $10 each. Recent and forecasted sales in units are as follows:

 

 

January

(actual)

22,000   June  54,000

February

(actual)

30,000   July  34,000

March (actual)  43,000   August  32,000

April  69,000   September  29,000

May  103,000

 

 

The large buildup in sales before and during May is due to Mother’s Day. Ending

inventories should be equal to 40% of the next month’s sales in units.

The necklaces cost the company $4 each. Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a month’s sales are collected by month-end. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

The company’s monthly selling and administrative expenses are given below:

 

 

Variable:

Sales commissions    4 % of sales

Fixed:

Advertising  $ 212,000

Rent    20,000

Wages and salaries    110,800

Utilities    8,600

Insurance    3,800

Depreciation    18,000

 

 

All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance. Insurance is paid on an annual basis, in November of each year. The company plans to purchase $17,600 in new equipment during May and $44,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $15,800 each quarter, payable in the first month of the following quarter. The company’s balance sheet at March 31 is given below:

 

 

 

 

Assets

Cash  $  78,000

Accounts receivable ($30,000 February sales;

$344,000 March sales)

 

374,000

 

Inventory     110,400

Prepaid insurance     26,600

Fixed assets, net of depreciation     970,000

 

 

 

 

 

 

 

Total assets  $ 1,559,000

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

Accounts payable  $  106,800

Dividends payable     15,800

Common shares     840,000

Retained earnings     596,400

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity  $ 1,559,000

 

 

 

 

 

 

 

 

 

 

 

 

 

The company wants a minimum ending cash balance each month of $50,000. All borrowing is done at the

beginning of the month, with any repayments made at the end of the month. The interest rate on these loans is 1%

per month and must be paid at the end of each month based on the outstanding loan balance for that month.

 

Required:

Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:

1.

a.  A sales budget by month and in total.

b.  A schedule of expected cash collections from sales, by month and in total.

c.

A merchandise purchases budget in units and in dollars. Show the budget by month and in total.

d.

A schedule of expected cash disbursements for merchandise purchases, by month and in total.

2. A budgeted income statement for the three-month period ending June 30. Use the variable costing approach.

 

 

Q2) FLEXIBLE BUDGET

 

 

 

(Indicate each variance as “F” for favourable or “U” for unfavourable).

Q3) Material and Labour Variances

The direct materials and direct labour standards for one bottle of Clean-All spray cleaner are given below:

 

 

Standard

Quantity

or Hours

Standard Price

or Rate

Standard

Cost

Direct materials  5.0  millilitres $ 0.30

per

millilitre

$1.50

Direct labour  0.4  hours  $12.00   per hour  $4.80

 

 

 

During the most recent month, the following activity was recorded:

a.  28,000 millilitres of material was purchased at a cost of $0.25 per millilitre.

b.  All of the material was used to produce 3,000 bottles of Clean-All.

c.  675 hours of direct labour time was recorded at a total labour cost of $8,100.

 

Required:

1. Compute the direct materials price and quantity variances for the month.

2. Compute the direct labour rate and efficiency variances for the month.

 

(Indicate each variance as “F” for favourable or “U” for unfavourable).

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