Choose 1 of 2 assignments to complete. Due in 48 hours Module 6 Critical Thinking: Assignment Choice #1: Cost of Production Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter: a. As of December 31, (the end of the prior quarter), the company’s general ledger showed the following account balances: Cash $48,000 (debit) Accounts receivable $224,000 (debit) Inventory $60,000 (debit) Buildings and equipment, net $370,000 (debit) Accounts payable $93,000 (credit) Capital stock $500,000 (credit) Retained earnings $109,000 (credit) b. Actual sales for December and budgeted sales for the next four months are as follows: December $280,000, January $400,000, February $600,000, March $300,000 and April $200,000. c. Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales. d. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.) e. Monthly expenses are budgeted as follows: salaries and wages, $27,000 per month; advertising, $70,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,000 per quarter. f. Each month’s ending inventory should equal 25% of the following month’s cost of goods sold. g. One-half of the month’s inventory purchases is paid for in the month of purchase; the other half is paid in the following month. h. During February, the company will purchase a new copy machine for $1,700 cash. During March, other equipment will be purchased for cash at a cost of $84,500. i. During January, the company will declare and pay $45,000 in cash dividends. j. Management wants to maintain a minimum cash balance of $30,000. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter. Required: Schedule of Expected Cash Collections January Cash sales $80,000 Credit sales $224,000 Total Collections $304,000 February March Quarter Using the data above, complete the following statements and schedules for the first quarter. Submit your responses in an Excel spreadsheet: 1. Schedule of expected cash collections 2. Merchandise purchases budget Merchandise Purchases Budget January February Budgeted Cost of Goods Sold $240,000* $360,000 Add desired ending inventory $90,000** Total needs $330,000 Less beginning inventory $60,000 Required purchases $270,000 March Quarter *$400,000 sales x 60% cost ratio = $240,000 ** $360,000 x 25% = $90,000 3. Schedule of expected cash disbursements-merchandise purchases Schedule of Expected Cash Disbursements-Merchandise Purchases January December purchases $93,000 January purchases $135,000 February purchases February March Quarter $93,000 $135,000 $270,000 March purchases Total disbursements 4. $228,000 Schedule of expected cash disbursements-selling and administrative expenses Schedule of Expected Cash Disbursements-Selling and Administrative Expenses January 5. Salaries and wages $27,000 Advertising $70,000 Shipping $20,000 Other expenses $12,000 Total disbursements $129,000 February March Quarter March Quarter Cash budget: Cash Budget January Cash balance, beginning $48,000 Add cash collections $304,000 Total cash available $352,000 February Less cash disbursements For inventory For selling and admin expenses $228,000 $129,000 For purchase of equipment -----For cash dividends $45,000 Total cash disbursements $402,000 Excess (deficiency) of cash ($50,000) Financing needed Cash balance, ending Provide your answers in a clearly organized Excel spreadsheet. Provide your answers in a clearly organized Excel spreadsheet. Check spelling and formatting for readability. Document your sources. Assignment Choice #2: Calculating Flexible Budget Variances Stellar Packaging Products is experiencing an increase in demand for the month of August as a result of Estrella Coffee’s comeback in its retail outlets. The following fact pattern forms the basis for the static budget: Stellar Packaging Products Raw materials Direct manufacturing labor Indirect manufacturing labor Factory Insurance & Utilities Depreciation – Pressroom Repairs and maintenance – factory Selling, marketing & distribution expenses General and administrative expenses Variable Cost and Volume Data Raw materials = 0.10 lbs x $2.00/lb. Direct Labor = 0.025 hr x $10/hr. Volume in units Variable Costs Total $ 100,000 $ 125,000 $ Plastic $ $ 40,000 Fixed Costs Total $ $ $ $ 105,000 63,000 38,500 28,000 $ $ 80,000 120,000 0.20 0.25 500,000 Sales per unit are $3.00. Required: 1. In good form, prepare the static budget operating income in contribution format. 2. Suppose actual sales demand increases to 700,000 units for August; assume the units are within the relevant range. Prepare the flexible budget for August in contribution format. 3. Compute and reconcile the sales volume variance for August. Indicate whether the variance is favorable or unfavorable. 4. In a one page composition, provide an explanation for the change in the sales volume variance for August, and identify the elements which give rise to the difference between the flexible and static budgets. Also explain the reason for completing a flexible budget for the period. Your paper should meet the following requirements: 2-3 pages in total length Formatted according to the Document your sources APA Requirements.
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