Individual Homework #2

Individual Homework #2 ACCY 302 FA05

I. Mynor Company manufactures and sells a product that has seasonal variations in demand, with peak sales coming in the third quarter. The following information concerns operations for Year 2- the coming year- and for the first two quarters of Year 3: a) The company’s single product sells for $8 per unit. Budgeted sales in units for the next six quarters are as follows:

Yr. 2 by Qtr Yr 3 by Qtr 1 2 3 4 1 2 Budgeted sales in units 40,000 60,000 100,000 50,000 70,000 80,000

b) Sales are collected in the following pattern: 75% in the quarter the sales are made, and the remaining 25% in the following quarter. On January 1, Year 2, the company’s balance sheet showed $65,000 in accounts receivable, all of which will be collected by the end of first quarter. Bad debts are negligible and can be ignored. c) The company desires an ending inventory of finished units on hand at the end of each quarter equal to 30% of the budgeted sales for the next quarter. On December 31, Year 1, the company had 12,000 units on hand. d) Five pounds of raw materials are required to complete one unit of product. The company requires an ending inventory of raw materials on hand at the end of each quarter equal to 10% of the production needs of the following quarter. On December 31, Year 1, the company had 23,000 pounds of raw materials on hand. e) The raw material costs $0.80 per pound. Purchases of raw material are paid for in the following pattern: 60% paid in the quarter the purchases are made, and the remaining 40% paid in the following quarter. On January 1, Year 2, the company’s balance sheet showed $81,500 in accounts payable for raw material purchases, all of which will be paid for in the first quarter of the year. REQUIRED: Prepare the following budgets and schedules for the Year 2, showing both quarterly and total figures. 1. A schedule of expected cash collections. 2. A production budget. 3. A direct materials budget. 4. A schedule of expected cash payments for material purchases. II. BlueDenim Company makes blue jeans. The company controller wants to calculate the fixed and variable costs associated with electricity used in the factory. Data for the past nine months were collected:

Month Electricity Cost Machine Hours January $3,255 460 February $3,485 500 March $4,100 600 April $3,300 470 May $3,312 470 June $2,575 350 July $3,910 570 August $4,200 590

REQUIRED:

1) Using the high-low method, construct the cost formula for total monthly electricity cost. 2) Coefficients shown by a regression program are: Intercept 3.21 X Variable 1 6.38

a) Construct the cost formula for total monthly electricity cost. b) Calculate the budgeted cost for next month assuming 550 machine hours are budgeted.

III. Voltar Company manufactures and sells a specialized cordless telephone for high electromagnetic ration environments. The company’s contribution format income statement for the most recent year is given below:

Total Per Unit Sales (20,000 units) $1,200,000 $60 Less: variable costs 900,000 45 Contribution margin 300,000 $15 Less: fixed costs 240,000 Net operating income $ 60,000

Management is anxious to improve the company’s profit performance and has asked for an analysis of a number of items.

REQUIRED:

1)Compute the company’s CM ratio and variable cost ratio. 2)Compute the company’s break-even point in both units and sales dollars. 3) Assume that sales increase by $400,000 next year as a result of an increase in sales volume. By how much will the company’s net operating income increase? 4) Refer to the original data. Assume that next year, management wants the company to earn a minimum profit of $90,000. How many units will have to be sold to meet this target profit? 5) Refer to the original data. Compute the company’s margin of safety in dollars.