The treasurer of Unisyms Company

Question 1

Question 1

The treasurer of Unisyms Company has accumulated the following budget information for the first two months of the coming year:

	March	April
Sales.	$450,000	$520,000
Manufacturing costs	290,000	350,000
Selling and administrative
expenses	41,400	46,400
Capital additions	250,000	—

The company expects to sell about 35% of its merchandise for cash. Of sales on account, 80% are expected to be collected in full in the month of the sale and the remainder in the month following the sale. One-fourth of the manufacturing costs are expected to be paid in the month in which they are incurred and the other three-fourths in the following month. Depreciation, insurance, and property taxes represent $6,400 of the probable monthly selling and administrative expenses. Insurance is paid in February and a $40,000 installment on income taxes is expected to be paid in April. Of the remainder of the selling and administrative expenses, one-half are expected to be paid in the month in which they are incurred and the balance in the following month. Capital additions of $250,000 are expected to be paid in March.

Current assets as of March 1 are composed of cash of $45,000 and accounts receivable of $51,000. Current liabilities as of March 1 are composed of accounts payable of $121,500 ($102,000 for materials purchases and $19,500 for operating expenses). Management desires to maintain a minimum cash balance of $20,000.

Prepare a monthly cash budget for March and April.

Question 2

Trapp Co. was organized on August 1 of the current year. Projected sales for the next three months are as follows:

August	$100,000
September	185,000
October	225,000

The company expects to sell 40% of its merchandise for cash. Of the sales on account, one third are expected to be collected in the month of the sale and the remainder in the following month.

Prepare a schedule indicating cash collections of accounts receivable for August, September, and October.

Question 3

Diamond Company produces a chair that requires 5 yds. of material per unit. The standard price of one yard of material is $7.50. During the month, 8,500 chairs were manufactured, using 43,700 yards at a cost of $7.60.

Determine the (a) price variance, (b) quantity variance, and (c) cost variance.

Question 4

The Finishing Department of Paragon Manufacturing Co. prepared the following factory overhead cost budget for October of the current year, during which it expected to operate at a 100% capacity of 10,000 machine hours:

Variable cost:
Indirect factory wages	$18,000
Power and light	12,000
Indirect materials	4,000
Total variable cost		$34,000
Fixed cost:
Supervisory salaries	$12,000
Depreciation of plant and
equipment	8,800
Insurance and property taxes	3,200
Total fixed cost		24,000
Total factory overhead		$58,000

During October, the plant was operated for 9,000 machine hours and the factory overhead costs incurred were as follows: indirect factory wages, $16,400; power and light, $10,000; indirect materials, $3,000; supervisory salaries, $12,000; depreciation of plant and equipment, $8,800; insurance and property taxes, $3,200.

Prepare a factory overhead cost variance report for October. (The budgeted amounts for actual amount produced should be based on 9,000 machine hours.)

Question 5 (EX 24-5)

In divisional income statements prepared for franklin Electrical Company, the Payroll Department costs are charged back to user divisions on the basis of the number of payroll checks, and the Purchasing Department costs are charged back on the basis of the number of purchase requisitions. The Payroll Department had expenses of 44010, and the Purchasing Department had expenses of 18720 for the year. The following annual data for Residential, Commercial, and Government Contract Divisions were obtained from corporate records:

Residential Commercial Government Contract

Sales 420000 500000 1800000

Number of employees:

Weekly payroll (52 weeks per year) 144 72 108

Monthly payroll 25 20 18

Number of purchase requisition per year 1800 1530 1350

a. Determine the total amount of payroll checks and purchase requisitions processed per year by each division.

b. Using the activity base information in (a), determine the annual amount of payroll and purchasing costs charged back to the Residential, Commercial, and Government Contract Divisions from payroll and purchasing services.

c. Why does the Residential Division have a larger service department charge than the other two divisions, even though its sales are lower?

(Question 6) EX24-9

Outdoor Athletic Equipment Co. operates two divisions—the Winter Sports Division and the Summer Sports Division. The following income and expense accounts were provided from the trail balance as of June 30, 2008, the end of the current fiscal year, after all adjustments, including those for inventories, were recorded and posted:

Sales—Winter Sports (WS)Division………………………………………………….950000

Sales—Summer Sorts (SS) Division……………………………………………………1437500

Cost of Goods Sold—Winter Sports (WS) Division—————————512500

Cost of Goods Sold—Summer Sports (SS)Division………………………………..687500

Sales Expense—Winter Sports (WS)Division……………………………………….150000

Sales Expense—Summer Sports (SS) Division……………………………………..205000

Administrative Expense—Winter Sports (WS) Division………………………97000

Administrative Expense—Summer Sport (SS) Division…………………………128000

Advertising Expense………………………………………………………………………….64500

Transportation Expense…………………………………………………………………..100700

Accounts Receivable Collection Expense…………………………………………58100

Warehouse Expense………………………………………………………………………..120000

The bases to be used in allocating expenses, together with other essential information, are as follows:

a. Advertising expense-incurred at headquarters, charged back to divisions on the basis of usage: Winter Sports Division, 28000; Summer Sports Division, 36500.

b. Transportation expense-charged back to divisions at a transfer price of 7.60 per bill of lading: Winter Sports Division, 6000 bills of lading; Summer Sports Division, 7250 bills of lading.

c. Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a transfer price of 5.60 per invoice: Winter Sports Diviosn, 4500 sales invoices; Summer Sports Division, 5875 sales invoices.

d. Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 25000 square feet; Summer Sports Division, 12500 square feet.

Prepare a divisional income statement with two column headings: Winter Sports Division and Summer Sports Division. Provide supporting schedules for determining service department charges.

Question 7 (EX24-20

Materials used by the Industrial Division of Crow Manufacturing are currently purchased from outside suppliers at a cost of 120 per unit. However, the same materials are available from the Materials Division. The Materials Division has unused capacity and can produce the materials needed by the Industrial Division at a variable cost of 95 per unit.

a. If a transfer price of 105 per unit is established and 40000 units of materials are transferred, with no reduction in the Materials Division’s current sales, how much would Crow Manufacturing’s total income from operations increase?

b. How much would the Industrial Division’s income from operations increase?

c. How much would the Materials Division’s income from operations increase?

Question 8 (PR24-5A)

The vice president of operations of I4 computer Inc. is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows:

Personal Computing Division Business Computing Division

Sales 800000 1200000

Cost of goods sold 460000 780000

Operating Expenses 180000 156000

Invested assets 500000 2000000

Instructions:

1. Prepare condensed divisional income statements for the year ended Dec. 31 assuming that there were no service department charges.

2. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment for each division.

3. If management’s minimum acceptable rate or return is 15%, determine the residual the residual income for each division.

4. Discuss the evaluation of the two divisions, using the performance measures determined in parts (1), (2), and (3).

information for the first two months of the coming year:

	March	April
Sales.	$450,000	$520,000
Manufacturing costs	290,000	350,000
Selling and administrative
expenses	41,400	46,400
Capital additions	250,000	—

The company expects to sell about 35% of its merchandise for cash. Of sales on account, 80% are expected to be collected in full in the month of the sale and the remainder in the month following the sale. One-fourth of the manufacturing costs are expected to be paid in the month in which they are incurred and the other three-fourths in the following month. Depreciation, insurance, and property taxes represent $6,400 of the probable monthly selling and administrative expenses. Insurance is paid in February and a $40,000 installment on income taxes is expected to be paid in April. Of the remainder of the selling and administrative expenses, one-half are expected to be paid in the month in which they are incurred and the balance in the following month. Capital additions of $250,000 are expected to be paid in March.

Current assets as of March 1 are composed of cash of $45,000 and accounts receivable of $51,000. Current liabilities as of March 1 are composed of accounts payable of $121,500 ($102,000 for materials purchases and $19,500 for operating expenses). Management desires to maintain a minimum cash balance of $20,000.

Prepare a monthly cash budget for March and April.

Question 2

Trapp Co. was organized on August 1 of the current year. Projected sales for the next three months are as follows:

August	$100,000
September	185,000
October	225,000

The company expects to sell 40% of its merchandise for cash. Of the sales on account, one third are expected to be collected in the month of the sale and the remainder in the following month.

Prepare a schedule indicating cash collections of accounts receivable for August, September, and October.

Question 3

Diamond Company produces a chair that requires 5 yds. of material per unit. The standard price of one yard of material is $7.50. During the month, 8,500 chairs were manufactured, using 43,700 yards at a cost of $7.60.

Determine the (a) price variance, (b) quantity variance, and (c) cost variance.

Question 4

The Finishing Department of Paragon Manufacturing Co. prepared the following factory overhead cost budget for October of the current year, during which it expected to operate at a 100% capacity of 10,000 machine hours:

Variable cost:
Indirect factory wages	$18,000
Power and light	12,000
Indirect materials	4,000
Total variable cost		$34,000
Fixed cost:
Supervisory salaries	$12,000
Depreciation of plant and
equipment	8,800
Insurance and property taxes	3,200
Total fixed cost		24,000
Total factory overhead		$58,000

During October, the plant was operated for 9,000 machine hours and the factory overhead costs incurred were as follows: indirect factory wages, $16,400; power and light, $10,000; indirect materials, $3,000; supervisory salaries, $12,000; depreciation of plant and equipment, $8,800; insurance and property taxes, $3,200.

Prepare a factory overhead cost variance report for October. (The budgeted amounts for actual amount produced should be based on 9,000 machine hours.)

Question 5 (EX 24-5)

In divisional income statements prepared for franklin Electrical Company, the Payroll Department costs are charged back to user divisions on the basis of the number of payroll checks, and the Purchasing Department costs are charged back on the basis of the number of purchase requisitions. The Payroll Department had expenses of 44010, and the Purchasing Department had expenses of 18720 for the year. The following annual data for Residential, Commercial, and Government Contract Divisions were obtained from corporate records:

Residential Commercial Government Contract

Sales 420000 500000 1800000

Number of employees:

Weekly payroll (52 weeks per year) 144 72 108

Monthly payroll 25 20 18

Number of purchase requisition per year 1800 1530 1350

a. Determine the total amount of payroll checks and purchase requisitions processed per year by each division.

b. Using the activity base information in (a), determine the annual amount of payroll and purchasing costs charged back to the Residential, Commercial, and Government Contract Divisions from payroll and purchasing services.

c. Why does the Residential Division have a larger service department charge than the other two divisions, even though its sales are lower?

(Question 6) EX24-9

Outdoor Athletic Equipment Co. operates two divisions—the Winter Sports Division and the Summer Sports Division. The following income and expense accounts were provided from the trail balance as of June 30, 2008, the end of the current fiscal year, after all adjustments, including those for inventories, were recorded and posted:

Sales—Winter Sports (WS)Division………………………………………………….950000

Sales—Summer Sorts (SS) Division……………………………………………………1437500

Cost of Goods Sold—Winter Sports (WS) Division—————————512500

Cost of Goods Sold—Summer Sports (SS)Division………………………………..687500

Sales Expense—Winter Sports (WS)Division……………………………………….150000

Sales Expense—Summer Sports (SS) Division……………………………………..205000

Administrative Expense—Winter Sports (WS) Division………………………97000

Administrative Expense—Summer Sport (SS) Division…………………………128000

Advertising Expense………………………………………………………………………….64500

Transportation Expense…………………………………………………………………..100700

Accounts Receivable Collection Expense…………………………………………58100

Warehouse Expense………………………………………………………………………..120000

The bases to be used in allocating expenses, together with other essential information, are as follows:

a. Advertising expense-incurred at headquarters, charged back to divisions on the basis of usage: Winter Sports Division, 28000; Summer Sports Division, 36500.

b. Transportation expense-charged back to divisions at a transfer price of 7.60 per bill of lading: Winter Sports Division, 6000 bills of lading; Summer Sports Division, 7250 bills of lading.

c. Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a transfer price of 5.60 per invoice: Winter Sports Diviosn, 4500 sales invoices; Summer Sports Division, 5875 sales invoices.

d. Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 25000 square feet; Summer Sports Division, 12500 square feet.

Prepare a divisional income statement with two column headings: Winter Sports Division and Summer Sports Division. Provide supporting schedules for determining service department charges.

Question 7 (EX24-20

Materials used by the Industrial Division of Crow Manufacturing are currently purchased from outside suppliers at a cost of 120 per unit. However, the same materials are available from the Materials Division. The Materials Division has unused capacity and can produce the materials needed by the Industrial Division at a variable cost of 95 per unit.

a. If a transfer price of 105 per unit is established and 40000 units of materials are transferred, with no reduction in the Materials Division’s current sales, how much would Crow Manufacturing’s total income from operations increase?

b. How much would the Industrial Division’s income from operations increase?

c. How much would the Materials Division’s income from operations increase?

Question 8 (PR24-5A)

The vice president of operations of I4 computer Inc. is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows:

Personal Computing Division Business Computing Division

Sales 800000 1200000

Cost of goods sold 460000 780000

Operating Expenses 180000 156000

Invested assets 500000 2000000

Instructions:

1. Prepare condensed divisional income statements for the year ended Dec. 31 assuming that there were no service department charges.

2. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment for each division.

3. If management’s minimum acceptable rate or return is 15%, determine the residual the residual income for each division.

4. Discuss the evaluation of the two divisions, using the performance measures determined in parts (1), (2), and (3).