Professional Documents
Culture Documents
Group 9 Wang Zeyu Andanari Puspadin Lee Meng Chin Wang Haoran Yu Qing
Question 1
Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout South East Asia. 3 cubic centimeters (cc) of solvent H300 are required to manufacture each unit of Supermix, one of the companys products. The company is now planning raw materials needs for the third quarter, the quarter in which peak sales of Supermix occur. To keep production and sales moving smoothly, the company has the following inventory requirements:
A.
The finished goods inventory on hand at the end of each month must equal to 3,000 units of Supermix plus 20% of the next months sales. The finished goods inventory on June 30 is budgeted to be 10,000 units.0
The raw materials inventory on hand at the end of each month must be equal to onehalf of the following months production needs for raw materials. The raw materials on June 30 is budgeted to be 54,000cc of solvent H300. The company maintains no work in process inventories.
B.
C.
A sales budget for Supermix for the last six months of the year are as follows:
Month July August September Budgeted Sales in Units 35,000 40,000 50,000
October
November December
30,000
20,000 10,000
1.
Prepare a production budget for Supermix for the months July, August, September, and October
July August September October
35,000
11,000 46,000 10,000 36,000
40,000
13,000 53,000 11,000 42,000
50,000
9,000 59,000 13,000 46,000
30,000
7,000 37,000 9,000 28,000
The finished goods inventory on hand at the end of each month must equal to 3,000 units of Supermix plus 20% of the next months sales.
2.
Examine the production budget that you prepared in the previous question. Why will the company produce more units than it sells in July and August, and fewer units than it sells in September and October?
July August 40,000 13,000 53,000 11,000 September 50,000 9,000 59,000 13,000 October 30,000 7,000 37,000 9,000 35,000 11,000 46,000 10,000
Budgeted unit sales Desired ending inventory Total units needed Less beginning inventory
Units to produce
36,000
42,000
46,000
28,000
Because higher number of sales were budgeted in the months of August and September led to a higher desired ending inventory compared to the beginning inventory in the months of July and August. The opposite is true in September and October.
July and August, the company is building inventory in anticipation of stronger sales in September. Therefore production exceeds sales during the two months. In September and October, lower sales is anticipated for the following months, thus production is less than sales.
3.
Prepare a direct materials budget showing the quantity of solvent H300 to be purchased for July, August and September, and for the quarter in total.
July August 42,000 3 126,000 69,000 195,000 63,000 132,000 3 108,000 63,000 171,000 54,000 117,000 September 46,000 3 138,000 42,000 180,000 69,000 111,000 October 28,000 3 84,000
Units to produce Solvent per unit Material needs (cc) Desired ending inventory Total material needs (cc) Less beginning inventory Material purchases (cc)
36,000
Question 2
Peters management has made the following budget estimates regarding operations for the current quarter:
Sales (estimated) Total costs and expenses (estimated) Debt service payment (estimated) Tax liability payment (estimated) $ 700,000 500,000 260,000 50,000
Of Peter's total costs and expenses, $40,000 is quarterly depreciation expense, and $18,000 represents the expiration of prepayments. The remaining $442,000 is to be financed with current payables. The company's ending prepayments balance is expected to be the same as its beginning prepayments balance. Its ending current payables balance is expected to be $15,000 more than its beginning balance. All of Peter's sales are on account. Approximately 70% of its sales are collected in the quarter in which they are made. The remaining 30% are collected in the following quarter. Because all of the company's sales are made to a single customer, it experiences virtually no uncollectible accounts. Peter's minimum cash balance requirement is $10,000. Should the balance fall below this amount, management negotiates a shortterm loan with a local bank. The company's debt ratio (liabilities assets) is currently 90%.
a.
490,000
740,000
b.
500,000
40,000 18,000 427,000 105,000
c.
(x+18,000) - x = 18,000
d.
e.
Current quarter
$
$
(5,000)
15,000 10,000
f.
Discuss problems Peter might encounter in obtaining shortterm financing. (Potentially) unprofitable. Peter Corporations estimated total costs and expenses for the quarter outweigh their estimated sales. High debt-ratio. Peter Corporations debt ratio is currently 90% which may impose a higher risk to creditors (banks).
Question 3
A few years ago, Eastern Digital Corporation implemented a systematic budgeting process for profit planning and control purposes. While the majority of departmental managers are happy with the new process, the factory manager has expressed his unhappiness with the information being generated by the system.
After receiving a copy of this cost report, the supervisor of the Assembly Department said, These reports are great. Its really good to see how well things are going in my department. I cant understand why those people up there complain so much about the reports. For the last several years, the companys sales and marketing department has failed to meet the sales targets stated in the companys monthly budgets.
(a) The companys CEO is uneasy about the cost reports and would like you to evaluate their usefulness to the company. It is not useful. The company compares cost at different activity levels (the machine hours), which is like comparing apples to oranges.
activity level Variable costs are naturally different The costs report only do a good job of showing whether fixed costs were controlled They do not do a good job showing whether variable costs are controlled Since sales fails to meet budget, production likely falls as well.
(b) What changes, if any, should be made in the reports to give better insight into how well departmental supervisors are controlling costs?
Flex the budget to the actual level of activity. Keep fixed costs constant.
(c) Prepare a new performance report, incorporating any changes you suggested in question (b) above.
Assembly Department Cost Report For the Month Ended of performance March, 2012 Cost formula per hour Units of activity Variable costs Total fixed costs Flexible Budget Actual Results Variances
35,000
35,000
Supplies
Scrap Indirect materials Total variable costs
0.8
0.5
28,000
17,500
29,700
19,500
(1,700)
(2,000)
F
F
1.4
2.7
49,000
94,500
51,800
101,000
(2,800)
(6,500)
F
F
Fixed cost
Wages & salaries Equipment depreciation Total fixed costs Total costs 80,000 60,000 80,000 60,000 140,000 234,500 80,000 60,000 140,000 241,000 (5,700) F
(d) How well were costs controlled in the Assembly Department in March? Unfavorable variance in all its variable costs, which indicates the lack of control. Tutors comments: Flexible budget performance report provides a much clearer picture. The variances indicate that costs were not controlled by the Assembly Department All 3 variable costs have unfavourable variances.
Question 4
1. An accountant forgot to record four adjustments during 2010. Which one of the following omissions of adjustments will overstate assets?
A.
Unearned revenue is not reduced for the portion that has been earned. Interest on fixed deposits has not yet been recorded. Office supplies are not reduced for the portion that has been used.
B.
C.
D.
OE
Retained Earnings
2. In October, an inexperienced bookkeeper capitalized the cost of replacing the car battery of a 5-year old companys car to an asset account. This entry
A.
B.
C.
D.
Overstates the total book value of plant assets on the Octobers balance sheet but has no effect on the amount of net income reported during October. Overstates the total book value of plant assets on the Octobers balance sheet and understates amount of net income reported during October. Overstates the total book value of plant assets reported on the Octobers balance sheet and the amount of net income reported during October. Has no effect on the book value of plant assets on the Octobers balance sheet or the amount of net income reported during October.
OE
Retained Earnings
3. Unison Company reported net credit sales of &2,800,000 and cost of goods sold of &1,800,000 for 2010. Its beginning balance of accounts receivable was &320,000. During 2010, the accounts receivable balance decreased by &60,000. What is Unisons accounts receivable turnover rate for 2010(rounded to two decimal places)?
A. B. C. D.
320,000+(320,000-60,000)
2
4. Art & Co. sold goods to Party House on 28 December 2009, with shipping terms of FOB destination point. Party House received the goods on 3 January 2010. Which of the following is true?
A.
Art & Co. should record the sales revenue on 28 December 2009. Party House should pay the transportation costs.
B.
C.
Party House should include the goods in its inventory at 31 December 2009.
Party House should record a liability for the purchase on 3 January 2010.
D.
5. For the most recent year, DC Banks current ratio was significantly lower than that for the industry. What is the best possible explanation for this situation?
A.
The other companies in the industry were profitable. DC Banks liquidity has improved. DC Bank has less equity than the rest of the industry. DC Banks liquidity is worse than the rest of the industry.
B. C.
D.
6.Logistics Transport purchased a truck on 1 January 2008 for $40,000. The truck had an estimated life of 5 years and an estimated residual value of $5,000. Logistics used the straight-line method to depreciate the asset. On 1 July 2010, the truck was sold for $7,000 cash. The journal entry to record the sale of the truck in 2010
A.
B. C. D.
Decreases stockholders equity. Increases total assets. Decreases total expenses. Increased net income.
A = L + OE
Lost in stockholders equity
7.Energy Consultants had total assets of $750,000 and total shareholders equity of $250,000 at the beginning of the year. During the year, total assets increased by $550,000 and total liabilities increased by $200,000. The company also paid $200,000 in dividends. No other transactions occurred except revenues and expenses. How much is net income for the year?
A.
B.
C. D.
Extended accounting equation: Assets=Liabilities+(Common Stock + Net Income - Dividends) Net income = change of A - change of L + change of D = $550,000 - $200,000 + $200,000 = $550,000
8. Fong Manufacturing has current assets (mainly cash) of $100,000, total assets of $250,000, current liabilities of $20,000, and long-term liabilities of $50,000. Fong wants to buy new plant assets. How much of its existing cash can Fong use to acquire plant assets without allowing its current ratio to decline below 2.0 to 1?
A. B. C. D.
Current ratio = current assets / current liabilities = ( $100,000 - X ) / $20,000 =2.0 : 1 So X = $60,000
9. H & Co. Has 5,000 3% cumulative preference shares of $5 each, outstanding and 25,000 ordinary shares of $2 each, outstanding. No dividends have been paid for the past two years. If H & Co. Wishes to distribute $2 per share to the ordinary shareholders, what is the total amount of dividends to be declared in the current year?
A. B. C. D.
10.Which of the following will not cause a change in the owners equity of a business?
A. B. C. D.
Withdrawal of cash by the owner. Profit from sale of properties. Settlement of a note payable. Losses from discontinued operations.
MCQ
1.Which of the benefits derived from budgeting increases management's awareness of the company's external economic environment?
A.
B. C. D.
Enhanced management responsibility Assignment of decision-making responsibilities Coordination of activities Performance evaluation
2. Which of the benefits derived from budgeting provides a yardstick with which to measure each department's actual performance?
A. B. C. D.
Enhanced management responsibility Assignment of decision-making responsibilities Coordination of activities Performance evaluation
4. With a March 1 inventory of 12,000 units, how many units must be produced to provide an ending inventory of 8,000 units if Acorn Supply expects March sales to be 36,000 units at $1 per unit?
A.
B.
C. D.
1st
12,000
2nd
13,000
3rd
15,000
4th
10,000
The desired ending inventory is 10% of the projected unit sales of the subsequent period. How many units will be produced in the second time period?
A. 13,100 B. 13,200 C. 11,900 D. 12,100 13,000 + 0.1*15,000 - 0.1*13,000 = 13,200
6. Which of the following statement is not true about the relationship within the master budget?
A. B.
C.
D.
The production budget are based in large part on the sales forecast. In many elements of the master budget, the amounts budgeted for the upcoming quarter are reviewed and subdivided into monthly budget figures. The operating budgets affect the budgeted income statement, the cash budget, and the budgeted balance sheet. The capital expenditures budget affects the direct materials budget.
7. The portion of the master budget relating to an individual responsibility center is called which of the following?
A. B. C.
D.
Lecture11 Budgeting
Lecture Review
Budget
A budget is a comprehensive financial plan that specifies how resources will be acquired and used during a specified period of time.
Budgeting
Force managers to plan for resource requirements Improve communication and coordination
Budget Periods
Operating budgets ordinarily cover a one--year period corresponding to a companys fiscal year. Many companies divide their annual budget into quarterly & monthly budgets. Operating budgets are more operational than strategic in nature, done by lowerlevel managers.
Types of Budgets
Production Budget
Cash Budget
High-Low Method
Cash Budget
Cash receipts section lists all cash inflows excluding cash received from financing. Cash disbursements section consists of all cash payments excluding repayments of principal and interest. Cash excess or deficiency section determines if the company will need to borrow money or if it will be able to repay funds previously borrowed. Financing section details the borrowings and repayments projected to take place during the budget period.
Balance Sheet
Static Budgets: Traditional Budgets are prepared for a fixed activity level. Flexible Budgets: Flexible Budgets are prepared for multiple activity levels
Performance evaluation is difficult when actual activity differs from the activity originally budgeted.
Flexible Budgeting
Show expenses that should have occurred at the actual level of activity. May be prepared for any activity level in the relevant range. Reveal variances due to good cost control or lack of cost control. Improve performance evaluation.
Flexible Budgeting
To flex a budget for different activity levels, we must know how costs behave with changes in activity levels.
Thank you and wish you good luck for the coming exam!