Managerial Accounting assignment
The president of the retailer Prime Products has just approached the companys bank with a request for a
$30,000, 90- day loan. The purpose of the loan is to assist the company in acquiring inventories. Because
the company has had some difficulty in paying off its loans in the past, the loan officer has asked for a
cash budget to help determine whether the loan should be made. The following data are available for the
months April through June, during which the loan will be used:
a. On April 1, the start of the loan period, the cash balance will be $24,000. Accounts receivable on April
1 will total $140,000, of which $120,000 will be collected during April and $16,000 will be collected during
May. The remainder will be uncollectible.
b. Past experience shows that 30% of a months sales are collected in the month of sale, 60% in the month
following sale, and 8% in the second month following sale. The other 2% represents bad debts that are never
collected. Budgeted sales and expenses for the three-month period follow:
April May June
Sales (all on account) $300,000 $400,000 $250,000
Merchandise Purchases $210,000 $160,000 $130,000
Payroll $20,000 $20,000 $18,000
Lease Payments $22,000 $22,000 $22,000
Advertising $60,000 $60,000 $50,000
Equipment Purchases $65,000
Depreciation $15,000 $15,000 $15,000
c. Merchandise purchases are paid in full during the month following purchase. Accounts payable for
merchandise purchases during March, which will be paid during April, total $140,000
d. In preparing the cash budget, assume that the $30,000 loan will be made in April and repaid in June.
Interest on the loan will total $1,200.
Required:
Prepare a schedule of expected cash collections for April, May, and June, and for the three months in total
and prepare a cash budget, by month and in total, for the three-month period.
Problem 10A-11 Flandro Company uses a standard cost system and sets predetermined overhead rates on the
basis of direct labor-hours. The following data are taken from the company’s budget for the current year:
Denominator activity (direct labor-hours) $5000
Variable manufacturing overhead cost $25,000
Fixed manufacturing overhead cost $59,000
The standard cost card for the company’s only product is given below:
Direct materials, 3 yards at $4.40 per yard $13.20
Direct labor, 1 hour at $12 per hour 12.00
Manufacturing overhead, 140.00% of direct labor cost 16.80
Standard cost per unit $42.00
During the year, the company produced 6000 units of product and incurred the following costs:
Materials purchased, 24,000 yards at $4.80 per yard $115,200
Materials used in production (in yards) 18,500
Direct labor cost incurred, 5,800 hours at $13 per hour $75,400
Variable manufacturing overhead cost incurred $29,580
Fixed manufacturing overhead cost incurred $60,400
Required:
1. Redo the standard cost card in a clearer, more usable format by detailing the variable and fixed overhead
cost elements.
2. Prepare an analysis of the variances for direct materials and direct labor for the year.
3. Prepare an analysis of the variances for variable and fixed overhead for the year.
4. What effect, if any, does the choice of a denominator activity level have on unit standard costs? Is the
volume variance a controllable variance from the spending point of view? Explain.
Problem 10A-12
Morton Company’s variable manufacturing overhead should be $4.50 per standard direct labor hour and fixed
manufacturing should be $270,000 per year. The company manufacturers a single product that requires two
direct labor hours to complete. The direct labor wage rate is $15 per hour. Four feet of raw material are
required for each unit of product; the standard cost of the material is $8.75 per foot. Although normal
activity is 30,000 direct labor hours each year, the company expects to operate at a 40,000 hour level of
activity this year.
REQUIRED:
1. Assume that the company chooses 30,000 direct labor hours as the denominator level of activity. Compute
the predetermined overhead rate, breaking it down into variable and fixed cost elements.
2. Assume that the company chooses 40,000 direct labor hours as the denominator level of activity. Repeat
the computation in (1) above.
3. Complete two standard cost cards as outlined below.
Denominator Activity: 30,000 Direct Labor hours
Direct Materials, 4 feet at $8.75 per foot $35.00
DirecT Labor?…………………………………………………………. .?
Variable Manufacturing overhead?
Fixed Manufacturing overhead?
Standard cost per unit?
Denominator Activity: 40,000 Direct Labor Hours
Direct Materials, 4 feet at $8.75 per foot………..$35.00
Direct Labor?
Variable Manufacturing overhead?
Fixed Manufacturing overhead,?
Standard cost per unit?
4. Assume that the company actually produces 18,000 units and works 38,000 direct labor hours during the
year. Actual manufacturing overhead costs for the year are:
Variable manufacturing overhead cost $174,800
Fixed manufacturing overhead cost €271,600
Total manufacturing overhead cost $446,400
Do the following:
a. Compute the standard direct labor hours allowed for this year’s production.
b. Complete the Manufacturing Overhead account below. Assume that the company uses 30,000 direct labor hours
(normal activity) as the denominator activity figured in computing predetermined overhead rates, as you have
done in (1) above.
Manufacturing Overhead
Actual costs 446,400 Applied Cost?
c. Determine the cause of the underapplied or overapplied overhead for the year by computing the variable
overhead rate and efficiency variances and the fixed overhead budget and volume variances.
5. Looking at the variances you have completed, what appears to be the major disadvantage of using normal
activity rather than expected actual activity as a denominator in computing the predetermined overhead rate?
What advantages can you see to offset this disadvantage?
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