Shannon company segments its income

Problem 9-19 Schedules of Expected Cash Collections and Disbursements [LO9-2, LO9-4, LO9-8]

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations:

a. The cash balance on December 1 is $56,800.

b. Actual sales for October and November and expected sales for December are as follows:

October

November

December

Cash sales

$

73,400

$

87,600

$

87,200

Sales on account

430,000

554,000

650,000

Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible.

c. Purchases of inventory will total $305,000 for December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $172,500, all of which will be paid in December.

d. Selling and administrative expenses are budgeted at $481,000 for December. Of this amount, $84,700 is for depreciation.

e. A new web server for the Marketing Department costing $110,500 will be purchased for cash during December, and dividends totaling $12,000 will be paid during the month.

f. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to bolster the cash position as needed.

Required:

1. Prepare a schedule of expected cash collections for December.

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ACC604 MANAGERIAL ACCOUNTING APRIL 2019: ACC 604 Managerial Accounting - April 2019

Week Two Practice Questions

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2.

Exercise 5-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO5-1, LO5-2, LO5-3]

Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:

Variable costs per unit:

Manufacturing:

Direct materials

$

26

Direct labor

$

12

Variable manufacturing overhead

$

7

Variable selling and administrative

$

6

Fixed costs per year:

Fixed manufacturing overhead

$

400,000

Fixed selling and administrative expenses

$

100,000

During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $54 per unit.

Required:

1. Assume the company uses variable costing:

a. Compute the unit product cost for year 1 and year 2.

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Unit product cost year 1 ________ year 2_______

3.

Exercise 5-7 Segmented Income Statement [LO5-4]

Shannon Company segments its income statement into its North and South Divisions. The company’s overall sales, contribution margin ratio, and net operating income are $440,000, 60%, and $26,400, respectively. The North Division’s contribution margin and contribution margin ratio are $120,000 and 75%, respectively. The South Division’s segment margin is $34,000. The company has $44,000 of common fixed expenses that cannot be traced to either division.

Required:

Prepare an income statement for Shannon Company that uses the contribution format and is segmented by divisions. (Do not round your intermediate percentage answers and round your final percentage answers to 1 decimal place (i.e. .1234 should be entered as 12.3).)

4.

Problem 6-16 Comparing Traditional and Activity-Based Product Margins [LO6-1, LO6-3, LO6-4, LO6-5]

Hi-Tek Manufacturing Inc. makes two types of industrial component parts—the B300 and the T500. An absorption costing income statement for the most recent period is shown below:

Hi-Tek Manufacturing Inc. Income Statement

Sales

$

1,693,400

Cost of goods sold

1,248,292

Gross margin

445,108

Selling and administrative expenses

590,000

Net operating loss

$

(144,892)

Hi-Tek produced and sold 60,100 units of B300 at a price of $20 per unit and 12,600 units of T500 at a price of $39 per unit. The company’s traditional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company’s two product lines is shown below:

B300

T500

Total

Direct materials

$

400,700

$

162,600

$

563,300

Direct labor

$

120,600

$

42,500

163,100

Manufacturing overhead

521,892

Cost of goods sold

$

1,248,292

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $54,000 and $102,000 of the company’s advertising expenses could be directly traced to B300 and T500, respectively. The remainder of the selling and administrative expenses was organization-sustaining in nature. The ABC team also distributed the company’s manufacturing overhead to four activities as shown below:

Manufacturing

Activity

Activity Cost Pool (and Activity Measure)

Overhead

B300

T500

Total

Machining (machine-hours)

$

212,392

90,400

62,400

152,800

Setups (setup hours)

148,500

70

260

330

Product-sustaining (number of products)

100,200

1

1

2

Other (organization-sustaining costs)

60,800

NA

NA

NA

Total manufacturing overhead cost

$

521,892

5.

Exercise 7-8 Utilization of a Constrained Resource [LO7-5, LO7-6]

Barlow Company manufactures three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow:

Product

A

B

C

Selling price

$

240

$

360

$

320

Variable expenses:

Direct materials

24

72

32

Other variable expenses

120

108

176

Total variable expenses

144

180

208

Contribution margin

$

96

$

180

$

112

Contribution margin ratio

40

%

50

%

35

%

The same raw material is used in all three products. Barlow Company has only 4,400 pounds of raw material on hand and will not be able to obtain any more of it for several weeks due to a strike in its supplier’s plant. Management is trying to decide which product(s) to concentrate on next week in filling its backlog of orders. The material costs $8 per pound.

Required:

1. Compute the amount of contribution margin that will be obtained per pound of material used in each product.