Chapter 22: 20RQ (page 1228)
What is sensitivity analysis? Why is it important for managers?
Sensitivity analysis is a what-if technique.
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Connor Company began operations on January 1 and has projected the following selling and administrative expenses:
Rent Expense $ 1,000 per month, paid as incurred
Utilities Expense 500 per month, paid in month after incurred
Depreciation Expense 300 per month
Insurance Expense 100 per month, 6 months prepaid on January 1
Determine the cash payments for selling and administrative expenses for the first three months of operations.
Camp Company is a sporting goods store. The company sells a tent that sleeps six people. The store expects to sell 250 tents in 2018 and 280 tents in 2019. At the beginning of 2018, Camp Company has 25 tents in Merchandise Inventory and desires to have 5% of the next year’s sales available at the end of the year. How many tents will Camp Company need to purchase in 2018?
Preparing an operating budget—sales, production, direct materials, direct labor, overhead, COGS, and S&A expense budgets The Irwin Batting Company manufactures wood baseball bats. Irwin’s two primary products are a youth bat, designed for children and young teens, and an adult bat, designed for high school and college-aged players. Irwin sells the bats to sporting goods stores, and all sales are on account. The youth bat sells for \(35; the adult bat sells for \)50. Irwin’s highest sales volume is in the first three months of the year as retailers prepare for the spring baseball season. Irwin’s balance sheet for December 31, 2018, follows:
Other data for Irwin Batting Company for the first quarter of 2019:
a. Budgeted sales are 1,400 youth bats and 3,300 adult bats.
b. Finished Goods Inventory on December 31, 2018, consists of 700 youth bats at \(15 each and 550 adult bats at \)10 each.
c. Desired ending Finished Goods Inventory is 220 youth bats and 300 adult bats; FIFO inventory costing method is used.
d. Direct materials requirements are 40 ounces of wood for youth bats and 70 ounces of wood for adult bats. The cost of wood is \(0.10 per ounce.
e. Raw Materials Inventory on December 31, 2018, consists of 90,000 ounces of wood at \)0.10 per ounce.
f. Desired ending Raw Materials Inventory is 90,000 ounces (indirect materials are insignificant and not considered for budgeting purposes).
g. Each bat requires 0.4 hours of direct labor; direct labor costs average \(26 per hour.
h. Variable manufacturing overhead is \)0.30 per bat.
i. Fixed manufacturing overhead includes \(1,300 per quarter in depreciation and \)14,977 per quarter for other costs, such as insurance and property taxes.
j. Fixed selling and administrative expenses include \(13,000 per quarter for salaries; \)3,500 per quarter for rent; \(1,400 per quarter for insurance; and \)450 per quarter for depreciation. k. Variable selling and administrative expenses include supplies at 1% of sales.
Requirements
1. Prepare Irwin’s sales budget for the first quarter of 2019.
2. Prepare Irwin’s production budget for the first quarter of 2019.
3. Prepare Irwin’s direct materials, direct labor budget, and manufacturing overhead budget for the first quarter of 2019. Round the predetermined overhead allocation rate to two decimal places. The overhead allocation base is direct labor hours.
4. Prepare Irwin’s cost of goods sold budget for the first quarter of 2019.
5. Prepare Irwin’s selling and administrative expense budget for the first quarter of 2019.
Question: Preparing a financial budget—schedule of cash receipts, schedule of cash payments, cash budget
Puckett Company has provided the following budget information for the first quarter of 2018:
Total sales \( 216,000
Budgeted purchases of direct materials 40,600
Budgeted direct labor cost 36,800 Budgeted manufacturing overhead costs:
Variable manufacturing overhead 1,025
Depreciation 1,000
Insurance and property taxes 6,650
Budgeted selling and administrative expenses:
Salaries expense 14,000
Rent expense 2,500
Insurance expense 2,000
Depreciation expense 350
Supplies expense 4,320
Additional data related to the first quarter of 2018 for Puckett Company:
a. Capital expenditures include \)41,000 for new manufacturing equipment to be purchased and paid in the first quarter.
b. Cash receipts are 75% of sales in the quarter of the sale and 25% in the quarter following the sale.
c. Direct materials purchases are paid 50% in the quarter purchased and 50% in the next quarter.
d. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.
e. Income tax expense for the first quarter is projected at \(49,000 and is paid in the quarter incurred.
f. Puckett Company expects to have adequate cash funds and does not anticipate borrowing in the first quarter.
g. The December 31, 2017, balance in Cash is \)25,000, in Accounts Receivable is \(21,600, and in Accounts Payable is \)16,500.
Requirements
1. Prepare Puckett Company’s schedule of cash receipts from customers and schedule of cash payments for the first quarter of 2018.
2. Prepare Puckett Company’s cash budget for the first quarter of 2018.
Preparing a financial budget—budgeted balance sheet
Use the following June actual ending balances and July 31, 2018, budgeted amounts for Omas to prepare a budgeted balance sheet for July 31, 2018.
a. June 30 Merchandise Inventory balance, \(17,770
b. July purchase of Merchandise Inventory, \)4,400, paid in cash
c. July payments of Accounts Payable, \(8,400
d. June 30 Accounts Payable balance, \)10,700
e. June 30 Furniture and Fixtures balance, \(34,100; Accumulated Depreciation balance, \)29,880
f. June 30 total stockholders’ equity balance, \(28,020
g. July Depreciation Expense, \)500
h. Cost of Goods Sold, 60% of sales
i. Other July expenses, including income tax, \(2,000, paid in cash
j. June 30 Cash balance, \)11,600
k. July budgeted sales, all on account, \(12,600
l. June 30 Accounts Receivable balance, \)5,130
m. July cash receipts from collections on account, $14,700
(Hint: It may be helpful to trace the effects of each transaction on the accounting equation to determine the ending balance of each account.)
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