Acc346 Managerial Accounting: Week 6 Homework (P10-1, P11-2, P11-3)

Acc346 Managerial Accounting Week 6 Homework (P10-1, P11-2, P11-3) PROBLEM 10-1. Master Budget (Note: This problem is similar to Review Problem 2, only the numbers have been changed. Students who get stuck should consult the solution to Review Problem 2.) The results of operations for the Preston Manufacturing Company for the fourth quarter of 2011 were as follows: Sales 550,000 Less variable cost of sales 330,000 Contribution margin 220,000 Less fixed production costs 110,000 Less fixed selling and administrative expenses 55,000 165,000 Income before taxes 55,000 Less taxes on income 22,000 Net income 33,000 Note: Preston Manufacturing uses the variable costing method. Thus, only variable production costs are included in inventory and cost of goods sold. Fixed production costs are charged to expense in the period incurred. The company’s balance sheet as of the end of the fourth quarter of 2011 was as follows: Assets: Cash 165,000 Accounts receivable 220,000 Inventory 385,000 Total current assets 770,000 Property, plant, and equipment 440,000 Less accumulated depreciation (110,000) Total assets 1,100,000 Liabilities and owners’ equity: Accounts payable 66,000 Common stock 550,000 Retained earnings 484,000 Total liabilities and owners’ equity 1,100,000 Additional information: 1. Sales and variable costs of sales are expected to increase by 10 percent in the next quarter. 2. All sales are on credit with 60 percent collected in the quarter of sale and 40 percent collected in the following quarter. 3. Variable cost of sales consists of 40 percent materials, 40 percent direct labor, and 20 percent variable overhead. Materials are purchased on credit. Fifty percent are paid for in the quarter of purchase, and the remaining amount is paid for in the quarter after purchase. The inventory balance is not expected to change. Also, direct labor and variable overhead costs are paid in the quarter the expenses are incurred. 4. Fixed production costs (other than $9,000 of depreciation expense) are expected to increase by 2 percent. Fixed production costs requiring payment are paid in the quarter they are incurred. 5. Fixed selling and administrative costs (other than $8,000 of depreciation expense) are expected to increase by 2 percent. Fixed selling and administrative costs requiring payment are paid in the quarter they are incurred. 6. The tax rate is expected to be 40 percent. All taxes are paid in the quarter they are incurred. 7. No purchases of property, plant, or equipment are expected in the first quarter of 2012. Required a. Prepare a budgeted income statement for the first quarter of 2012. b. Prepare a cash budget for the first quarter of 2012. c. Prepare a budgeted balance sheet as of the end of the first quarter of 2012.

PROBLEM 11-2. Material Variances
T&C Tees is a manufacturer of T-shirts. The standard amount of 100% cotton jersey fabric used to make each T-shirt is 2.5 yards. The standard price per yard of the fabric is $2.50. During last month, T&C purchased 5,200 yards of the jersey fabric for $11,700. The production department used 5,000 yards to produce 1,800 T-shirts during the month. Required a. Compute the material price and quantity variances. b. Is the material price variance favorable or unfavorable? What might have caused this variance? Is the material quantity variance favorable or unfavorable? How might it be related to the material price variance?


PROBLEM 11-3. Labor Variances: Service Firm

Sarah Aiken is the owner of Pretty Paws, a dog-grooming service. At standard, it takes 1 hour to groom each dog. During the month of October, it took Pretty Paws employees 345 hours to groom 300 dogs at a total labor cost of $6,072. In November, employees spent 355 hours to groom 310 dogs at a total labor cost of $6,313.50; in December, 360 hours were used to groom 330 dogs at a total labor cost of $6,532. The wage rate standard for groomers is $17.75 per hour. Required a. Calculate the labor rate and efficiency variances for each of the past three months. b. What trends can you spot regarding the variances over the past three months? What might be a cause for the labor rate variance? What might be a cause for the labor efficiency variance?
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