Acc301 Essentials of Accounting: Week 4 (E7-13, P7-1A, BYP7-2, E8-3, P8-1A, BYP8-6)

Acc301 Essentials of Accounting
Week 4 (E7-13, P7-1A, BYP7-2, E8-3, P8-1A, BYP8-6)

Pink Martini Corporation is projecting a cash balance of $31,000 in its December 31, 2007, balance sheet. Pink Martini's schedule of expected collections from customers for the first quarter of 2008 shows total collections of $180,000. The schedule of expected payments for direct materials for the first quarter of 2008 shows total payments of $41,000.
Other information gathered for the first quarter of 2008 is: sale of equipment $3,500; direct labor $70,000, manufacturing overhead $35,000, selling and administrative expenses $45,000; and purchase of securities $12,000. Pink Martini wants to maintain a balance of at least $25,000 cash at the end of each quarter.

Prepare a cash budget for the first quarter.

Danner Farm Supply Company manufactures and sells a pesticide called Snare. The following data are available for preparing budgets for Snare for the first 2 quarters of 2009.
1. Sales: Quarter 1, 28,000 bags; quarter 2, 42,000 bags. Selling price is $60 per bag.
2. Direct materials: Each bag of Snare requires 4 pounds of Gumm at a cost of $4 per pound and 6 pounds of Tarr at $1.50 per pound.
3. Desired inventory levels:
Type of Inventory January 1 April 1 July 1
Snare (bags) 8,000 12,000 18,000
Gumm (pounds) 9,000 10,000 13,000
Tarr (pounds) 14,000 20,000 25,000
4. Direct labor: Direct labor time is 15 minutes per bag at an hourly rate of $14 per hour.
5. Selling and administrative expenses are expected to be 15% of sales plus $175,000 per quarter.
6. Income taxes are expected to be 30% of income from operations.
Your assistant has prepared two budgets: (1) The manufacturing overhead budget shows expected costs to be 150% of direct labor cost. (2) The direct materials budget for Tarr shows the cost of Tarr purchases to be $297,000 in quarter 1 and $439,500 in quarter 2.
Prepare the budgeted income statement for the first 6 months and all required operating budgets by quarters. (Note: Use variable and fixed in the selling and administrative expense budget). Do not prepare the manufacturing overhead budget or the direct materials budget for Tarr.

BYP7-2 Managerial Analysis
Bedner & Flott manufactures ergonomic devices for computer users. Some of their more popular products include glare screens (for computer monitors), keyboard stands with wrist rests, and carousels that allow easy access to discs. Over the past 5 years, they experienced rapid growth, with sales of all products increasing 20% to 50% each year.
Last year, some of the primary manufacturers of computers began introducing new products with some of the ergonomic designs, such as glare screens and wrist rests, already built in. As a result, sales of the Bedner & Flott's accessory devices have declined somewhat. The company believes that the disc carousels will probably continue to show growth, but that the other products will probably continue to decline. When the next year's budget was prepared, increases were built in to research and development so that the replacement products could be developed or the company could expand into some other product line. Some product lines being considered are general-purpose ergonomic devices including back supports, foot rests, and sloped writing pads.
The most recent results have shown that sales decreased more than was expected for the glare screens. As a result, the company may have a shortage of funds. Top management has therefore asked that all expenses be reduced to 10% to compensate for these reduced sales. Summary budget information is as follows.
Direct materials 240,000
Direct labor 110,000
Insurance 50,000
Depreciation 90,000
Machine repairs 30,000
Sales salaries 50,000
Office salaries 80,000
Factory salaries (indirect labor) 50,000
Total 700,000

Using the information above, answer the following questions.
a) What are the implications of reducing each cost? For example, if the company reduces direct materials costs, it may have to do so by purchasing lower-quality materials. This may affect sales in the long run.
b) Based on your analysis in (a), what do you think is the best way to obtain the $70,000 in cost savings requested? Be specific. Are there any costs that cannot or should not be reduced? Why?

Raney Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows:
Indirect labor 1.00
Indirect materials 0.50
Utilities 0.40
Fixed overhead costs per month are:
Supervision 4,000
Depreciation 1,500
Property Taxes 800
The company believes it will normally operate in a range of 7,000 to 10,000 direct labor hours per month.

Prepare a monthly flexible manufacturing overhead budget for 2010 for the expected range of activity, using increments of 1,000 direct labor hours.

Malone Company estimates that 360,000 direct labor hours will be worked during the coming year, 2008, in the Packaging Department. On this basis, the following budgeted manufacturing overhead cost data are computed for the year.
Fixed Overhead Costs Variable Overhead Costs
Supervision 90,000 Indirect labor 126,000
Depreciation 60,000 Indirect materials 90,000
Insurance 30,000 Repairs 54,000
Rent 24,000 Utilities 72,000
Property taxes 18,000 Lubricants 18,000
222,000 360,000
It is estimated that direct labor hours worked each month will range from 27,000 to 36,000 hours.
During October, 27,000 direct labor hours were worked and the following overhead costs were incurred.
Fixed overhead costs: Supervision $7,500, Depreciation $5,000, Insurance $2,470, Rent $2,000, and Property taxes $1,500.
Variable overhead costs: Indirect labor $10,360, Indirect materials, $6,400, Repairs $4,000, Utilities $5,700, and Lubricants $1,640.

a) Prepare a monthly manufacturing overhead flexible budget for each increment of 3,000 direct labor hours over the relevant range for the year ending December 31, 2008.
(b) Prepare a flexible budget report for October.
(c) Comment on management's efficiency in controlling manufacturing overhead costs in October.

BYP8-6 Ethics Case
National Products Corporation participates in a highly competitive industry. In order to meet this competition and achieve profit goals, the company has chosen the decentralized form of organization. Each manager of a decentralized investment center is measured on the basis of profit contribution, market penetration, and return on investment.
Failure to meet the objectives established by corporate management for these measures has not been acceptable and usually has resulted in demotion or dismissal of an investment center manager.
An anonymous survey of managers in the company revealed that the mangers feel the pressure to compromise their personal ethical standards to achieve the corporate objectives. For example, at certain plant locations there was pressure to reduce quality control to a level which could not assure that all unsafe products would be rejected. Also, sales personnel were encouraged to use questionable sales tactics to obtain orders, including gifts and other incentives to purchasing agents.
The chief executive officer is disturbed by the survey findings. In his opinion such behavior cannot be condoned by the company. He concludes that the company should do something about this problem.

(a) Who are the stakeholders (the affected parties) in this situation?
(b) Identify the ethical implications, conflicts, or dilemmas in the above described situation.
(c) What might the company do to reduce the pressure on managers and decrease the ethical conflicts?
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