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Production Budget, CVP Analysis, Relevant Costs

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1. Palermo Company estimates that unit sales will be 10,000 in Quarter 1; 12,000 in Quarter 2; 15,000, in Quarter 3; and 18,000 in Quarter 4. Management desires to have an ending finished goods inventory equal to 25% of the next quarters expected unit sales. Prepare a production budget by quarters for the next six months in 2014.

2. Perine Company 2,000 pounds of raw materials in its December 31, 2012 ending inventory. Required production for January and February of 2014 are 4,000 and 5,000 units respectively. Two pounds of raw materials are needed for each unit, and the estimated cost per each pound is $6. Management desires an ending inventory equal to 25% of next month's material requirements. Prepare the direct materials budget for January.

3. For the quarter ended March 31, 2014, Maris Company accumulates the following sales data for its products, Garden-Tools: $310,000 budget; $350,000 actual. In the second quarter, budgeted sales were $380,000, and actual sales were $384,000. Prepare a static budget report for the second quarter and for the year to date.

4. In Paige Company, direct labor is $20 per hour. The company expects to operate at 10,000 direct labor hours each month. In January 2014, direct labor totaling $204,000 is incurred is working 10,400 hours. Prepare a static budget report and a flexible budget report. Evaluate the usefulness of each report.

5. Each of the items below must be considered in preparing a statement of cash flows for Alpha-Omega Co. for the year ended December 31, 2014. For each item state how it should be shown in the statement of cash flows for 2014.
(a) Issue Bonds for $150,000 cash
(b) Purchased equipment for $200,000 cash
(c) Sold land costing $50,000 for $50,000 cash
(d) Declared and paid a $20,000 cash dividend

6. The management of Russell Inc. is trying to decide whether it can increase its dividend. During the current year, it reported net income $875,000. It had cash provided by operating activities of $643,000, paid cash dividends of $80,000, and had capital expenditures of $280,000. Compute the company's free cash flow, and discuss whether an increase in the dividend appears warranted. What other factors should be considered?

7. What is the difference between financial accounting and managerial accounting?

8. Explain the two reasons why the shorter the payback period the more attractive the investment is when the payback technique is used?

9. Distinguish between a master budget and a sales forecast.

10. Explain the nature and importance of a job cost sheet.

11. Distinguish among operating, investing, and financing activities.

12. Managers' activities and responsibilities can be classified into three broad functions. List and discuss each function.

13. Identify and discuss the relevant costs in accepting an order at a special price.

14. Smith & Company claims that the relevant range concept is only important for variable costs. Explain the relevant range concept and discuss whether you agree with Smith & Company.

15. What is a CVP analysis and how is it used in managerial accounting?

16. What is the difference between: unit-level, batch-level, product-level, and facility-level activities?

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1. Palermo Company estimates that unit sales will be 10,000 in Quarter 1; 12,000 in Quarter 2; 15,000, in Quarter 3; and 18,000 in Quarter 4. Management desires to have an ending finished goods inventory equal to 25% of the next quarters expected unit sales. Prepare a production budget by quarters for the next six months in 2014.

see attached for better format

Production budget: Qtr 1 Qtr 2 Qtr 3 Qtr 4
unit sales 10,000 12,000 15,000 18,000
Plus: Ending inventory required 3,000
3,750 4,500
= units needed 13,000 15,750 19,500 18,000
Less: Beginning inventory 2,500 3,000 3,750
= production budget 10,500
12,750 15,750

The ending is computed as next month $12,000 x .25 = 3,000.
Beginning is this month $10,000 x .25 = 2,500.
2. Perine Company 2,000 pounds of raw materials in its December 31, 2012 ending inventory. Required production for January and February of 2014 are 4,000 and 5,000 units respectively. Two pounds of raw materials are needed for each unit, and the estimated cost per each pound is $6. Management desires an ending inventory equal to 25% of next month's material requirements. Prepare the direct materials budget for January.

Raw Materials budget: January February
production budget, units 4,000 5,000
January February
units needed for production 8,000 10,000 <-- production plan x two pounds
Plus: End inventory required 2,500 <--25% of next month's material requirement
= units needed 10,500
Less: Beginning inventory 2,000
= materials budget 8,500

3. For the quarter ended March 31, 2014, Maris Company accumulates the following sales data for its products, Garden-Tools: $310,000 budget; $350,000 actual. In the second quarter, budgeted sales were $380,000, and actual sales were $384,000. Prepare a static budget report for the second quarter and for the year to date.

Static Budget: Garden Tools
Qtr Mar 2012 Qtr Jun 2014 YTD 2014
Sales budget $ 310,000 $ 380,000 $ 690,000
Sales actual $ 350,000 $ 384,000 $ 734,000
Sales variance $ 40,000 $ 4,000 $ 44,000

4. In Paige Company, direct labor is $20 per hour. The company expects to operate at 10,000 direct labor hours each month. In January 2014, direct labor totaling $204,000 is incurred is working 10,400 hours. Prepare ...

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