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Material & labor variances, cash collection and disbursement

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Question 5
a. The following information pertains to CJ Corporation:

Twenty percent of purchases are paid for in cash in the month of purchase, and the balance is paid the following month. A 2 percent discount is allowed on cash paid out at the time of purchase.
Cash is collected from customers in the following manner:

i) Prepare a summary of cash collections for the 4th quarter.
ii) Prepare a summary of cash disbursements for the 4th quarter.

b. Wetland Bhd uses a standard cost system employing the following standards for direct materials and direct labour.
Direct material: 4 gallons per can @ RM4 per gallon
Direct labour: 1 hour per can @ RM30 per hour
The following actual cost information was compiled for a job J81.
Direct material: 22,000 gallons purchased and used @ RM4.40 per gallon
Direct labour: 6,400 hours @ RM28 per hour
Production: 12,000 cans
i) Calculate the material price variance.
ii) Calculate the material usage variance.
iii) Calculate the labour rate variance.
iv) Calculate the labour efficiency variance.

c. Explain the possible reasons for the variances calculated in (b) (i) to (iv) above.

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Solution Summary

The solution discusses activity-based budgeting and flexible budgeting.

Similar Posting

Accounting - cash budgets and variances

See attached file for full problem description.
Markus Corporation's sales of gizmos are 25% for cash and 75% on credit. Past collection history indicates that credit sales are collected as follows:

30% in the month of sale
60% in the month following sale
10% in the second month following sale

In January, sales were $42,000 and February sales were $45,000. Projected sales for March are 3,000 gizmos at $10 each. Projected sales for April are 4,500 gizmos at $12 each. The cash balance at March 1 was $5,785.

Markus expects to purchase $24,000 of materials in February and $21,000 of materials in March. Three-quarters of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. In addition, a 2% discount is allowed for payments made in the month of purchase. All other fixed expenses are $7,000 per month and are paid in the month of purchase.

A. Prepare a cash budget for March.
B. Why is the cash budget important?

Question 5

Chefs Company developed the following standard costs for its product for 2006:
Standard Cost Card

Cost Elements Standard Quantity × Standard Price = Standard Cost
Direct materials 4 pounds $ 10 $40
Direct labor 2 hours 20 40
Variable overhead 2 hours 8 16
Fixed overhead 2 hours 4 8
The company expected to work at the 30,000 direct labor hours level of activity and produce 15,000 units of product.

Actual results for 2006 were as follows:
? 14,200 units of product were actually produced.
? Direct labor costs were $552,420 for 27,900 direct labor hours actually worked.
? Actual direct materials purchased and used during the year cost $543,320 for 57,800 pounds.
? Total actual manufacturing overhead costs were $340,000.

Compute the following variances for Chefs Company for 2006 and indicate whether the variance is favorable or unfavorable.
1. Direct materials price variance.
2. Direct materials quantity variance.
3. Direct labor price variance.
4. Direct labor quantity variance.
5. Overhead controllable variance.
6. Overhead volume variance.

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