Purchase Solution

Cash Budget and Cost Variance Analysis

Not what you're looking for?

Ask Custom Question

Please see the attached file for better format.

Problem 5: Preparation of a Cash Budget

The sales budget of Mulls Company for the fourth quarter of 20X6 is as follows:

October November December
Sales $91,000 $76,000 $108,000

Sales are 20% cash, 80% credit.

Cost of goods gold is 70% of total sales.

Desired ending inventory for each month is equal to 25% of cost of goods sold for the following
month.

Collections on credit sales are as follows:
50% in the month sale
30% in the month following
15% in the second month following sale
5% uncollectible

October 1 inventory is $16,000.

Expected sales for January 20X7 are $84,000.

Payments for inventory are 70% in the month following purchase and 30% two months following purchase.

Required:

a) Compute the cash collections for December.
b) Compute the cash disbursements for purchases during December.

Problem 6 - Cost Variance Analysis

Sarah Beth's Art Supply Company produces various types of paints. Actual direct
manufacturing labor hours in the factory that produces paint have been higher than
budgeted hours for the last few months and the owner, Sarah B. Jones, is concerned
about the effect this has had on the company's cost overruns. Because variable
manufacturing overhead is allocated to units produced using direct manufacturing labor
hours, Sarah feels that the mismanagement of labor will have a twofold effect on
company profitability. Following are the relevant budgeted and actual results for the
second quarter of 2009.

Budgeted information Actual results
Paint set production 10,000 13,000
Direct manufacturing labor
hours per paint set 0.5 hour 0.75 hour
Direct manufacturing labor
rate $20 per hour $20.20 per hour
Variable manufacturing
overhead rate $10 per hour $9.75 per hour

Required:

1. Calculate the direct manufacturing labor price and efficiency variances and indicate
whether each is favorable (F) or unfavorable (U).
2. Calculate the variable manufacturing overhead spending and efficiency variances and
indicate whether each if favorable (F) or unfavorable (U).
3. Is Sarah correct in her assertion that the mismanagement of labor has a twofold effect on
cost overruns? Why might the variable manufacturing overhead efficiency variance not
be an accurate representation of the effect of labor overruns on variable manufacturing
overhead costs?

Attachments
Purchase this Solution
Solution Summary

This solution is comprised of a detailed explanation to prepare cash budget.

Solution Preview

Please see the attached file for better format.

Problem 5: Preparation of a Cash Budget

The sales budget of Mulls Company for the fourth quarter of 20X6 is as follows:

October November December
Sales $91,000 $76,000 $108,000

Sales are 20% cash, 80% credit.

Cost of goods gold is 70% of total sales.

Desired ending inventory for each month is equal to 25% of cost of goods sold for the following
month.

Collections on credit sales are as follows:
50% in the month sale
30% in the month following
15% in the second month following sale
5% uncollectible

October 1 inventory is $16,000.

Expected sales for January 20X7 are $84,000.

Payments for inventory are 70% in the month following purchase and 30% two months following purchase.

Required:

a) Compute the cash collections for December.

First, we have to separately calculate how much is received immediately as cash sales and credit sales. Then, we will be able to calculate how much the company can collect its credit sales before calculating the cash collections for December.
October November December
Sales $91,000 $76,000 $108,000
Cash Sales (20%) 18,200 15,200 21,600
Credit Sales (80%) 72,800 60,800 86,400

Collections on credit sales are as follows:
50% in the month sale 36,400 30,400 ...

Purchase this Solution
Free BrainMass Quizzes
Basics of corporate finance

These questions will test you on your knowledge of finance.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

View More Free Quizzes
Related BrainMass Solutions

  • income statement for data segments of an organization

    The part of the variable overhead budget variance due to the difference between actual hours required and standard hours allowed for the work done is called the: A. variable overhead spending variance. B. variable overhead budget variance.

  • Multiple choice

    Divisional variance analysis 3. Which of the following would not be included in the cash budget? a. Cash collections from sales b. Cash payments for selling and administrative expense c. Cost of goods sold d. Interest expense 4.

  • Budgeting/variance/capital budgeting

    344208 Capital Budgeting, Variance, Net Present Value (NPV): Problems 14.18, 15.14, 16.30 14.18 Sales, Production, purchases, and cash budgets Rolen, Inc., is in the process of preparing the fourth quarter budget for 2010, and the following data have

  • Cash Budget and Variance Calculation

    All other fixed expenses are $7,000 per month and are paid in the month of purchase. Instructions A. Prepare a cash budget for March. In the cash budget we put the cash collections and cash disbursements. Cash collection is from sales.

  • Cost Accounting - Variance and Budgets

    Discuss the relationship between variance analysis and management by exception. 2. What are the possible causes of material price variance and material efficiency variance? 3. Compare and contrast static budget and flexible budget. 4.

  • Proactive applications of cost measurement and corrections

    Variance between budget projections and budget performance is inevitable. Is a proactive application of cost measurement and corrective actions a realistic approach to minimize variance?

  • Multiple Choice

    Total material variance = 24,000-20,000=4,000 unfavorable Since quantity variance is $1,000 unfavorable, then price variance will be $3,000 unfavorable A vertical analysis uses percentages to compare each of the parts of an individual statement

  • Difference between a static budget and a flexible budget

    A Sales Volume Variance: The difference between the flexible budget and the static budget 2.

  • Cost Accounting, Flexible Budget, Static Budget & Variances

    Prepare a static- budget- based variance analysis of the September performance. 2. Prepare a flexible- budget- based variance analysis of the September performance. 3.

View More Related Solutions