Explore BrainMass
Share

Explore BrainMass

    Cash Budget and Cost Variance Analysis

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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?

    © BrainMass Inc. brainmass.com April 1, 2020, 6:49 pm ad1c9bdddf
    https://brainmass.com/business/cash-budgeting/cash-budget-and-cost-variance-analysis-376049

    Attachments

    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 ...

    Solution Summary

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

    $2.19