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# Cash Budget and Variance Calculation

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.

Instructions
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:
CHEFS COMPANY
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
\$104
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.

Instructions
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.

#### Solution Preview

Question 4)

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.

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. For March, the collection will be 25% of the March sales in cash. Of the credit sales, 30% of March will be collected, 60% of Feb credit sales and 10% of ...

#### Solution Summary

The solution has two problems - 1. Preparing a cash budget. 2. Calculation various variances.

\$2.19