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Purchase Budget, Flexible Budget, Overheads, Payback

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1. Dillard Company has calculated its annual total fixed costs to be $50,000. Production for recent years has averaged 40,000 units with total variable costs of $80,000. Based on the foregoing data, complete the table below. Assume all activity levels are within the relevant range.

Activity Level Total Fixed Costs Unit Fixed Cost Total Variable Costs Unit Variable Cost

2. The sales budget of Shelby Company for the second quarter of 20X6 is as follows:

April May June
Sales $96,000 $72,000 $108,000

Sales are 20% cash, 80% credit.
Cost of goods sold 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 of sale
30% in the month following sale
15% in the second month following sale
5% uncollectible
April 1 inventory is $16,000.
Expected sales for July are $84,000.
Payments for inventory are 70% in the month following purchase and 30% two months following purchase.

Prepare the purchases budget for April, May, and June.

3. Hawkins Company provided the following partially completed monthly flexible budget. Complete the flexible budget.

Flexible Budget
Formula per
Flexible Budget for Various
Levels of Volume
Units 5,000 6,000 7,000
Sales Revenue $10.00
Variable expense $15,000
Fixed expenses $27,000
Total expenses
Operating income $25,500

4. Scientific Company manufactures glass vials for use in laboratories. A backflush costing system is used and standard costs for each vial are as follows:

Direct materials $ .35
Conversion costs 1.20
Total $1.55

During October, Scientific produced and sold 25,000 and 22,000 vials, respectively. Direct materials costing $9,000 were purchased. Conversion costs of $27,800 were incurred.

a) Prepare summary journal entries for October.
b) Prepare the journal entry to write off the overallocated or underallocated conversion costs.

5. Manchester, Inc., is considering acquiring another manufacturing facility for a cost of $900,000. The required payback period is 4.5 years.

a) What are the lowest annual equal net cash inflows required by Manchester to achieve a 4.5 year payback?

b) Assume annual net cash inflows are $200,000 for the first two years and $180,000 for the third and fourth years. What must net cash inflows be in the fifth year to achieve a 4.5 year payback?

(Please see attachment for full question)

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Solution Summary

1) Completes a table for Total Fixed Costs, Unit Fixed Cost, Total Variable Costs, Unit Variable Cost for different activity levels. 2) Prepares the purchases budget . 3) Prepares a flexible budget 4) Prepare the journal entry to write off the overallocated or underallocated conversion costs. 5) Answers a question on payback period.

See Also This Related BrainMass Solution

Flexible and Static Budgets, Preparing Budgets and Net Cash Flow (NPV, IRR, payback)

See the attached file.

1. Viking Inc., produces photo books. The company's operating budget for May 2008 included the following data:

Number of yearbooks 15,000
Selling price per book $20
Variable costs per book $8
Fixed costs for the month $145,000

The actual results for May 2007 were:

Number of yearbooks produced and sold 12,000
Average selling price per book $21
Variable costs per book $7
Fixed costs for the month $150,000

Required: Prepare a performance report that uses a flexible budget and static budget. Classify variances as favorable (F) or unfavorable (U).

Flexible Budget Variances F/U Flexible Budget Sales Volume Variances F/U Static


Variable costs
Contri-bution Margin

Fixed costs

Operating income



2. J-Byrd Inc. manufactures an executive cabinet. His accounting students (cheap labor but very smart workers) gathered following data to prepare budgets for 2007:
Projected sales
35,000 units at a price of $4,500 each

2007 Finished Goods Inventory targets

January 1, 2007 10,000 units

December 31, 2007 8,000 units

Direct Materials used on the desk

Material A 8 pounds

Material B 12 feet

Material C 2 quarts

Projected data for 2007 with respect to direct materials

Material Purchase Price Inventory 1/1/07 Inventory 12/31/07

A $15 per pound 40,000 pounds 75,000 pounds

B $75 per foot 35,000 feet 64,000 feet

C $5 per quart 2,000 quarts 7,000 quarts
Projected direst manufacturing labor and rates for 2007 is 16 hours per unit at $25 per hour.

Manufacturing overhead is allocated at the rate of $18 per direct manufacturing labor hour.

Based on the preceding information, prepare the following budgets for 2007.

1. Revenues Budget (in dollars)
2. Production budget (in units)
3. Direct materials purchases budget (in quantities)
4. Direct materials purchases budget (in dollars)
5. Direct manufacturing labor budget (in dollars)
6. Manufacturing overhead budget (in dollars)

3. Project June-bug has a cost of $150,000, and its expected net cash inflows are $ 28,000 per year for 10 years.

a. What is the projects net cash flow?

b. What is the project's payback period?

c. The required rate of return for the project is 4 percent. What is the project's NPV?

d. What is the project's IRR?

e. What is the project's discounted payback period, assuming a 4 percent required rate of return?

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