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Planning a Budget for Orlo Company

See excel attached:

Orlo Company is planning their budget for the first half of 2012. Their budgeted sales for the last part of 2011 and the first 6 months of 2012 are as follows:

Month Sales
Nov-11 \$200,000
Dec-11 \$150,000
Jan-12 \$100,000
Feb-12 \$75,000
Mar-12 \$125,000
Apr-12 \$150,000
May-12 \$200,000
Jun-12 \$250,000

Based on past collection history, Orlo expects to collect 50% of sales on account in the month of the sale, 35% in the month following the sale, and
10% in the second month following the sale. All sales are on account.

Required: Prepare a cash receipts budget for Orlo for January through June of 2012. You may fill in the blue area with the projected sales if it will help you.

January February March April May June
Collections in month of sale

Collections in month following sale

Collections in second month following sale

TOTALS

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Orlo Company has the following production planned for the first six months of 2012:

Jan-12 50000
Feb-12 37500
Mar-12 62500
Apr-12 75000
May-12 100000
Jun-12 125000

Orlo's variable manufacturing overhead costs are \$2 per unit produced. All other costs are fixed,
and include depreciation: \$10,000; Indirect Labor, \$37,000; Taxes and Insurance, \$17,500.

Required: Prepare the overhead budget for the first six months of 2012. You may use
the blue area to fill in the production in units, if you like.

January February March April May June
Variable
Fixed:
Depreciation
Indirect labor
Taxes and insurance
Total expenses

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Orlo Company has the following material standard for the manufacture of its Icee Kupps:

5 oz of plastic at \$.10 per oz.

In a recent month, Orlo purchased 16,000 oz. of plastic for a total cost of \$1,560.. It used
12,000 oz. to make 2,200 cups.

Required: Calculate the price and quantity variances for Orlo. Be sure to indicate if variance is
favorable or unfavorable by putting an F or a U right after the number. For instance, 95F.
Price variance:

Quantity variance:

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Orlo's income information for the month of December, 2011, is shown below. Orlo has 2 divisions: the Icee Kupp Division and the KeepitHot Plate Division.

REQUIRED: Prepare a income statement segmented by division for the company. Prepare statements for company as a whole and each division.

Icee Kupp KeepitHot Plate
Sales \$125,000 \$300,000
Variable costs 50,000 175,000
Fixed costs, traceable \$25,000 50,000
Fixed costs, common 25,000 50,000

Icee Kupp KeepitHot Plate Total
Sales
Variable Costs
Contribution Margin
Fixed costs, traceable
Segment Margin
Fixed costs, common
Net income

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Orlo's 2 divisions, the Icee Kupp Division and the KeepiHot Plate Division, have the following amounts in their accounts below:

Icee Kupp KeepitHot Plate
Average operating assets 200,000 350,000

Sales \$125,000 \$300,000

Net income \$25,000 \$75,000

Required rate of return 15% 18%

1 Calculate each divisions return on investment. Then calculate each division;s residual income.
Round to 2 decimal places. Put a minus in front of negative numbers.

Icee Kupp KeepitHot Plate

Return on investment

Residual income

2 If the manager is evaluated based on Return on Investment, which company or companies would
turn down an investment opportunity of \$100,000 that yielded \$19,000 in net income?

WORD BANK
Icee Kupp
KeepitHot Plate

3 If the manager is evaluated based on residual income, which company or companies would turn down
an investment opportunity of \$100,000 that yielded a \$17,000 net income? (NOTE; THE NUMBERS
ARE DIFFERENT IN THIS PART FROM PART 2.)

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