Danner Farm Supply Company manufactures and sells a pesticide called Snare. The following data are available for preparing budgets for Snare for the first 2 quarters of 2009.
1. Sales: Quarter 1, 28,000 bags; quarter 2, 42,000 bags. Selling price is $60 per bag.
2. Direct materials: Each bag of Snare requires 4 pounds of Gumm at a cost of $4 per pound and 6 pounds of Tarr at $1.50 per pound.
3. Desired inventory levels:
Type of Inventory January 1 April 1 July 1
Snare (bags) 8,000 12,000 18,000
Gumm (pounds) 9,000 10,000 13,000
Tarr (pounds) 14,000 20,000 25,000
4. Direct labor: Direct labor time is 15 minutes per bag at an hourly rate of $14 per hour.
5. Selling and administrative expenses are expected to be 15% of sales plus $175,000 per quarter.
6. Income taxes are expected to be 30% of income from operations.
Your assistant has prepared two budgets: (1) The manufacturing overhead budget shows expected costs to be 150% of direct labor cost. (2) The direct materials budget for Tarr shows the cost of Tarr purchases to be $297,000 in quarter 1 and $439,500 in quarter 2.
Prepare budgeted income statement and supporting budgets.
Prepare the budgeted income statement for the first 6 months and all required operating budgets by quarters. (Note: Use variable and fixed in the selling and administrative expense budget). Do not prepare the manufacturing overhead budget or the direct materials budget for Tarr.
The solution explains how to prepare the budgeted income statement and supporting budgets
Cash Budgeting for a National Charity
Part 1: Managers have to plan for the future. Assume your firm is a small to midsize not-for-profit organization and that you rely on the percent of sales method of forecasting. What if any are the short comings of this forecasting technique?
Why would a cash budget be of particular importance to a firm that experiences seasonal fluctuations in sale?
Part 2: Greg Dye Inc. is a successful wholesaler of Speedo bathing suits. He has seasonal needs for working capital. He is planning his firm's short-term financing strategy for the next six months. He anticipates either one of two situations arising:
1. The firm will need $40,000,000 for six months
2. The firm will need $40,000,000 for only three months.
Greg, however, must plan for either situation since there is an equal likelihood that either event will occur.
One possible source of funds is commercial paper. He has been informed that his firm may issue $42,190,000 worth of commercial pper and receive $40,000,000. The paper will be due at the end of six months. A second possibility is to borrow from the First Bank of Edison, which offers a line of credit with an annual interest rate of 9.5% and an origination fee of 2%. A competing bank, Taitsman Trust Company, offers revolving credit of $50,000,000 at 9% but with a fee on the unused balance of 0.5% paid at the end of 6 months.
Which alternative should Greg Dye Inc take? Defend your answer.
Part 3: Your unit was just assigned a new college grad to determine the optimal order quantity for your organization. She simply plugged some numbers into the EOQ method described in the text and said that your outfit should order 10,000 rounds of ammunition at a time. What assumptions did this person make that might not be applicable to your unit?
Part 4: You work for a national charity. It appears that it is taking too long for contributions to make their way into your bank account. What suggestions can you make to speed up your collections?View Full Posting Details