3 of 19 ACCT212 SEM 181-ASSIGNMENT2 QUESTION 2 Schopp Inc. has been manufacturing its own shades for its table lamps. The company is currently operating a 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 70% of direct labor cost. The direct materials and direct labor cost per unit to make the lamp shades are SR4 and SRS, respedtively Normal production is 30,000 table lamps per year. A supplier offers to make the lamp shades at a price of SR12.75 per unit If Schopp Inc. accepts the suppliers offer, all variable manufacturing costs will be eliminated, but the SR45,000 of fixed manufacturing overhead currently being charged to the lamp shades will have to be absorbed by other products (a) Prepare the incremental analysis for the decision to make or buy the lamp shades Net Income Increase Make Buy Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Total annual cost (b) Should Schopp Inc. buy the lamp shades? Show your calculations above c) Would your answer be different in (b) if the productive capacity released by not making the lamp shades coukd be used to produce income of SR25,0007 7 of 19 ACCT212 SEM 181-ASSIGNMENT 2 A) Abu Laqman Tire Company manufactures racing tires for bicycles. Abe Laqman sells tires for SRS0 each. Abu Luqman is planning for the next year by developing a master budget by quarters. Abu Luqman's halance sheet for December 31, 2014, follows ABU LUQMAN TIRE COMPANY Balance Sheet December 31, 2014 ASSETS Current Assets: 20,000 Accounts Receivable Raw Materials Inventory Finished Goods Inventory Total Current Assets 3,000 SR 53,800 Property, Plant, and Equipment Equipment Less: Accumulated Depreciation.(57,000) Total 175,000 118.000 LIABILITIES Current Liabilities: STOCKHOLDERS EQUITY Common St Retained Earnings 125,000 41.800 .- Total Liabilities and Stockholders Equity 171800 Other data for Abu Luqman Tire Company a. Budgeted sales are 900 tires for the Erst quarter and expected to increase by 100 tires per quarter. Cash sales are expected to be 30% of total sales, with the remaining 70% sales on account. Finished Goods Inventory on December 31 consists of 200 tires at SR29 each. Desired ending Finished Goods Inventory is 40% of the next quarter's sales; first quarter sales for 2016 are expected be 1,300 tires. FIFO inventory costing method is used. b. c. d. Direct materials cost is SR15 per tire e. Desired ending Raw Materials Inventory is 20% of the next quarter's direct materials needed for production; desired ending inventory for December 31 is SR3,000; indirect materials are insignificant and not considered for badgeting purposes. ACCT212 SEM 181-ASSIGNMENT2 f. Each tire requires 0.20 hours of direct labor; direct labor costs average SR18 per hour d. e. Direct materials cost is SR15 per tire. Desired ending Raw Materials Inventory is 20% of the next quarter's direct materials 8 of 19 aprinsuctionantsinedendinginve20frenextquarter'sdirectmaterials or production; desired ending inventory for December 31 is SR3,000: indirect iare insignificant and not considered for budgeting purposes. ACCT212 SEM18-ASSIGNMENT2 f. Each tire requires 0.20 hours of direct labor; direct labor costs average SR18 per hour. g Variable manufacturing overhead is SR2 per tire h. Fixed manufacturing overhead includes SR3,000 per quarter in depredation and SR4,232 per quarter for other costs, such as utilities, insurance, and property taxes L Fixed selling and administrative expenses include SR9,000 per quarter for salaries SR3,000 per quarter for rent SR600 per quarter for insurance; and SR500 per quarter for depreciation. Variable selling and administrative expenses include supplies at 1% of sales Capital expenditures include SR20,000 for new manufacturing equipment, to be purchased and paid in the irst quarter Cash receipts for sales on account are 50% in the quarter of the sale and 50% in the quarter following the sale; December 31, 2014, Accounts Receivable is received in the first quarter of 2015; uncollectible accounts are considered insignificant and not considered for budgeting purposes j. k m. Direct materials purchases are paid 75% in the quarter purchased and 25% in the following quarter, December 31,2014, Accounts Payable is paid in the first quarter of 2015 Direct labor, manufacturing overbead, and selling and administrative costs are paid in the quarter incurred n. o Income tax expense is projected at SR2,000 per quarter and is paid in the quarter incurred Requirements 1) Prepare Aba Luqman's operating budget and cash budget for 2015 by quarter Required schedules and budgets include: sales budget production budget, direct materials budget, direct labor budget, manufacturing overhead budget, cost of goods sold budget, and selling and administrative expense budget Manufacturing overhead costs are allocated based on direct labor hours. WRITE ALL THE ANSWERS IN THE ANSWER SHEETS PROVIDED B) Abu llas Company expects to have a cash balance of SR45,000 on Janary 1,2014 Relevant monthly budget data for the first 2 months of 2014 are as follows . Collections from customers: January SR85,000, February SR150,000 . Direct labor: January SR30,000, February SR45,000. Wages are paid inthe month . Manufacturing overhead January SR21,000, February SR25,000. These costs Payments for direct materials January SR50,000, February SR75,000. they are incurred include depreciation of SR1500 per month. All other overhead costs are paid as incurred. Selling and administrative expenses: January SR 15,000. February SR2000. These costs are exclusive of depreciation They are paid as incurred. . Sales of marketable securities in January are expected torealize SR12,000 in cash. Abu llyas Company has a line of credit at a local bank that enables it to borrow up to SR25,000. The company wants to maintain a minimum monthly cash balance of SR20,000. Prepare a cash budget for January and February IN THE ANSWER SHEETS PROVIDED ACCT212 SEM 181-ASSIGNMENT 2 MODULE 6-PERFORMANCE EVALUATION (BALANCE SCORECARD) Consider the following key performance indicators: a. Number of customer complaints b. Number of information system m. Manufacturing cycle time (average length of production process) n. Earnings growth a Average machine setup time P. Number of new customers c. Residual income d. New product development time e. Employee turnover rate f Percentage of products with online help manuals gCustomer retention h. Percentage of compensation based r. Cash flow from operations s. Customer satisfaction ratings t. Machine downtime u. Finished products per day per L Percentage of orders filled each Percentage of employees with access to upgraded system v. w. Wailt time per order prior to start of k Number of new patents Employee satisfaction ratings L In the table next page, classify each indicator above according to the balanced scorecard perspective it addresses. Choose from the finandial perspective, customer perspective, internal business perspective, and the leaming and growth perspective as indicated in the