ACCT 5204 - Case Assignment 4 Hawaiian Leis Limited, a distributor of low-cost Hawaiian leis, has an exclusive franchise on the distribution of the leis, and sales have grown so rapidly over the past few years that it has become necessary to add new members to the management team. To date, the company's budgeting practices have been inferior, and at times the company has experienced a cash shortage. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April 1. You are eager to make a favourable impression on the president and have assembled the information below. The leis are sold to retailers for $10 each. Recent and forecast sales in units are as follows: May January (actual) 20,000 June 50,000 February (actual) 26,000 July 30,000 March (actual) 40,000 August 28,000 April 65,000 September 25,000 100,000 The large buildup in sales before and during May is due to Mother's Day. Ending inventories should be equal to 40% of the next month's sales in units. The leis cost the zompany $4 each. Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a month's sales are collected by month-end. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible. + E A Read aloud Draw PARTB It is now July 31. The President provides you with the income statement prepared by the accounting department with the actual results below for the quarter ending June 30th 1. Prepare a Comprehensive Performance Report (Hint: You will need to prepare a flexible budget to complete this). 2. Was the increase in net income mostly attributed to activity or cost control? Explain. Hawaiian Leis Limited Income Statement (218,000 units) For the Quarter Ending June 30 $ 2,180,000 $ 872,000 87,200 959,200 1,220,800 Sales Variable Expenses: Cost of Goods Sold Commissions Contribution Margin Fixed Expenses Advertising Rent Wages and salaries Utilities Insurance Depreciation Operating Income Less: Interest Expense Net Income 540,000 54,000 330,000 21,000 9,000 42,000 995,000 224,800 5,387 $ 219,413 o 11 - C phic