Clay Company has projected sales and production in units for the second

quarter of the coming year as

follows:

April

May

June

Sales

50,000

40,000

60,000

Production

60,000

50,000

50,000

Cash

-

related production costs are budgeted at $5 per unit produced. Of these production costs, 40% are paid

in the month in which they are incurred and the balance in the following month. Selling and administrative

expenses will amount to $100,000 per mont

h, paid in the month incurred. The accounts payable balance on

March 31 totals $190,000, which will be paid in April.

All units are sold on account (as credit sales) for $14 each. There are no cash sales. Cash collections from

sales are budgeted at 60%

in the month of sale, 30% in the month following the month of sale, and the

remaining 10% in the second month following the month of sale. Accounts receivable on April 1 totalled

$500,000 ($90,000 from February's sales and the remainder from March).

Requ

ired:

a. Prepare a schedule for each month showing budgeted cash disbursements for the Clay Company.

(7 marks)

b. Prepare a schedule for each month showing budgeted cash receipts for the Clay Company.

(7 marks)

Question

6

(

12

marks)

The f

ollowing is Arkadia Corporation's contribution format income statement for last month:

Sales

$1,200,000

Less variable expenses

800,000

Contribution margin

400,000

Less fixed expenses

300,000

Net income

$ 100,000

The

company has no beginning or ending inventories and produced and sold 20,000 units during the month.

Required:

a. What is the company's contribution margin ratio?

(2 marks)

b. What is the company's break

-

even in units?

(2 marks)

c. If sales in

crease by 100 units, by how much should net income increase?

(2 marks)

d. How many units would the company have to sell to attain target profits of $125,000?

(2 marks)

e. What is the company's margin of safety in dollars?

(2 marks)

f. What is t

he company's degree of operating leverage?

(2 marks)