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CHAPTER 4 EXERCISES: SET B E4-1B The trial balance columns of the worksheet for Lamar Company at June 30, 2017, are as follows. Complete the worksheet. (LO 1) LAMAR COMPANY Worksheet for the Month Ended June 30, 2017 Trial Balance Account Titles Dr. Cash Accounts Receivable Supplies Accounts Payable Unearned Service Revenue Owner's Capital Service Revenue Salaries and Wages Expense Miscellaneous Expense $1,760 2,100 1,320 Cr. $1,080 360 2,280 2,100 500 140 $5,820 $5,820 Other data: 1. A physical count reveals $250 of supplies on hand. 2. $120 of the unearned revenue is still unearned at month-end. 3. Accrued salaries are $250. Instructions Enter the trial balance on a worksheet and complete the worksheet. E4-2B The adjusted trial balance columns of the worksheet for Gomez Company are as follows. Complete the worksheet. (LO 1) GOMEZ COMPANY Worksheet (partial) for the Month Ended April 30, 2017 Adjusted Trial Balance Account Titles Dr. Cash Accounts Receivable Prepaid Rent Equipment Accumulated Depr.Equip. Notes Payable Accounts Payable Owner's Capital Owner's Drawings Service Revenue Salaries and Wages Expense Rent Expense Depreciation Expense Interest Expense Interest Payable 11,400 7,000 2,000 20,000 Totals 54,500 Cr. 4,700 5,000 4,950 25,800 3,500 14,000 9,450 500 600 50 50 54,500 Income Statement Dr. Cr. Balance Sheet Dr. Cr. 2 4 Completing the Accounting Cycle Instructions Complete the worksheet. Prepare financial statements from worksheet. (LO 1, 4) Journalize and post closing entries and prepare a post-closing trial balance. (LO 1, 2) Prepare adjusting entries from a worksheet, and extend balances to worksheet columns. E4-3B Worksheet data for Gomez Company are presented in E4-2B. The owner did not make any additional investments in the business in April. Instructions Prepare an income statement, an owner's equity statement, and a classified balance sheet. E4-4B Worksheet data for Gomez Company are presented in E4-2B. Instructions (a) Journalize the closing entries at April 30. (b) Post the closing entries to Income Summary and Owner's Capital. Use T accounts. (c) Prepare a post-closing trial balance at April 30. E4-5B The adjustments columns of the worksheet for Rhodes Company are shown below. Adjustments (LO 1) Account Titles Debit Accounts Receivable Prepaid Insurance Accumulated Depr.Equip. Salaries and Wages Payable Service Revenue Salaries and Wages Expense Insurance Expense Depreciation Expense 1,100 Credit 500 1,250 650 1,100 650 500 1,250 3,500 3,500 Instructions (a) Prepare the adjusting entries. (b) Assuming the adjusted trial balance amount for each account is normal, indicate the financial statement column to which each balance should be extended. Derive adjusting entries from worksheet data. E4-6B Selected worksheet data for Houser Company are presented below. (LO 1) Account Titles Trial Balance Dr. Accounts Receivable Prepaid Insurance Supplies Accumulated Depr.Equip. Salaries and Wages Payable Service Revenue Insurance Expense Depreciation Expense Supplies Expense Salaries and Wages Expense Cr. ? 29,000 8,000 Adjusted Trial Balance Dr. 35,000 24,000 ? 24,000 ? 80,000 ? Instructions (a) Fill in the missing amounts. (b) Prepare the adjusting entries that were made. Cr. ? 6,000 95,000 ? 12,000 6,500 52,000 Exercises: Set B E4-7B Pennington Company had the following adjusted trial balance. PENNINGTON COMPANY Adjusted Trial Balance for the Month Ended June 30, 2017 Prepare closing entries, and prepare a post-closing trial balance. (LO 1, 2) Adjusted Trial Balance Account Titles Debits Cash Accounts Receivable Supplies Accounts Payable Unearned Service Revenue Owner's Capital Owner's Drawings Service Revenue Salaries and Wages Expense Miscellaneous Expense Supplies Expense Salaries and Wages Payable $ 4,650 5,200 640 Credits $ 2,500 200 7,280 400 5,360 1,650 350 3,050 600 $15,940 $15,940 Instructions (a) Prepare closing entries at June 30, 2017. (b) Prepare a post-closing trial balance. E4-8B Wang Company ended its fiscal year on July 31, 2017. The company's adjusted trial balance as of the end of its fiscal year is as shown below. Journalize and post closing entries, and prepare a post-closing trial balance. (LO 1, 2) WANG COMPANY Adjusted Trial Balance July 31, 2017 No. Account Titles Debits 101 112 157 167 201 208 301 306 404 429 711 720 732 Cash Accounts Receivable Equipment Accumulated Depr.Equip. Accounts Payable Unearned Rent Revenue Owner's Capital Owner's Drawings Service Revenue Rent Revenue Depreciation Expense Salaries and Wages Expense Utilities Expense $ 7,900 6,200 10,600 Credits $ 4,400 2,800 1,200 30,700 11,000 42,400 6,100 2,700 39,100 10,100 $87,600 $87,600 Instructions (a) Prepare the closing entries using page J15. (b) Post to Owner's Capital and No. 350 Income Summary accounts. (Use the threecolumn form.) (c) Prepare a post-closing trial balance at July 31. 3 4 4 Completing the Accounting Cycle Prepare financial statements. E4-9B The adjusted trial balance for Wang Company is presented in E4-8B. (LO 4) Instructions (a) Prepare an income statement and an owner's equity statement for the year. Wang did not make any capital investments during the year. (b) Prepare a classified balance sheet at July 31. Answer questions related to the accounting cycle. E4-10B Julie Ehrlich has prepared the following list of statements about the accounting cycle. (LO 3) 1. 2. 3. 4. 5. 6. 7. 8. \"Analyze business transactions\" is the first step in the accounting cycle. Adjusting entries are a required step in the accounting cycle. Correcting entries are a required step in the accounting cycle. If a worksheet is prepared, all the steps of the accounting cycle are incorporated into the worksheet. The accounting cycle begins with the analysis of business transactions and ends with the preparation of a post-closing trial balance. All steps of the accounting cycle occur daily during the accounting period. The step of \"post to the ledger accounts\" occurs after the step of \"journalize the transactions.\" Closing entries must be prepared before financial statements can be prepared. Instructions Identify each statement as true of false. If false, indicate how to correct the statement. Prepare closing entries. (LO 1) E4-11B Selected accounts for Angie's Salon are presented below. All June 30 postings are from closing entries. Salaries and Wages Expense 6/10 6/28 2,100 3,800 6/30 5,900 Service Revenue 6/30 10,100 6/15 6/24 4,500 5,600 Owner's Capital 6/30 1,700 6/1 10,000 6/30 1,350 Bal. Supplies Expense 6/12 6/24 400 450 6/30 Rent Expense 850 6/1 2,000 6/30 9,650 Owner's Drawings 2,000 6/13 6/25 700 1,000 6/30 1,700 Instructions (a) Prepare the closing entries that were made. (b) Post the closing entries to Income Summary. Prepare correcting entries. E4-12B Troy Company discovered the following errors made in January 2017. (LO 3) 1. A payment of Salaries and Wages Expense of $700 was debited to Supplies and credited to Cash, both for $700. 2. A collection of $4,000 from a client on account was debited to Cash $400 and credited to Service Revenue $400. 3. The purchase of supplies on account for $860 was debited to Supplies $680 and credited to Accounts Payable $680. Instructions (a) Correct the errors by reversing the incorrect entry and preparing the correct entry. (b) Correct the errors without reversing the incorrect entry. Prepare correcting entries. (LO 3 ) E4-13B Ellis Company has an inexperienced accountant. During the first 2 weeks on the job, the accountant made the following errors in journalizing transactions. All entries were posted as made. 1. A payment on account of $720 to a creditor was debited to Accounts Payable $270 and credited to Cash $270. 2. The purchase of supplies for $650 cash was debited to Inventory $65 and credited to Cash $65. 3. A $500 withdrawal of cash for Ellis' personal use was debited to Salaries and Wages Expense $500 and credited to Cash $500. Instructions Prepare the correcting entries. Exercises: Set B E4-14B The adjusted trial balance for Kever Miniature Golf at December 31, 2017, contains the following accounts. Debits Buildings Accounts Receivable Prepaid Insurance Cash Equipment Land Insurance Expense Depreciation Expense Interest Expense (LO 4) Credits $ 77,000 9,000 2,700 10,840 37,500 38,000 540 4,400 1,600 Prepare a classified balance sheet. Owner's Capital Accumulated DepreciationBuildings Accounts Payable Notes Payable Accumulated DepreciationEquipment Interest Payable Service Revenues $ 67,000 19,000 7,400 60,000 11,000 1,600 15,580 $181,580 $181,580 Instructions (a) Prepare a classified balance sheet; assume that $15,000 of the note payable will be paid in 2018. (b) Comment on the liquidity of the company. E4-15B The following are the major balance sheet classifications. Current assets (CA) Long-term investments (LTI) Property, plant, and equipment (PPE) Intangible assets (IA) Classify accounts on balance sheet. Current liabilities (CL) Long-term liabilities (LTL) Owner's equity (OE) (LO 4) Instructions Classify each of the following accounts taken from Garza Company's balance sheet. ______ Accounts payable ______ Accounts receivable ______ Cash ______ Owner's capital ______ Salaries and wages payable ______ Trademarks ______ Stock Investments ______ Inventory ______ Accumulated depreciationequipment ______ Buildings. ______ Land ______ Notes payable (due in 3 years) ______ Supplies ______ Prepaid insurance ______ Equipment E4-16B The following items were taken from the financial statements of Foyle Company. (All dollars are in thousands.) Long-term debt Prepaid insurance Equipment Stock investments (long-term) Debt investments (short-term) Notes payable (due in 2018) Cash $1,560 620 8,100 185 2,500 340 2,300 Accumulated depr.equipment Accounts payable Notes payable (due after 2018) Owner's capital Accounts receivable Inventory $4,000 1,010 250 8,925 1,500 880 Prepare a classified balance sheet. (LO 4) Instructions Prepare a classified balance sheet in good form as of December 31, 2017. E4-17B These financial statement items are for Herrera Company at year-end, July 31, 2017. Salaries and wages payable $ 1,800 Salaries and wages expense 39,000 Utilities expense 3,600 Equipment 26,500 Accounts payable 3,600 Service revenue 58,000 Rent revenue 7,600 Notes payable (long-term) Cash Accounts receivable Accumulated depr.equip. Owner's drawings Depreciation expense Owner's capital (beginning of the year) $ 2,000 13,300 21,200 5,400 3,600 16,200 45,000 Prepare financial statements. (LO 1, 4) 5 6 4 Completing the Accounting Cycle Instructions (a) Prepare an income statement and an owner's equity statement for the year. The owner did not make any new investments during the year. (b) Prepare a classified balance sheet at July 31. Use reversing entries. (LO 5) *E4-18B Kerr Company pays salaries of $25,000 every Monday for the preceding 5-day week (Monday through Friday). Assume December 31 falls on a Wednesday, so Kerr's employees have worked 3 days without being paid. Instructions (a) Assume the company does not use reversing entries. Prepare the December 31 adjusting entry and the entry on Monday, January 5, when Kerr pays the payroll. (b) Assume the company does use reversing entries. Prepare the December 31 adjusting entry, the January 1 reversing entry, and the entry on Monday, January 5, when Kerr pays the payroll. Prepare closing and reversing entries. (LO 1, 3, 5) *E4-19B On December 31, the adjusted trial balance of Sele Employment Agency shows the following selected data. Accounts Receivable Interest Expense $35,000 11,000 Service Revenue Interest Payable $100,000 2,500 Analysis shows that adjusting entries were made to (1) accrue $6,000 of service revenue and (2) accrue $2,500 interest expense. Instructions (a) Prepare the closing entries for the temporary accounts shown above at December 31. (b) Prepare the reversing entries on January 1. (c) Post the entries in (a) and (b) to the four accounts shown above. Rule and balance the accounts. (Use T accounts.) (d) Prepare the entries to record (1) the collection of the accrued revenue on January 10 and (2) the payment of all interest due ($3,000) on January 15. (e) Post the entries in (d) to the temporary accounts shown above. CHAPTER 18 EXERCISES: SET B Follow the rounding procedures used in the chapter. E18-1B Financial information for Larrs Inc. is presented below. December 31, 2017 December 31, 2016 Current assets Plant assets (net) Current liabilities Long-term liabilities Common stock, $1 par Retained earnings $150,000 365,000 84,000 135,000 161,000 135,000 Prepare horizontal analysis. (LO 1) $100,000 330,000 70,000 95,000 115,000 150,000 Instructions Prepare a schedule showing a horizontal analysis for 2017 using 2016 as the base year. E18-2B Operating data for Swenson Corporation are presented below. 2017 2016 Net sales Cost of goods sold Selling expenses Administrative expenses Income tax expense Net income $750,000 450,000 100,000 60,000 35,000 105,000 Prepare vertical analysis. (LO 1) $600,000 400,000 84,000 54,000 20,000 42,000 Instructions Prepare a schedule showing a vertical analysis for 2017 and 2016. E18-3B The comparative condensed balance sheets of Dalle Corporation are presented below. DALLE CORPORATION Comparative Condensed Balance Sheets December 31 Assets Current assets Property, plant, and equipment (net) Intangibles Total assets Prepare horizontal and vertical analyses. (LO 1) 2017 2016 $ 76,000 99,000 30,000 $ 80,000 90,000 40,000 $205,000 $210,000 $ 42,000 145,000 18,000 $ 48,000 150,000 12,000 $205,000 $210,000 Liabilities and Stockholders' Equity Current liabilities Long-term liabilities Stockholders' equity Total liabilities and stockholders' equity Instructions (a) Prepare a horizontal analysis of the balance sheet data for Dalle Corporation using 2016 as a base. (b) Prepare a vertical analysis of the balance sheet data for Dalle Corporation in columnar form for 2017. E18-4B The comparative condensed income statements of Forrest Corporation are shown below. FORREST CORPORATION Comparative Condensed Income Statements For the Years Ended December 31 2017 2016 Net sales Cost of goods sold Gross profit Operating expenses Net income $550,000 440,000 110,000 50,000 $ 60,000 $500,000 430,000 70,000 35,000 $ 35,000 Prepare horizontal and vertical analyses. (LO 1) 2 18 Financial Statement Analysis: The Big Picture Instructions (a) Prepare a horizontal analysis of the income statement data for Forrest Corporation using 2016 as a base. (Show the amounts of increase or decrease.) (b) Prepare a vertical analysis of the income statement data for Forrest Corporation in columnar form for both years. Compute liquidity ratios and compare results. E18-5B Nordstrom, Inc. operates department stores in numerous states. Selected financial statement data are as follows. (LO 2) NORDSTROM, INC. Balance Sheet (partial) (in millions) End-of-Year Beginning-of-Year Cash and cash equivalents Accounts receivable (net) Inventory Prepaid expenses Other current assets $ 358 1,788 957 78 181 $ 403 684 997 61 597 Total current assets $ 3,362 $ 2,742 Total current liabilities $ 1,350 $ 1,433 For the year, net sales were $8,828, and cost of goods sold was $5,862 (in millions). Instructions (a) Compute the four liquidity ratios at the end of the year. (b) Using the data in the chapter, compare Nordstrom's liquidity with (1) that of J. C. Penney Company, and (2) the industry averages for department stores. Perform current and acid-test ratio analysis. (LO 2) E18-6B Carter Incorporated had the following transactions occur involving current assets and current liabilities during February 2016. Feb. 3 7 11 14 18 Accounts receivable of $20,000 are collected. Equipment is purchased for $28,000 cash. Paid $3,000 for a 3-year insurance policy. Accounts payable of $12,000 are paid. Cash dividends of $5,000 are declared. Additional information: 1. As of February 1, 2016, current assets were $125,000, and current liabilities were $50,000. 2. As of February 1, 2016, current assets included $13,000 of inventory and $2,000 of prepaid expenses. Instructions (a) Compute the current ratio as of the beginning of the month and after each transaction. (b) Compute the acid-test ratio as of the beginning of the month and after each transaction. Compute selected ratios. E18-7B Gallaxy Company has the following comparative balance sheet data. (LO 2) GALLAXY COMPANY Balance Sheets December 31 Cash Accounts receivable (net) Inventory Plant assets (net) 2017 2016 $ 20,000 80,000 60,000 195,000 $ 30,000 60,000 50,000 180,000 $355,000 $320,000 Exercises: Set B Accounts payable Mortgage payable (10%) Common stock, $10 par Retained earnings $ 50,000 100,000 150,000 55,000 $355,000 $ 60,000 100,000 120,000 40,000 $320,000 Additional information for 2017: 1. 2. 3. 4. Net income was $25,000. Sales on account were $429,000. Sales returns and allowances were $9,000. Cost of goods sold was $198,000. The allowance for doubtful accounts was $2,500 on December 31, 2017, and $2,000 on December 31, 2016. Instructions Compute the following ratios at December 31, 2017. (a) (b) (c) (d) Current. Acid-test. Accounts receivable turnover. Inventory turnover. E18-8B Selected comparative statement data for Wegman Products Company are presented below. All balance sheet data are as of December 31. Net sales Cost of goods sold Interest expense Net income Accounts receivable Inventory Total assets Total common stockholders' equity 2017 2016 $800,000 480,000 7,000 45,000 120,000 85,000 600,000 450,000 $720,000 440,000 5,000 42,000 100,000 75,000 500,000 310,000 Compute selected ratios. (LO 2) Instructions Compute the following ratios for 2017. (a) (b) (c) (d) Profit margin. Asset turnover. Return on assets. Return on common stockholders' equity. E18-9B The income statement for Hathaway, Inc., appears below. Compute selected ratios. (LO 2) HATHAWAY, INC. Income Statement For the Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Expenses (including $20,000 interest and $22,000 income taxes) Net income $400,000 230,000 170,000 100,000 $ 70,000 Additional information: 1. The weighted average common shares outstanding in 2017 were 30,000 shares. 2. The market price of Hathaway, Inc. stock was $22.68 in 2017. 3. Cash dividends of $22,400 were paid, $7,000 of which were to preferred stockholders. Instructions Compute the following ratios for 2017. (a) (b) (c) (d) Earnings per share. Price-earnings ratio. Payout. Times interest earned. 3 4 18 Financial Statement Analysis: The Big Picture Compute amounts from ratios. (LO 2) E18-10B Place Corporation experienced a fire on December 31, 2017, in which its financial records were partially destroyed. It has been able to salvage some of the records and has ascertained the following balances. December 31, 2017 Cash Receivables (net) Inventory Accounts payable Notes payable Common stock, $100 par Retained earnings December 31, 2016 $ 30,000 72,500 220,000 50,000 30,000 400,000 113,000 $ 10,000 126,000 180,000 90,000 60,000 400,000 101,000 Additional information: 1. The inventory turnover is 4.0 times. 2. The return on common stockholders' equity is 20%. The company had no additional paid-in capital. 3. The accounts receivable turnover is 9.0 times. 4. The return on assets is 15%. 5. Total assets at December 31, 2016, were $650,000. Instructions Compute the following for Place Corporation. (a) (b) (c) (d) Compute ratios. Cost of goods sold for 2017. Net sales (credit) for 2017. Net income for 2017. Total assets at December 31, 2017. E18-11B Parker Corporation's comparative balance sheets are presented below. (LO 2) PARKER CORPORATION Balance Sheets December 31 2017 Cash Accounts receivable Inventory Land Building Accumulated depreciation Total Accounts payable Common stock Retained earnings Total $ 6,300 21,200 10,000 20,000 70,000 (15,000) 2016 $ 4,700 22,400 7,000 26,000 70,000 (10,000) $112,500 $120,100 $ 10,370 77,000 25,130 $ 31,000 69,000 20,100 $112,500 $120,100 Parker's 2017 income statement included net sales of $100,000, cost of goods sold of $60,000, and net income of $12,000. Instructions Compute the following ratios for 2017. (a) Current ratio. (b) Acid-test ratio. (c) Accounts receivable turnover. (d) Inventory turnover. (e) Profit margin. (f) Asset turnover. (g) Return on assets. (h) Return on common stockholders' equity. (i) Debt to assets ratio. Exercises: Set B E18-12B For its fiscal year ending October 31, 2017, Simone Corporation reports the following partial data. Income before income taxes Income tax expense (30% 3 $510,000) $650,000 153,000 Income from continuing operations Loss on discontinued operations Net income Prepare a correct statement of comprehensive income. (LO 3) 497,000 140,000 $357,000 The loss on discontinued operations was comprised of a $60,000 loss from operations and an $80,000 loss from disposal. The income tax rate is 30% on all items. Instructions (a) Prepare a correct statement of comprehensive income, beginning with income before income taxes. (b) Explain in memo form why the income statement data are misleading. E18-13B Frank Corporation has income from continuing operations of $350,000 for the year ended December 31, 2017. It also has the following items (before considering income taxes). 1. An unrealized loss of $80,000 on available-for-sale securities. 2. A gain of $30,000 on the discontinuance of a division (comprised of a $5,000 loss from operations and a $35,000 gain on disposal.) 3. A correction of an error in last year's financial statements that resulted in a $10,000 understatement of 2016 net income. Assume all items are subject to income taxes at a 30% tax rate. Instructions Prepare an income statement, beginning with income from continuing operations. Prepare statement of comprehensive income. (LO 3) 5 CHAPTER 19 EXERCISES: SET B E19-1B Carmen Company reports the following costs and expenses in March. Factory utilities Depreciation on factory equipment Depreciation on delivery trucks Indirect factory labor Indirect materials Direct materials used Factory manager's salary $ 18,600 Direct labor Sales salaries Property taxes on factory building Repairs to office equipment Factory repairs Advertising Office supplies used 14,445 9,600 48,900 80,800 137,600 13,000 $98,100 46,400 Determine the total amount of various types of costs. (LO 2) 2,500 2,300 2,000 18,000 5,370 Instructions From the information, determine the total amount of: (a) Manufacturing overhead. (b) Product costs. (c) Period costs. E19-2B Thomas Delivery Service reports the following costs and expenses in July 2017. Indirect materials Depreciation on delivery equipment Dispatcher's salary Property taxes on office building CEO's salary Gas and oil for delivery trucks $ 8,775 Drivers' salaries Advertising Delivery equipment repairs Office supplies Office utilities Repairs on office equipment 11,200 7,000 3,625 22,000 2,200 $16,035 1,600 Classify various costs into different cost categories. (LO 2) 300 650 990 745 Instructions Determine the total amount of (a) delivery service (product) costs and (b) period costs. E19-3B James Corporation incurred the following costs while manufacturing its product. Materials used in product $135,000 Depreciation on plant 60,000 Property taxes on store 7,500 Labor costs of assembly-line workers 110,000 Factory supplies used 25,000 Advertising expense Property taxes on plant Delivery expense Sales commissions Salaries paid to sales clerks $45,000 19,000 21,000 35,000 50,000 Compute cost of goods manufactured and sold. (LO 3) Work-in-process inventory was $17,500 at January 1 and $14,000 at December 31. Finished goods inventory was $60,500 at January 1 and $42,000 at December 31. Instructions (a) Compute cost of goods manufactured. (b) Compute cost of goods sold. E19-4B An incomplete cost of goods manufactured schedule is presented below. RAMOS MANUFACTURING COMPANY Cost of Goods Manufactured Schedule (LO 3) For the Year Ended December 31, 2017 Work in process (1/1) Direct materials Raw materials inventory (1/1) Add: Raw materials purchases Total raw materials available for use Less: Raw materials inventory (12/31) Direct materials used Direct labor Manufacturing overhead $207,500 ? 165,000 $ ? 17,500 $190,000 ? Determine missing amounts in cost of goods manufactured schedule. 2 19 Managerial Accounting Indirect labor Factory depreciation Factory utilities Total overhead $15,000 36,000 68,000 119,000 Total manufacturing costs ? Total cost of work in process Less: Work in process (12/31) ? 67,000 Cost of goods manufactured $550,000 Instructions Complete the cost of goods manufactured schedule for Juan Manufacturing Company. Determine the missing amount of different cost items. E19-5B Manufacturing cost data for Natasha Company are presented below. Direct materials used Direct labor Manufacturing overhead Total manufacturing costs Work in process 1/1/17 Total cost of work in process Work in process 12/31/17 Cost of goods manufactured (LO 3) Case A Case B Case C (a) $ 63,200 46,500 175,650 (b) 221,500 (c) 180,725 $72,330 86,500 81,600 (d) 15,600 (e) 11,000 (f) $137,060 (g) 102,000 273,700 (h) 335,000 90,000 (i) Instructions Indicate the missing amount for each letter (a) through (i). Determine the missing amount of different cost items, and prepare a condensed cost of goods manufactured schedule. (LO 3) E19-6B Incomplete manufacturing cost data for Heintz Company for 2017 are presented as follows for four different situations. Direct Materials Used (1) (2) (3) (4) Direct Labor Used $127,000 $140,000 (c) 211,000 80,000 100,000 67,000 (g) Total Work in Work in Cost of Manufacturing Manufacturing Process Process Goods Overhead Costs 1/1 12/31 Manufactured $ 83,000 123,000 (e) 75,000 (a) $430,000 286,000 405,000 $33,000 (d) 60,000 45,000 (b) $40,000 80,000 (h) $360,000 470,000 (f) 305,000 Instructions (a) Indicate the missing amount for each letter. (b) Prepare a condensed cost of goods manufactured schedule for situation (1) for the year ended December 31, 2017. Prepare a cost of goods manufactured schedule and a partial income statement. (LO 3) E19-7B Tart Corporation has the following cost records for June 2017. Indirect factory labor Direct materials used Work in process, 6/1/17 Work in process, 6/30/17 Finished goods, 6/1/17 Finished goods, 6/30/17 $ 4,000 25,000 4,800 2,200 5,000 9,500 Factory utilities Depreciation, factory equipment Direct labor Maintenance, factory equipment Indirect materials Factory manager's salary $ 1,000 1,400 30,000 2,400 2,000 4,500 Instructions (a) Prepare a cost of goods manufactured schedule for June 2017. (b) Prepare an income statement through gross profit for June 2017 assuming net sales are $85,100. Classify various costs into different categories and prepare cost of services provided schedule. (LO 2, 3) E19-8B Sylvia Ortiz, the bookkeeper for Pare, Ash, and Tocy, a political consulting firm, has recently completed a managerial accounting course at her local college. One of the topics covered in the course was the cost of goods manufactured schedule. Sylvia wondered if such a schedule could be prepared for her firm. She realized that, as a service-oriented company, it would have no Work-in-Process inventory to consider. Exercises: Set B Listed below are the costs the firm incurred for the month ended August 31, 2017. Supplies used on consulting contracts Supplies used in the administrative offices Depreciation on equipment used for contract work Depreciation used on administrative office equipment Salaries of professionals working on contracts Salaries of administrative office personnel Janitorial services for professional offices Janitorial services for administrative offices Insurance on contract operations Insurance on administrative operations Utilities for contract operations Utilities for administrative offices $ 3,700 1,500 900 1,050 15,600 7,700 300 500 800 900 1,900 1,300 Instructions (a) Prepare a schedule of cost of contract services provided (similar to a cost of goods manufactured schedule) for the month. (b) For those costs not included in (a), explain how they would be classified and reported in the financial statements. E19-9B The following information is available for Collins Company. January 1, 2017 Raw materials inventory Work in process inventory Finished goods inventory Materials purchased Direct labor Manufacturing overhead Sales revenue 2017 December 31, 2017 $22,000 20,300 27,000 $30,000 17,200 29,000 Prepare a cost of goods manufactured schedule and a partial income statement. (LO 3) $170,000 200,000 183,000 875,000 Instructions (a) Compute cost of goods manufactured. (b) Prepare an income statement through gross profit. (c) Show the presentation of the ending inventories on the December 31, 2017 balance sheet. (d) How would the income statement and balance sheet of a merchandising company be different from Laurel's financial statements? E19-10B An analysis of the accounts of Markus Manufacturing reveals the following manufacturing cost data for the month ended June 30, 2017. Inventories Beginning Ending Raw materials Work in process Finished goods $10,000 6,500 10,000 $11,500 13,000 6,000 Prepare a cost of goods manufactured schedule, and present the ending inventories of the balance sheet. (LO 3) Costs incurred: Raw materials purchases $64,000, direct labor $57,000, manufacturing overhead $22,900. The specific overhead costs were: indirect labor $7,500, factory insurance $4,000, machinery depreciation $5,000, machinery repairs $1,800, factory utilities $3,100, miscellaneous factory costs $1,500. Assume that all raw materials used were direct materials. Instructions (a) Prepare the cost of goods manufactured schedule for the month ended June 30, 2017. (b) Show the presentation of the ending inventories on the June 30, 2017, balance sheet. E19-11B Franklin Motor Company manufactures automobiles. During September 2017 the company purchased 5,200 head lamps at a cost of $8 per lamp. Franklin withdrew 4,650 lamps from the warehouse during the month. One hundred of these lamps were used to replace the head lamps in autos used by traveling sales staff. The remaining 4,550 lamps were put in autos manufactured during the month. Of the autos put into production during September 2017, 90% were completed and transferred to the company's storage lot. Of the cars completed during the month, 75% were sold by September 30. Determine the amount of cost to appear in various accounts, and indicate in which financial statements these accounts would appear. (LO 3) 3 4 19 Managerial Accounting Instructions (a) Determine the cost of head lamps that would appear in each of the following accounts at September 30, 2017: Raw Materials, Work in Process, Finished Goods, Cost of Goods Sold, and Selling Expenses. (b) Write a short memo to the chief accountant, indicating whether and where each of the accounts in (a) would appear on the income statement or on the balance sheet at September 30, 2017. CHAPTER 22 EXERCISES: SET B E22-1B The controller of Elton Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs. Month January February March April May June Total Maintenance Costs Total Machine Hours $2,900 3,000 3,600 4,400 3,200 4,500 400 420 600 790 500 800 Determine fixed and variable costs using the high-low method and prepare graph. (LO 1, 2) Instructions (a) Determine the fixed and variable cost components using the high-low method. (b) Prepare a graph showing the behavior of maintenance costs, and identify the fixed and variable cost elements. Use 200 unit increments and $1,000 cost increments. E22-2B Casey, Inc. provides environmentally friendly lawn services for homeowners. Its operating costs are as follows. Depreciation Advertising Insurance Weed and feed materials Direct labor Fuel $2,500 per month $ 550 per month $1,990 per month $ 15 per lawn $ 7 per lawn $ 6 per lawn Compute break-even point in units and dollars. (LO 3, 4) Casey, Inc. charge $70 per treatment for the average single-family lawn. Instructions Determine the company's break-even point in (a) number of lawns serviced per month and (b) dollars. E22-3B The Friendley Inn is trying to determine its break-even point. The inn has 50 rooms that it rents at $120 a night. Operating costs are as follows. Salaries Utilities Depreciation Maintenance Maid service Other costs Compute break-even point. (LO 3, 4) $10,500 per month $ 1,500 per month $ 4,000 per month $ 2,000 per month $ 32 per room $ 40 per room Instructions Determine the inn's break-even point in (1) number of rented rooms per month and (2) dollars. E22-4B In the month of March, Paulson Spa services 600 clients at an average price of $90. During the month, fixed costs were $18,000 and variable costs were 60% of sales. Instructions (a) Determine the contribution margin in dollars, per unit, and as a ratio. (b) Using the contribution margin technique, compute the break-even point in dollars and in units. E22-5B Model Transport provides shuttle service between four hotels near a medical center and an international airport. Model Transport uses two 10 passenger vans to offer 10 round trips per day. A recent month's activity in the form of a cost-volumeprofit income statement is shown on the next page. Compute contribution margin and break-even point. (LO 3, 4) Compute break-even point. (LO 3, 4) 2 22 Cost-Volume-Profit Fare revenues (1,440 fares) Variable costs Fuel Tolls and parking Maintenance Contribution margin Fixed costs Salaries Depreciation Insurance $57,600 $9,000 3,100 2,300 14,400 43,200 15,000 2,000 1,000 Net income 18,000 $25,200 Instructions (a) Calculate the break-even point in (1) dollars and (2) number of fares. (b) Without calculations, determine the contribution margin at the break-even point. Compute variable costs per unit, contribution margin ratio, and increase in fixed costs. (LO 3, 4) Prepare CVP income statements. (LO 3, 4) E22-6B In 2016, Santos Company had a break-even point of $420,000 based on a selling price of $8 per unit and fixed costs of $105,000. In 2017, the selling price and the variable cost per unit did not change, but the break-even point increased to $450,000. Instructions (a) Compute the variable cost per unit and the contribution margin ratio for 2017. (b) Compute the increase in fixed costs for 2017. E22-7B Amber Company has the following information available for September 2017. Unit selling price of video game consoles Unit variable costs Total fixed costs Units sold $500 $350 $72,000 720 Instructions (a) Prepare a CVP income statement that shows both total and per unit amounts. (b) Compute Amber breakeven point in units. (c) Prepare a CVP income statement for the breakeven point that shows both total and per unit amounts. Compute various components to derive target net income under different assumptions. (LO 4, 5) E22-8B Morton Company had $90,000 of net income in 2016 when the selling price per unit was $180, the variable costs per unit were $90, and the fixed costs were $540,000. Management expects per unit data and total fixed costs to remain the same in 2017. The president of Morton Company is under pressure from stockholders to increase net income by $72,000 in 2017. Instructions (a) Compute the number of units sold in 2016. (b) Compute the number of units that would have to be sold in 2017 to reach the stockholders' desired profit level. (c) Assume that Morton Company sells the same number of units in 2017 as it did in 2016. What would the selling price have to be in order to reach the stockholders' desired profit level? Compute net income under different alternatives. (LO 5) E22-9B Ralston Company reports the following operating results for the month of August: Sales $350,000 (units 5,000); variable costs $250,000; and fixed costs $60,000. Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 10% with no change in total variable costs. 2. Reduce variable costs to 70% of sales. Instructions Compute the net income to be earned under each alternative. Which course of action will produce the highest net income? Prepare a CVP graph and compute break-even point and margin of safety. (LO 4, 5) E22-10B Wilson Company estimates that variable costs will be 62.5% of sales, and fixed costs will total $870,000. The selling price of the product is $4. Instructions (a) Prepare a CVP graph, assuming maximum sales of $3,200,000. (Note: Use $400,000 increments for sales and costs and 100,000 increments for units.) (b) Compute the break-even point in (1) units and (2) dollars. (c) Assuming actual sales are $2.9 million, compute the margin of safety in (1) dollars and (2) as a ratio. Exercises: Set B E22-11B Valero Company had sales in 2016 of $1,800,000 on 60,000 units. Variable costs totaled $720,000, and fixed costs totaled $570,000. A new raw material is available that will decrease the variable costs per unit by 20% (or $2.40). However, to process the new raw material, fixed operating costs will increase by $50,000. Management feels that one-half of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 10% increase in the number of units sold. Prepare a CVP income statement before and after changes in business environment. (LO 6) Instructions Prepare a CVP income statement for 2017, assuming the changes are made as described. E22-12B Breeze Inc. produces wooden crates used for shipping products by ocean liner. In 2017, Breeze incurred the following costs. Wood used in crate production Nails (considered insignificant and a variable expense) Direct labor Utilities for the plant: $2,000 each month, plus $0.50 for each kilowatt-hour used each month Rent expense for the plant for the year $54,000 $ 350 $37,000 Compute manufacturing cost under absorption and variable costing and explain difference. (LO 7) $25,000 Assume Breeze used an average 500 kilowatt-hours each month over the past year. Instructions (a) What is Breeze's total manufacturing cost if it uses a variable costing approach? (b) What is Breeze's total manufacturing cost if it uses an absorption costing approach? (c) What accounts for the difference in manufacturing costs between these two costing approaches? *E22-13B Tally Corporation produces one product. Its cost includes direct materials ($10 per unit), direct labor ($12 per unit), variable overhead ($7 per unit), fixed manufacturing ($200,000), and fixed selling and administrative ($25,000). In October 2017, Toft produced 25,000 units and sold 22,000 at $45 each. Instructions (a) Prepare an absorption costing income statement. (b) Prepare a variable costing income statement. (c) Explain the difference in net income in the two income statements. Prepare absorption cost and variable cost income statements. (LO 7) 3 CHAPTER 22 PROBLEMS: SET B P22-1B The Sasoon Barber Shop employs four barbers. One barber, who also serves as the manager, is paid a salary of $3,000 per month. The other barbers are paid $1,500 per month. In addition, each barber is paid a commission of $3 per haircut. Other monthly costs are store rent $700 plus 60 cents per haircut, depreciation on equipment $400, barber supplies 40 cents per haircut, utilities $300, and advertising $100. The price of a haircut is $10. Instructions (a) Determine the variable costs per haircut and the total monthly fixed costs. (b) Compute the break-even point in units and dollars. (c) Prepare a CVP graph, assuming a maximum of 1,800 haircuts in a month. Use increments of 300 haircuts on the horizontal axis and $3,000 increments on the vertical axis. (d) Determine the net income, assuming 1,800 haircuts are given in a month. P22-2B All Frute Company bottles and distributes Frute Ade, a fruit drink. The beverage is sold for 50 cents per 16-ounce bottle to retailers, who charge customers 70 cents per bottle. For the year 2017, management estimates the following revenues and costs. Sales Direct materials Direct labor Manufacturing overhead variable Manufacturing overhead fixed $2,500,000 360,000 450,000 270,000 Selling expensesvariable Selling expensesfixed Administrative expenses variable Administrative expenses fixed $ 80,000 250,000 40,000 (LO 1, 2, 3, 4) (a) VC $4 Prepare a CVP income statement, compute breakeven point, contribution margin ratio, margin of safety ratio, and sales for target net income. (LO 3, 4, 5) 150,000 380,000 Instructions (a) Prepare a CVP income statement for 2017 based on management's estimates. (Show column for total amounts only.) (b) Compute the break-even point in (1) units and (2) dollars. (c) Compute the contribution margin ratio and the margin of safety ratio. (d) Determine the sales dollars required to earn net income of $624,000. P22-3B Olgivie Company had a bad year in 2016. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 60,000 units of product: sales $1,800,000; total costs and expenses $2,010,000; and net loss $210,000. Costs and expenses consisted of the amounts shown below. Cost of goods sold Selling expenses Administrative expenses Determine variable and fixed costs, compute break-even point, prepare a CVP graph, and determine net income. Total Variable Fixed $1,350,000 480,000 180,000 $ 930,000 125,000 115,000 $420,000 355,000 65,000 $2,010,000 $1,170,000 $840,000 (b) (1) 3,000,000 units (c) CM ratio 52% Compute break-even point under alternative courses of action. (LO 3, 4) Management is considering the following independent alternatives for 2017. 1. Increase unit selling price 25% with no change in costs, expenses, and sales volume. 2. Change the compensation of salespersons from fixed annual salaries totaling $200,000 to total salaries of $20,000 plus a 5% commission on net sales. 3. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. Instructions (a) Compute the break-even point in dollars for 2016. (b) Compute the break-even point in dollars under each of the alternative courses of action. (Round all ratios to nearest full percent.) Which course of action do you recommend? P22-4B Alma Ortiz is the advertising manager for CostLess Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $18,000 in fixed costs to the $216,000 currently spent. In addition, Alma is proposing that a 10% price decrease (from $30 to $27) will produce an increase in sales volume from 20,000 to 24,000 units. Variable costs will remain at $12 per pair of shoes. Management is impressed with Alma's ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety. (b) Alternative 1, $1,750,000 Compute break-even point and margin of safety ratio, and prepare a CVP income statement before and after changes in business environment. (LO 3, 4, 5) 2 22 Cost Volume Profit (b) Current margin of safety ratio 40% Compute break-even point and margin of safety ratio, and prepare a CVP income statement before and after changes in business environment. (LO 3, 4, 5) (b) 150,000 units Prepare income statements under absorption costing and variable costing for a company with beginning inventory, and reconcile differences. (LO 7) (a) 2016 Net income $100,000 (b) 2016 Net income $180,000 Instructions (a) Compute the current break-even point in units, and compare it to the break-even point in units if Alma's ideas are used. (b) Compute the margin of safety ratio for current operations and after Alma's changes are introduced. (Round to nearest full percent.) (c) Prepare a CVP income statement for current operations and after Alma's changes are introduced. (Show column for total amounts only.) Would you make the changes suggested? P22-5B Isaac Corporation has collected the following information after its first year of sales. Sales were $1,800,000 on 100,000 units; selling expenses $400,000 (30% variable and 70% fixed); direct materials $456,000; direct labor $250,000; administrative expenses $484,000 (50% variable and 50% fixed); manufacturing overhead $480,000 (40% variable and 60% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 20% next year. Instructions (a) Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year. (Assume that fixed costs will remain the same in the projected year.) (b) Compute the break-even point in units and sales dollars. (c) The company has a target net income of $213,000. What is the required sales in dollars for the company to meet its target? (d) If the company meets its target net income number, by what percentage could its sales fall before it is operating at a loss? That is, what is its margin of safety ratio? *P22-6B FAB produces fabrics that are used for clothing and other applications. In 2016, the first year of operations, FAB produced 500,000 yards of fabric and sold 400,000 yards. In 2017, the production and sales results were exactly reversed. In each year, selling price per yard was $2.50, variable manufacturing costs were 30% of the sales price of units produced, variable selling expenses were 10% of the selling price of units sold, fixed manufacturing costs were $400,000, and fixed administrative expenses were $100,000. Instructions (a) Prepare income statements for each year using variable costing. (Use the format from Illustration 22A-5.) (b) Prepare income statements for each year using absorption costing. (Use the format from Illustration 22A-4.) (c) Reconcile the differences each year in income from operations under the two costing approaches. (d) Comment on the effects of production and sales on net income under the two costing approaches. CHAPTER 23 EXERCISES: SET B E23-1B Jargon Electronics Inc. produces and sells two models of calculators, XQ-103 and XQ-104. The calculators sell for $10 and $20, respectively. Because of the intense competition Jargon faces, management budgets sales semiannually. Its projections for the first 2 quarters of 2017 are as follows. Prepare a sales budget for 2 quarters. (LO 2) Unit Sales Product Quarter 1 Quarter 2 XQ-103 XQ-104 20,000 10,000 25,000 16,000 No changes in selling prices are anticipated. Instructions Prepare a sales budget for the 2 quarters ending June 30, 2017. List the products and show for each quarter and for the 6 months, units, selling price, and total sales by product and in total. E23-2B Varga and Menendez, CPAs, are preparing their service revenue (sales) budget for the coming year (2017). The practice is divided into three departments: auditing, tax, and consulting. Billable hours for each department, by quarter, are provided below. Department Quarter 1 Quarter 2 Quarter 3 Quarter 4 2,200 3,000 1,500 1,600 2,400 1,500 2,000 2,000 1,500 2,400 2,500 1,500 Auditing Tax Consulting Prepare a sales budget for four quarters. (LO 2) Average hourly billing rates are: auditing $60, tax $70, and consulting $80. Instructions Prepare the service revenue (sales) budget for 2017 by listing the departments and showing for each quarter and the year in total, billable hours, billable rate, and total revenue. E23-3B Villa Company produces and sells automobile batteries, the heavy-duty HD-240. The 2016 sales budget is as follows. Quarter HD-240 1 2 3 4 6,000 7,000 9,000 10,000 Prepare quarterly production budgets. (LO 2) The January 1, 2016, inventory of HD-240 is 1,500 units. Management desires an ending inventory each quarter equal to 30% of the next quarter's sales. Sales in the first quarter of 2017 are expected to be 25% higher than sales in the same quarter in 2016. Instructions Prepare quarterly production budgets for each quarter and in total for 2016. E23-4B Rose Industries has adopted the following production budget for the first 4 months of 2017. Month Units Month Units January February 10,000 8,000 March April 5,000 4,000 Each unit requires 3 pounds of raw materials costing $4.50 per pound. On December 31, 2016, the ending raw materials inventory was 10,000 pounds. Management wants to have a raw materials inventory at the end of the month equal to 25% of next month's production requirements. Instructions Prepare a direct materials purchases budget by month for the first quarter. Prepare a direct materials purchases budge. (LO 2) 2 23 Budgetary Planning Prepare production and direct materials budgets by quarters for 6 months. (LO 2), AP E23-5B On January 1, 2017 the Molly Company budget committee has reached agreement on the following data for the 6 months ending June 30, 2017. Sales units: Ending raw materials inventory: Ending finished goods inventory: Third-quarter production: First quarter 5,000; second quarter 6,000; third quarter 7,000 40% of the next quarter's production requirements 35% of the next quarter's expected sales units 8,000 units The ending raw materials and finished goods inventories at December 31, 2016, follow the same percentage relationships to production and sales that occur in 2017. Two pounds of raw materials are required to make each unit of finished goods. Raw materials purchased are expected to cost $6 per pound. Instructions (a) Prepare a production budget by quarters for the 6-month period ended June 30, 2017. (b) Prepare a direct materials budget by quarters for the 6-month period ended June 30, 2017. Prepare raw materials purchase budget in dollars. E23-6B Bellemy Ltd. estimates sales for the second quarter of 2017 will be as follows: Month Units (LO 2) April May June 2,550 2,475 2,390 The target ending inventory of finished products is as follows: March 31 April 30 May 31 June 30 2,000 2,230 2,190 2,310 Three units of material are required for each unit of finished product. Production for July is estimated at 2,700 units to start building inventory for the fall sales period. Bellemy's policy is to have an inventory of raw materials at the end of each month equal to 60% of the following month's production requirements. Raw materials are expected to cost $4 per unit throughout the period. Instructions Calculate the May raw materials purchases in dollars. (CGA adapted) Prepare a direct labor budget. (LO 3) E23-7B Mason, Inc., is preparing its direct labor budget for 2017 from the following production budget based on a calendar year. Quarter Units Quarter Units 1 2 20,000 25,000 3 4 35,000 30,000 Each unit requires 2.3 hours of direct labor. Instructions Prepare a direct labor budget for 2017. Wage rates are expected to be $20 for the first 2 quarters and $22 for quarters 3 and 4. Prepare production and direct labor budjets. (LO 2, 3) E23-8B Wang Company makes and sells artistic frames for pictures. The controller is responsible for preparing the master budget and has accumulated the following information for 2017. Estimated unit sales Sales price per unit Direct labor hours per unit Wage per direct labor hour January February March April May 12,000 $50.00 3.0 $12.00 14,000 $47.50 3.0 $12.00 10,000 $47.50 2.5 $12.00 11,000 $47.50 2.5 $13.00 11,000 $47.50 2.5 $13.00 Exercises: Set B Wang has a labor contract that calls for a wage increase to $11.00 per hour on April 1. New labor-saving machinery has been installed and will be fully operational by March 1. Wang expects to begin the year with 15,000 frames on hand and has a policy of carrying an end-of-month inventory of 100% of the following month's sales. Instructions Prepare a production budget and a direct labor budget for Wang Company by month and for the first quarter of the year. The direct labor budget should include direct labor hours and show the detail for each direct labor cost category. (CMA-Canada adapted) E23-9B Chad Company is preparing its manufacturing overhead budget for 2017. Relevant data consist of the following. Prepare a manufacturing overhead budget for the year. Units to be produced (by quarters): 10,000, 12,000, 15,000, 18,000. (LO 3) Direct labor: Time is 1.5 hours per unit. Variable overhead costs per direct labor hour: Indirect materials $0.70; indirect labor $1.20; and maintenance $0.50. Fixed overhead costs per quarter: Supervisory salaries $35,000; depreciation $16,000; and maintenance $15,000. Instructions Prepare the manufacturing overhead budget for the year, showing quarterly data. E23-10B Morgan Company combines its operating expenses for budget purposes in a selling and administrative expense budget. For the first 6 months of 2017, the following data are available. Prepare a selling and administrative expense budget for 2 quarters. 1. Sales: 33,000 units quarter 1; 35,000 units quarter 2. 2. Variable costs per dollar of sales: Sales commissions 5%, delivery expense 2%, and advertising 3%. 3. Fixed costs per quarter: Sales salaries $15,000, office salaries $6,000, depreciation $4,200, insurance $1,500, utilities $800, and repairs expense $600. 4. Unit selling price: $20. (LO 3) Instructions Prepare a selling and administrative expense budget by quarters for the first 6 months of 2017. E23-11B Chris Company's sales budget projects unit sales of part 198Z of 15,000 units in January, 17,000 units in February, and 18,000 units in March. Each unit of part 198Z requires 2 pounds of materials, which cost $5 per pound. Chris Company desires its ending raw materials inventory to equal 20% of the next month's production requirements, and its ending finished goods inventory to equal 25% of the next month's expected unit sales. These goals were met at December 31, 2016. Prepare a production and a direct materials budget. (LO 2) Instructions (a) Prepare a production budget for January and February 2017. (b) Prepare a direct materials budget for January 2017. E23-12B Samuels Company has accumulated the following budget data for the year 2017. 1. Sales: 34,000 units, unit selling price $75. 2. Cost of one unit of finished goods: Direct materials 2 pounds at $5 per pound, direct labor 3 hours at $12 per hour, and manufacturing overhead $6 per direct labor hour. 3. Inventories (raw materials only): Beginning, 10,000 pounds; ending, 15,000 pounds. 4. Raw materials cost: $5 per pound. 5. Selling and administrative expenses: $223,000. 6. Income taxes: 40% of income before income taxes. Instructions (a) Prepare a schedule showing the computation of cost of goods sold for 2017. (b) Prepare a budgeted income statement for 2017. Prepare a budgeted income statement for the year. (LO 3) 3 4 23 Budgetary Planning Prepare a cash budget for 2 months. E23-13B China Company expects to have a cash balance of $40,000 on January 1, 2017. Relevant monthly budget data for the first 2 months of 2017 are as follows. (LO 4) Collections from customers: January $90,000, February $200,000. Payments for direct materials: January $60,000, February $95,000. Direct labor: January $30,000, February $45,000. Wages are paid in the month they are incurred. Manufacturing overhead: January $26,000, February $41,000. These costs include depreciation of $1,000 per month. All other overhead costs are paid as incurred. Selling and administrative expenses: January $15,000, February $20,000. These costs are exclusive of depreciation. They are paid as incurred. Sales of marketable securities in January are expected to realize $10,000 in cash. China Company has a line of credit at a local bank that enables it to borrow up to $25,000. The company wants to maintain a minimum monthly cash balance of $25,000. Instructions Prepare a cash budget for January and February. Prepare a cash budget. (LO 4) E23-14B Mango Corporation is projecting a cash balance of $25,000 in its December 31, 2016, balance sheet. Mango's schedule of expected collections from customers for the first quarter of 2017 shows total collections of $180,000. The schedule of expected payments for direct materials for the first quarter of 2017 shows total payments of $45,000. Other information gathered for the first quarter of 2017 is: sale of equipment $3,800; direct labor $70,000, manufacturing overhead $35,000, selling and administrative expenses $45,000; and purchase of securities $12,000. Mango wants to maintain a balance of at least $25,000 cash at the end of each quarter. Instructions Prepare a cash budget for the first quarter. Prepare cash budget for a month. (LO 4) E23-15B The controller of Adams Company wants to improve the company's control system by preparing a month-by-month cash budget. The following information is for the month ending July 31, 2017. June 30, 2017 cash balance Dividends to be declared on July 15* Cash expenditures to be paid in July for operating expenses Amortization expense in July Cash collections to be received in July Merchandise purchases to be paid in cash in July Equipment to be purchased for cash in July $55,000 12,000 36,800 4,500 90,000 71,300 20,500 *Dividends are payable 30 days after declaration to shareholders of record on the declaration date. Adams Company wants to keep a minimum cash balance of $30,000. Instructions (a) Prepare a cash budget for the month ended July 31, 2017, and indicate how much money, if any, Adams Company will need to borrow to meet its minimum cash requirement. (b) Explain how cash budgeting can reduce the cost of short-term borrowing. (CGA adapted) Prepare schedules of expected collections and payments. (LO 4) E23-16B Apple Company's budgeted sales and direct materials purchases are as follows. January February March Budgeted Sales $190,000 210,000 300,000 Budgeted D.M. Purchases $30,000 35,000 45,000 Apple's sales are 40% cash and 60% credit. Credit sales are collected 10% in the month of sale, 50% in the month following sale, and 36% in the second month following sale; 4% are uncollectible. Apple's purchases are 50% cash and 50% on account. Purchases on account are paid 60% in the month of purchase, and 40% in the month following purchase. Instructions (a) Prepare a schedule of expected collections from customers for March. (b) Prepare a schedule of expected payments for direct materials for March. Exercises: Set B E23-17B Guard Yards Landscaping Inc. is preparing its budget for the first quarter of 2017. The next step in the budgeting process is to prepare a cash receipts schedule and a cash payments schedule. To that end the following information has been collected. Clients usually pay 50% of their fee in the month that service is provided, 40% the month after, and 10% the second month after receiving service. Prepare schedules for cash receipts and cash payments, and determine ending balances for balance sheet. (LO 4) Actual service revenue for 2016 and expected service revenues for 2017 are: November 2016, $100,000; December 2016, $70,000; January 2017, $110,000; February 2017, $120,000; March 2017, $130,000. Purchases on landscaping supplies (direct materials) are paid 60% in the month of purchase and 40% the following month. Actual purchases for 2016 and expected purchases for 2017 are: December 2016, $16,000; January 2017, $13,000; February 2017, $15,000; March 2017, $20,000. Instructions (a) Prepare the following schedules for each month in the first quarter of 2017 and for the quarter in total: (1) Expected collections from clients. (2) Expected payments for landscaping supplies. (b) Determine the following balances at March 31, 2017: (1) Accounts receivable. (2) Accounts payable. E23-18B Avante Dental Clinic is a medium-sized dental service specializing in family dental care. The clinic is currently preparing the master budget for the first 2 quarters of 2017. All that remains in this process is the cash budget. The following information has been collected from other portions of the master budget and elsewhere. Beginning cash balance Required minimum cash balance Payment of income taxes (2nd quarter) Professional salaries: 1st quarter 2nd quarter Interest from investments (2nd quarter) Overhead costs: 1st quarter 2nd quarter Selling and administrative costs, including $3,000 depreciation: 1st quarter 2nd quarter Purchase of equipment (2nd quarter) Sale of equipment (1st quarter) Collections from clients: 1st quarter 2nd quarter Interest payments (2nd quarter) Prepare a cash budget for two quarters. (LO 4, 5) $ 30,000 20,000 4,000 145,000 145,000 7,000 95,000 120,000 50,000 70,000 50,000 12,000 245,000 390,000 400 Instructions Prepare a cash budget for each of the first two quarters of 2017. E23-19B In May 2017, the budget committee of Abdul Stores assembles the following data in preparation of budgeted merchandise purchases for the month of June. 1. Expected sales: June $520,000, July $600,000. 2. Cost of goods sold is expected to be 65% of sales. 3. Desired ending merchandise inventory is 40% of the following (next) month's cost of goods sold. 4. The beginning inventory at June 1 will be the desired amount. Instructions (a) Compute the budgeted merchandise purchases for June. (b) Prepare the budgeted income statement for June through gross profit. Prepare a purchases budget and budgeted income statement for a merchandiser. (LO 5) 5 CHAPTER 22 PROBLEMS: SET B P22-1B The Sasoon Barber Shop employs four barbers. One barber, who also serves as the manager, is paid a salary of $3,000 per month. The other barbers are paid $1,500 per month. In addition, each barber is paid a commission of $3 per haircut. Other monthly costs are store rent $700 plus 60 cents per haircut, depreciation on equipment $400, barber supplies 40 cents per haircut, utilities $300, and advertising $100. The price of a haircut is $10. Instructions (a) Determine the variable costs per haircut and the total monthly fixed costs. (b) Compute the break-even point in units and dollars. (c) Prepare a CVP graph, assuming a maximum of 1,800 haircuts in a month. Use increments of 300 haircuts on the horizontal axis and $3,000 increments on the vertical axis. (d) Determine the net income, assuming 1,800 haircuts are given in a month. P22-2B All Frute Company bottles and distributes Frute Ade, a fruit drink. The beverage is sold for 50 cents per 16-ounce bottle to retailers, who charge customers 70 cents per bottle. For the year 2017, management estimates the following revenues and costs. Sales Direct materials Direct labor Manufacturing overhead variable Manufacturing overhead fixed $2,500,000 360,000 450,000 270,000 Selling expensesvariable Selling expensesfixed Administrative expenses variable Administrative expenses fixed $ 80,000 250,000 40,000 (LO 1, 2, 3, 4) (a) VC $4 Prepare a CVP income statement, compute breakeven point, contribution margin ratio, margin of safety ratio, and sales for target net income. (LO 3, 4, 5) 150,000 380,000 Instructions (a) Prepare a CVP income statement for 2017 based on management's estimates. (Show column for total amounts only.) (b) Compute the break-even point in (1) units and (2) dollars. (c) Compute the contribution margin ratio and the margin of safety ratio. (d) Determine the sales dollars required to earn net income of $624,000. P22-3B Olgivie Company had a bad year in 2016. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling 60,000 units of product: sales $1,800,000; total costs and expenses $2,010,000; and net loss $210,000. Costs and expenses consisted of the amounts shown below. Cost of goods sold Selling expenses Administrative expenses Determine variable and fixed costs, compute break-even point, prepare a CVP graph, and determine net income. Total Variable Fixed $1,350,000 480,000 180,000 $ 930,000 125,000 115,000 $420,000 355,000 65,000 $2,010,000 $1,170,000 $840,000 (b) (1) 3,000,000 units (c) CM ratio 52% Compute break-even point under alternative courses of action. (LO 3, 4) Management is considering the following independent alternatives for 2017. 1. Increase unit selling price 25% with no change in costs, expenses, and sales volume. 2. Change the compensation of salespersons from fixed annual salaries totaling $200,000 to total salaries of $20,000 plus a 5% commission on net sales. 3. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. Instructions (a) Compute the break-even point in dollars for 2016. (b) Compute the break-even point in dollars under each of the alternative courses of action. (Round all ratios to nearest full percent.) Which course of action do you recommend? P22-4B Alma Ortiz is the advertising manager for CostLess Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $18,000 in fixed costs to the $216,000 currently spent. In addition, Alma is proposing that a 10% price decrease (from $30 to $27) will produce an increase in sales volume from 20,000 to 24,000 u