I SEE THE LIGHT Background Information I SEE THE LIGHT (ISTL) is a subchapter S corporation that manufactures children's lampsightlights for use in bedrooms. These lamps are sold nationwide through a group of independent sales representatives who have an exclusive sales region. The business is in its tenth year and has asked you to assist in planning for next year's operations. The lamps are ceramic figurines of animals, boats, boys and girls playing and singing, all in delightful colors. The owner of the business, Big Al, creates a drawing for the figurine and faxes it to a plant in China where a mold is created and a sample produced and hand painted. If the mold meets the expectations of Big Al an order of 500 lamp parts is placed. Each lamp kit consists of the parts required to complete one lamp; a figurine, a lamp shade and the required electrical components. There are presently 10 different figurines that come in six different colors 60 models. There are presently 10 workers in the plant. They are responsible for receiving the raw material, manufacturing the product, packing and shipping. In addition to Big Al there are two office workers who are responsible for all administrative duties Big Al had his accountant prepare the Projected Income Statement and Balance Sheet presented on page two. Big Al heard about your skills in managerial accounting and would like your assistance in the following areas: Part 1 Fixed and Variable Cost Determinations - Unit Cost Calculations Part 2 Cost Volume Relationships - Profit Planning Part 3 Budgets Part 4 Process Costing Part 5 Job Order Costing Part 6 Standard Costing - Variance AnalysisSales Cost of Goods Sold Gross Profit Selling Expenses & Admin. Expenses Net Incom (10.01 Assume actual cash receipts and disbursements will follow the pattern below: (Note: Receivables and Payables of 12/31/x1 will have a cash impact in 20:2.] 1. 18.00% of sales for the year are made in November and December. Since our customers have 60 day terms those funds will be collected be collected in January and February. 2. 83.00% of material purchases will be paid during the year, the remaining portion will be paid in Janusy or February. 3. All other manufacturing and operating costs are paid for when incurred. 4. The budgeted depreciation expense is equal to 0.6% of the fixed manufacturing, selling and administrative expenses. 5. Minimum Cash Balance needed for 20:2, $175,000. I See The Light Projected Cash Budget For the Year Ending December 31. 2012 Round dollars to two places, $##.## Beginning Cash Balance $ 34,400.000 Cash Inflows: Sales Collections Account Receivable (Sales last year not collected) 10.021 Sales made and collected in 20:2 10.031 Cash Available (10.041 Cash Outflows: Purchases Accounts Payable (Purchases last year) Purchases made and paid for in 20:2 (10.05) Other Manufacturing Costs Direct Labor Total Manufacturing Overhead Selling and Administrative Less: Depreciation 10.061 Total Cash Outflows (10.071 Budgeted Cash Balance before financing (10.08) Needed Minimum Balance Amount to be borrowed [if any) (10.09) Budgeted Cash Balance (10.10;Job Order Costing To keep records of the actual cost of a special order job, a Job Order Cost System has been developed. Overhead is applied at the rate of 50% of the direct labor cost Job Order Costing Section On January 1, 20:2, Division S began Job 2407 for the Client, THE BIG CHILDREN STORE. The job called for 4,000 customized lamps. The following set of transactions occurred from January 5 until the job was completed: 5-Jan Purchased 4,225 Lamp Kits @ $16.30 per kit. 9-Jan 4,100 sets of Lamp Kits were requisitioned. 17-Jan Payroll of 630 Direct Labor Hours @ $9.65 per hour. 30-Jan Payroll of 680 Direct Labor Hours @ $9.90 per hour. 30-Jan 3,930 lamps were completed and shipped. All materials requisitioned were used or scrapped, and are a cost of normal processing. Actual Variable Manufacturing Overhead $ 1,336.20 Actual Fixed Manufacturing Overhead $ 41,123.45 Round to two places, $##.## Cost of Direct Material Incurred in Manufacturing Job 2407 (13.01 Cost of Direct Labor Incurred in Manufacturing Job 2407 |13.021 Cost of Manufacturing Overhead Applied to Job 2407 (13.031 Cost of manufacturing one lamp (13.041\fFixed and Variable Cost Determinations Unit Cost Calculations The projected cost of a lamp is calculated based upon the projected increases or decreases to current costs. The present costs to manufacture one lamp are: Lamp Kit: $16.0000000 per lamp Direct Labor: 2.0000000 per lamp (4 lamps/hr.) Variable Overhead: 2.0000000 per lamp Fixed Overhead: 10.0000000 per lamp (based on normal capacity of 25,000 lamps) Cost per lamp: $30.0000000 per lamp Expected increases for 20x2 When calculating projected increases round to TWO ($0.00) decimal places. 1. Material Costs are expected to increase by 3.50% . 2. Labor Costs are expected to increase by 6.00%. 3. Variable Overhead is expected to increase by 4.50%. 4. Fixed Overhead is expected to increase to $295,000. 5. Fixed Administrative expenses are expected to increase to $54,000. 6. Variable selling expenses (measured on a per lamp basis) are expected to increase by 2.00%. 7. Fixed selling expenses are expected to be $41,000 in 20x2. 8. Variable administrative expenses (measured a per lamp basis) are expected to increase by 2.50%. On the following schedule develop the following figures: 1- 20x2 Projected Variable Manufacturing Unit Cost of a lamp. 2- 20x2 Projected Variable Unit Cost per lamp. 3- 20x2 Projected Fixed Costs.I See The Light, Inc Schedule of Projected Costs Weviatie /lanwantwing (or (325' 20x1 Cost Projected Percent 20:2 Cost Rounded to 2 Decimal Places Increase Lamp Kit 3.50% $16.56 14.01 Labor 2 6.00% $2.12 (4.021 Variable Overhead 4.50% $2.09 (4.03) Projected Variable Manufacturing Cost Per Unit $20.77 14.041 20*1 Cost Projected Percent 20:2 Cost Rounded to Increase 2 Decimal Places Variable Selling 2.00% 3.06 14.05) Variable Administrative 2.50% 2.05 14.061 Projected Variable Manufacturing Unit Cost 20.77 14.041 Projected Total Variable Cost Per Unit 25.88 14.071 20x1 Cost Projected 20:2 Cost Percent Increase Fixed Overhead 250,000 $ 295,000.00 14.081 [normal capacity of lamps @_ J Fixed Selling 23,000 $ $1,000.00 14.09) Fixed Administrative 42,000 54,000,00 14.10; Projected Total Fixed Costs $ 390,000.00 14.11Prot Planning Eiig Al is about to begin work on the budget For 2032 and they haI.Ie requested that you prepare an analysis based on the Following assumptions. Note: Flemember. that we cannot sell part oF a lamp. therefore to Find the number oF units you haI.Ie to round up to the nth complete unit. Furthuremore. to Find the required sales in dollars it may be easier to Find the number oF units and then multiply by the selling price per unit. 1. For 20x2 the selling price per lamp will be $45.00. 'w'hat is the proiected contribution margin and contribution mar-in ratio For each lam- sold? Contribution Margin per unit [Flound to two places. $##.##] Contribution Margin Flatio [Flound to Four places.z is two oF those places ##.##Z] 42.40%: 15.02}- 2. For 20x2 the selling price per lamp will be $45.00. The desired net income in 20x2 is $102500. 'w'hat would sales in units have to be in 2032 to reach the -roFit -oal? Elreakeuen sales in units [Since we cannot sell part of a unit round up to the next unit if needed] 30,455 units {5.03}- 3. For 20x2 the selling price per lamp will be $45.00. IF the Fixed cost increase by $45,000.00 how many lamps must be sold to breakeuen? _____ ____ ____ ____ ____ Elreakeuen sales in units [Since we cannot sell part of a unit round up- to the next unit if needed] 22.752 Legit-3 {n-1+ \fBudgets Division N has decided to develop its budget based upon projected sales of 35,000 lamps at $46.00 per lamp. The company has requested that you prepare a master budget for the year. This budget is to be used for planning and control of operations and should be composed of: 1. Production Budget 2. Materials Budget 3. Direct Labor Budget 4. Factory Overhead Budget 5. Selling and Administrative Budget 6. Cost of Goods Sold Budget 7. Budgeted Income Statement 8. Cash Budget Notes for Budgeting: The company wants to maintain the same number of units in the beginning and ending inventories of work-in-process, and electrical parts while increasing the inventory of Lamp Kits to 750 pieces and decreasing the finished goods by 20%. Complete the following budgets 1 Production Budget Planned Sales 35000 Desired Ending Inventory of Finished Goods 2400 Total Needed 87400 Less: Beginning Inventory 3000 Total Production 34.400 units] (7.01}\f4 Factory Overhead Budget Overhead Allocation rate based on: 1. Number of Units Total Factory Overhead / Number of Units 25.49662791 (Round to two places, $##.##) correct $25.50 (9.01} 5 Cost of making one unit next year Cost of one Lamp Kit 16.56 Labor Cost Per Lamp correct $2.12 (9.02) Factory overhead per unit Total cost of one unit $44.18 (9.03) (Round to two places, $##.##) 6 Selling and Admin. Budget Fixed Selling 41000 41.000 Variable Selling (Round to two places, $##.##) wrong 25460 $70,520.00 19.04) Fixed Administrative 54,000 Variable Administrative (Round to two places, $##.##) wrong 19.05) Total Selling and Administrative (Round to two places, $##.##) wrong (9.06) Cost of Goods Sold Round dollars to two Budget places, $##.## Beginning Inventory, Finished Goods correct s 90,000.00 19.07} Production Costs: Materials: Lamp Kits: Beginning Inventory 800 S 3,000.000 Purchased 34633.44 S 34,633.440 Available for Use 42,633.440 Ending Inventory of Lamp Kits 12420 12,420.00 19.08) Lamp Kits Used In Production Total Materials: wrong (9.09) Labor S 72,928.00 (9.10) Overhead wrong (9.11} Cost of Goods Available wrong (9.12) Less: Ending Inventory, Finished Goods wrong (9.13) Cost of Goods Sold {9.14)