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 Part 2 Part 3 Part 4 Part 5 Part 6 Part 7 Fixed and Variable Cost Determinations - Unit Cost Calculations Cost Volume Relationships - Profit Planning Budgets Process Costing Job Order Costing Standard Costing - Variance Analysis Capital Decision Making To upload your work to Big Al the file without changing the name. Pay attention to the specific location that Excel saves the file. Return to the bottom of the page that you downloaded the file from; Cybertext.com, The Book List, Building Blocks of Accounting-A Managerial Perspective, Enter password, Upload Your Excel File. If you upload an old version of the file the results will not update. Keep two copies of your spreadsheet in two separate places in case one of Big Al's competitors sends someone to destroy your work or it is lost in transmission. You may find it easier to work on this project if you print a hard copy of all the pages. NOTE: If there are any questions about the project e-mail markfriedman@miami.edu or call 305.284.6296. Grade will be based upon answers entered into the shaded boxes. I See The Light Projected Income Statement For the Period Ending December 31, 20x1 $ 1,125,000.00 750,000.00 375,000.00 $ Sales 25,000 lamps @ $45.00 Cost of Goods Sold @ $30.00 Gross Profit Selling Expenses: Fixed Variable (Commission per unit) @ $3.00 Administrative Expenses: Fixed Variable @ $2.00 Total Selling and Administrative Expenses: Net Profit $ 23,000.00 75,000.00 $ 98,000.00 $ 42,000.00 50,000.00 92,000.00 190,000.00 185,000.00 $ I See The Light Projected Balance Sheet As of December 31, 20x1 $ 34,710.00 67,500.00 Current Assets Cash Accounts Receivable Inventory Raw Material Lamp Kits Work in Process Finished Goods Total Current Assets 500 @ $16.00 8,000.00 3000 @ $30.00 $ 90,000.00 200,210.00 $ Fixed Assets Equipment Accumulated Depreciation Total Fixed Assets Total Assets 20,000.00 6,800.00 13,200.00 213,410.00 $ $ 54,000.00 54,000.00 Current Liabilities Accounts Payable Total Liabilities Stockholder's Equity Common Stock Retained Earnings Total Stockholder's Equity Total Liabilities and Stockholder's Equity $ 12,000.00 147,410.00 $ 159,410.00 213,410.00 PART 1 Fixed 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: Direct Labor: Variable Overhead: Fixed Overhead: $16.0000000 per lamp 2.0000000 per lamp (4 lamps/hr.) 2.0000000 per lamp 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 5.00%. 2. Labor Costs are expected to increase by 5.50%. 3. Variable Overhead is expected to increase by 3.50%. 4. Fixed Overhead is expected to increase to $285,000. 5. Fixed Administrative expenses are expected to increase to $62,000. 6. Variable selling expenses (measured on a per lamp basis) are expected to increase by 3.00% 7. Fixed selling expenses are expected to be $39,000 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 Variable Manufacturing Unit Cost 20x2 Cost Rounded to 2 Decimal Places Lamp Kit Labor Variable Overhead 20x 1 Cost Projected Percent Increase 165 2 5.5 23.5 $16.80 $2.11 $2.07 {4.01} {4.02) {4.03) Projected Variable Manufacturing Cost Per Unit $20.98 {4.04) Total Variable Cost Per Unit 20x1 Cost Projected Percent Increase 20x2 Cost Rounded to 2 Decimal Places 2.061 Variable Selling Variable Administrative Projected Variable Manufacturing Unit Cost 2.5 2.05 {4.05) {4.06} {4.04} 20.98 Projected Total Variable Cost Per Unit 25.09 {4.07 Schedule of Fixed Costs 20x 1 Cost 20x2 Cost Projected Percent Increase 285,000.00 {4.08) lamps @_) Fixed Overhead (normal capacity of Fixed Selling Fixed Administrative $ 39,000.00 62,000.00 {4.09) {4.10) Projected Total Fixed Costs 386,000.00 {4.11} Cost Volume Relationships - Profit Planning Big Al is about to begin work on the budget for 20x2 and they have requested that you prepare an analysis based on the following assumptions. Note: Remember, that we cannot sell part of a lamp, therefore to find the number of units you have to round up to the next 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. What is the projected contribution margin and contribution margin ratio for each lamp sold? Contribution Margin per unit (Round to two places, $###.##) $19.91 {5.01} Contribution Margin Ratio (Round to four places, % is two of those places ##.##%) 44.24% {5.02) 2. For 20x2 the selling price per lamp will be $45.00. The desired net income in 20x2 is $185,000. What would sales in units have to be in 20x2 to reach the profit goal? Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed) 28,680 units {5.03} 3. For 20x2 the selling price per lamp will be $45.00. If the fixed cost increase by $60,000.00 how many lamps must be sold to breakeven? Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed) 22,401 units {5.04} 4. For 20x2 the selling price per lamp will be $45.00. If the variable cost increase by $6.00 a unit how many lamps must be sold to breakeven? Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed) 27,750 units {6.01} 5. For 20x2 the selling price per lamp will be $45.00. If the variable cost decreased by $6.00 a unit how many lamps must be sold to breakeven? Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed) 14,898 units {6.02) 6. If for 20x2 the selling price per lamp is increased to $51.00 a unit how many lamps must be sold to breakeven? Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed) 14,898 units {6.03) 17. If for 20x2 the selling price per lamp is decreased to $39.00 a unit how many lamps must be sold to breakeven? Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed) 27,750 units {6.04} PART 3 Budgets Division N has decided to develop its budget based upon projected sales of 43,000 lamps at $48.00 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 725 pieces and decreasing the finished goods by 20%. Complete the following budgets 1 Production Budget Planned Sales Desired Ending Inventory of Finished Goods Total Needed Less: Beginning Inventory 43000 2400 45400 Total Production 42,400 units {7.01} 2 Materials Budget Lamp Kits Needed for Production Desired Ending Inventory Total Needed Less: Beginning Inventory Total Purchases Cost per piece Cost of Purchases (Round to two places, $##.##) 42,400 units 725 units 43,125 units 500 units 42625 16.80 716,100.00 {8.01} {8.02} {8.03} {8.04} {8.05} {8.06} $ 3 Direct Labor Budget $ {8.07} Labor Cost Per Lamp Production Total Labor Cost (Round to two places, $##.##) 2.11 42,400 units 89,464.00 $ {8.08} 4 Factory Overhead Budget $ Variable Factory Overhead: Variable Factory Overhead Cost Per Unit Number of Units to be produced Total Variable Factory Overhead (Round to two places, $##.##) Fixed Factory Overhead 20.9800000 725 units 15,210.50 285,000.00 {8.09} {8.10} $ Total Factory Overhead (Round to two places, $##.##) $ 300,210.50 {8.11} 4 Factory Overhead Budget Overhead Allocation rate based on: 1. Number of Units Total Factory Overhead / Number of Units (Round to two places, $##.###) $7.08 (9.01} 5 Cost of making one unit next year Cost of one Lamp Kit Labor Cost Per Lamp Factory overhead per unit $2.11 {9.02) Total cost of one unit (Round to two places, $##.##) 25.99 (9.03} 6 Selling and Admin. Budget $88,580.00 {9.04 Fixed Selling Variable Selling (Round to two places, S##.##) Fixed Administrative Variable Administrative (Round to two places, $###.##) Total Selling and Administrative (Round to two places, $##.##) $ $ 88,150.00 277,730.00 {9.05} {9.06} Round dollars to two places, $##.## $ 90,000.00 9.07) COSI OL Goods Sold Budget Beginning Inventory, Finished Goods Production Costs: Materials: Lamp Kits: Beginning Inventory Purchased Available for Use Ending Inventory of Lamp Kits Lamp Kits Used In Production IS 12,180.00 {9.08} $ $ Total Materials: Labor Overhead Cost of Goods Available Less: Ending Inventory, Finished Goods Cost of Goods Sold 711,920.00 89,464.00 300,210.50 1,191,594.50 62,376.00 1,129,218.50 {9.09} {9.10} {9.11} {9.12} {9.13) {9.14} $ $ 7 Budaeted Income Statement Sales Cost of Goods Sold Gross Profit Selling Expenses & Admin. Expenses Net Income (10.01) 8 Cash Budget Assume actual cash receipts and disbursements will follow the pattem below: (Note: Receivables and Payables of 12/31/x 1 will have a cash impact in 20x2.) 1. 15.00% 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. 86.00% of material purchases will be paid during the year, the remaining portion will be paid in Januay 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 20x2, $165,000. I See The Light Projected Cash Budget For the Year Ending December 31, 20x2 Round dollars to two places, $##.## Beginning Cash Balance Cash Inflows: Sales Collections: Account Receivable (Sales last year not collected) Sales made and collected in 20x2 Cash Available {10.02) {10.03} (10.04} {10.05) Cash Outflows: Purchases Accounts Payable (Purchases last year) Purchases made and paid for in 20x2 Other Manufacturing Costs Direct Labor Total Manufacturing Overhead Selling and Administrative Less: Depreciation Total Cash Outflows (10.06) (10.07} Budgeted Cash Balance before financing Needed Minimum Balance {10.08) Amount to be borrowed (if any) {10.09} Budgeted Cash Balance {10.10} 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 Part 2 Part 3 Part 4 Part 5 Part 6 Part 7 Fixed and Variable Cost Determinations - Unit Cost Calculations Cost Volume Relationships - Profit Planning Budgets Process Costing Job Order Costing Standard Costing - Variance Analysis Capital Decision Making To upload your work to Big Al the file without changing the name. Pay attention to the specific location that Excel saves the file. Return to the bottom of the page that you downloaded the file from; Cybertext.com, The Book List, Building Blocks of Accounting-A Managerial Perspective, Enter password, Upload Your Excel File. If you upload an old version of the file the results will not update. Keep two copies of your spreadsheet in two separate places in case one of Big Al's competitors sends someone to destroy your work or it is lost in transmission. You may find it easier to work on this project if you print a hard copy of all the pages. NOTE: If there are any questions about the project e-mail markfriedman@miami.edu or call 305.284.6296. Grade will be based upon answers entered into the shaded boxes. I See The Light Projected Income Statement For the Period Ending December 31, 20x1 $ 1,125,000.00 750,000.00 375,000.00 $ Sales 25,000 lamps @ $45.00 Cost of Goods Sold @ $30.00 Gross Profit Selling Expenses: Fixed Variable (Commission per unit) @ $3.00 Administrative Expenses: Fixed Variable @ $2.00 Total Selling and Administrative Expenses: Net Profit $ 23,000.00 75,000.00 $ 98,000.00 $ 42,000.00 50,000.00 92,000.00 190,000.00 185,000.00 $ I See The Light Projected Balance Sheet As of December 31, 20x1 $ 34,710.00 67,500.00 Current Assets Cash Accounts Receivable Inventory Raw Material Lamp Kits Work in Process Finished Goods Total Current Assets 500 @ $16.00 8,000.00 3000 @ $30.00 $ 90,000.00 200,210.00 $ Fixed Assets Equipment Accumulated Depreciation Total Fixed Assets Total Assets 20,000.00 6,800.00 13,200.00 213,410.00 $ $ 54,000.00 54,000.00 Current Liabilities Accounts Payable Total Liabilities Stockholder's Equity Common Stock Retained Earnings Total Stockholder's Equity Total Liabilities and Stockholder's Equity $ 12,000.00 147,410.00 $ 159,410.00 213,410.00 PART 1 Fixed 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: Direct Labor: Variable Overhead: Fixed Overhead: $16.0000000 per lamp 2.0000000 per lamp (4 lamps/hr.) 2.0000000 per lamp 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 5.00%. 2. Labor Costs are expected to increase by 5.50%. 3. Variable Overhead is expected to increase by 3.50%. 4. Fixed Overhead is expected to increase to $285,000. 5. Fixed Administrative expenses are expected to increase to $62,000. 6. Variable selling expenses (measured on a per lamp basis) are expected to increase by 3.00% 7. Fixed selling expenses are expected to be $39,000 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 Variable Manufacturing Unit Cost 20x2 Cost Rounded to 2 Decimal Places Lamp Kit Labor Variable Overhead 20x 1 Cost Projected Percent Increase 165 2 5.5 23.5 $16.80 $2.11 $2.07 {4.01} {4.02) {4.03) Projected Variable Manufacturing Cost Per Unit $20.98 {4.04) Total Variable Cost Per Unit 20x1 Cost Projected Percent Increase 20x2 Cost Rounded to 2 Decimal Places 2.061 Variable Selling Variable Administrative Projected Variable Manufacturing Unit Cost 2.5 2.05 {4.05) {4.06} {4.04} 20.98 Projected Total Variable Cost Per Unit 25.09 {4.07 Schedule of Fixed Costs 20x 1 Cost 20x2 Cost Projected Percent Increase 285,000.00 {4.08) lamps @_) Fixed Overhead (normal capacity of Fixed Selling Fixed Administrative $ 39,000.00 62,000.00 {4.09) {4.10) Projected Total Fixed Costs 386,000.00 {4.11} Cost Volume Relationships - Profit Planning Big Al is about to begin work on the budget for 20x2 and they have requested that you prepare an analysis based on the following assumptions. Note: Remember, that we cannot sell part of a lamp, therefore to find the number of units you have to round up to the next 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. What is the projected contribution margin and contribution margin ratio for each lamp sold? Contribution Margin per unit (Round to two places, $###.##) $19.91 {5.01} Contribution Margin Ratio (Round to four places, % is two of those places ##.##%) 44.24% {5.02) 2. For 20x2 the selling price per lamp will be $45.00. The desired net income in 20x2 is $185,000. What would sales in units have to be in 20x2 to reach the profit goal? Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed) 28,680 units {5.03} 3. For 20x2 the selling price per lamp will be $45.00. If the fixed cost increase by $60,000.00 how many lamps must be sold to breakeven? Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed) 22,401 units {5.04} 4. For 20x2 the selling price per lamp will be $45.00. If the variable cost increase by $6.00 a unit how many lamps must be sold to breakeven? Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed) 27,750 units {6.01} 5. For 20x2 the selling price per lamp will be $45.00. If the variable cost decreased by $6.00 a unit how many lamps must be sold to breakeven? Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed) 14,898 units {6.02) 6. If for 20x2 the selling price per lamp is increased to $51.00 a unit how many lamps must be sold to breakeven? Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed) 14,898 units {6.03) 17. If for 20x2 the selling price per lamp is decreased to $39.00 a unit how many lamps must be sold to breakeven? Breakeven sales in units (Since we cannot sell part of a unit round up to the next unit if needed) 27,750 units {6.04} PART 3 Budgets Division N has decided to develop its budget based upon projected sales of 43,000 lamps at $48.00 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 725 pieces and decreasing the finished goods by 20%. Complete the following budgets 1 Production Budget Planned Sales Desired Ending Inventory of Finished Goods Total Needed Less: Beginning Inventory 43000 2400 45400 Total Production 42,400 units {7.01} 2 Materials Budget Lamp Kits Needed for Production Desired Ending Inventory Total Needed Less: Beginning Inventory Total Purchases Cost per piece Cost of Purchases (Round to two places, $##.##) 42,400 units 725 units 43,125 units 500 units 42625 16.80 716,100.00 {8.01} {8.02} {8.03} {8.04} {8.05} {8.06} $ 3 Direct Labor Budget $ {8.07} Labor Cost Per Lamp Production Total Labor Cost (Round to two places, $##.##) 2.11 42,400 units 89,464.00 $ {8.08} 4 Factory Overhead Budget $ Variable Factory Overhead: Variable Factory Overhead Cost Per Unit Number of Units to be produced Total Variable Factory Overhead (Round to two places, $##.##) Fixed Factory Overhead 20.9800000 725 units 15,210.50 285,000.00 {8.09} {8.10} $ Total Factory Overhead (Round to two places, $##.##) $ 300,210.50 {8.11} 4 Factory Overhead Budget Overhead Allocation rate based on: 1. Number of Units Total Factory Overhead / Number of Units (Round to two places, $##.###) $7.08 (9.01} 5 Cost of making one unit next year Cost of one Lamp Kit Labor Cost Per Lamp Factory overhead per unit $2.11 {9.02) Total cost of one unit (Round to two places, $##.##) 25.99 (9.03} 6 Selling and Admin. Budget $88,580.00 {9.04 Fixed Selling Variable Selling (Round to two places, S##.##) Fixed Administrative Variable Administrative (Round to two places, $###.##) Total Selling and Administrative (Round to two places, $##.##) $ $ 88,150.00 277,730.00 {9.05} {9.06} Round dollars to two places, $##.## $ 90,000.00 9.07) COSI OL Goods Sold Budget Beginning Inventory, Finished Goods Production Costs: Materials: Lamp Kits: Beginning Inventory Purchased Available for Use Ending Inventory of Lamp Kits Lamp Kits Used In Production IS 12,180.00 {9.08} $ $ Total Materials: Labor Overhead Cost of Goods Available Less: Ending Inventory, Finished Goods Cost of Goods Sold 711,920.00 89,464.00 300,210.50 1,191,594.50 62,376.00 1,129,218.50 {9.09} {9.10} {9.11} {9.12} {9.13) {9.14} $ $ 7 Budaeted Income Statement Sales Cost of Goods Sold Gross Profit Selling Expenses & Admin. Expenses Net Income (10.01) 8 Cash Budget Assume actual cash receipts and disbursements will follow the pattem below: (Note: Receivables and Payables of 12/31/x 1 will have a cash impact in 20x2.) 1. 15.00% 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. 86.00% of material purchases will be paid during the year, the remaining portion will be paid in Januay 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 20x2, $165,000. I See The Light Projected Cash Budget For the Year Ending December 31, 20x2 Round dollars to two places, $##.## Beginning Cash Balance Cash Inflows: Sales Collections: Account Receivable (Sales last year not collected) Sales made and collected in 20x2 Cash Available {10.02) {10.03} (10.04} {10.05) Cash Outflows: Purchases Accounts Payable (Purchases last year) Purchases made and paid for in 20x2 Other Manufacturing Costs Direct Labor Total Manufacturing Overhead Selling and Administrative Less: Depreciation Total Cash Outflows (10.06) (10.07} Budgeted Cash Balance before financing Needed Minimum Balance {10.08) Amount to be borrowed (if any) {10.09} Budgeted Cash Balance {10.10}