I See The Light project

I SEE THE LIGHT 9 10 11 12 13 14 15 16 17 18 19 20 21 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 representati - - who have an exclusive sales region. The business is in its tenth year and has asked you to assist in ple ang 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 AI heard about your skills in managerial accounting and would like your assistance in the following 22 areas: 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 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 Analysis Part 7 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. 5 NOTE: H K B D E 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 Seling Expenses: Fixed Variable (Commission per unit) $3.00 Administrative Expenses: Fixed Variable $2.00 Total Selling and Administrative Expenses: Not 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 8,000.00 500 @ $16.00 0 3000 @ $30.00 90,000.00 $ 200,210.00 $ 20,000.00 6,800.00 Fixed Assets Equipment Accumulated Depreciation Total Fixed Assets Total Assets 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 $ 2113,410,00 H G D m H B 3 4 PART 1 5 Fixed and Variable Cost Determinations Unit Cost Calculations 6 8 The projected cost of a lamp is calculated based upon the projected increases or decreases to 9 current costs. The present costs to manufacture one lamp are: 10 11 Lamp Kit: $16.0000000 per lamp 19 Direct Labor: 2.0000000 per lamp (4 lamps/hr.) 20 Variable Overhead: 2.0000000 per lamp 21 Fixed Overhead: 10.0000000 per lamp (based on normal capacity of 25,000 lamps) 22 28 Cost per lamp: $30.0000000 per lamp 29 30 Expected increases for 20X2 31 When calculating projected increases round to TWO ($0.00) decimal places. 32 38 1. Matenal Costs are expected to increase by 3.50%. 39 40 2. Labor Costs are expected to increase by 4.00% 41 42 3. Variable Overhead is expected to increase by 2.00%. 48 49 4. Fixed Overhead is expected to increase to $285,000. 50 51 5. Fixed Administrative expenses are expected to increase to $62.000 52 58 6. Varlable selling expenses (measured on a per lamp basis) are expected to increase 59 by 6.50%. 7. Fixed selling expenses are expected to be $39,000 in 20x2. 62 68 8. Variable administrative expenses (measured a per lamp basis) are expected to 69 increase by 4.00%. 70 71 On the following schedule develop the following figures: 72 1- 20x2 Projected Variable Manufacturing Unit Cost of a lamp. 78 2. 20x2 Projected Variable Unit Cost per lamp. BO 81 3. 20x2 Projected Fixed Costs B2 88 60 61 79 B D A E I See The Light, Inc Schedule of Projected Costs 5 6 7 8 9. Variable Manufacturing Unit Cost 20x1 Cost Projected Percent increase 20x2 Cost Rounded to 2 Decimal Places 10 11 Lamp Kit 12 Labor 16 21 3.50% 4% 2% $16.56 $2.08 $2.04 {4.01) {4.02) (4.03) 13. Variable Overhead 2 20 {4.04) 21 Projected Variable Manufacturing Cost Per Unit 22 23 24 31 Total Variable Cost Per Unit 20x1 Cost Projected Percent Increase 20x2 Cost Rounded to 2 Decimal Places 32 33 Variable Selling 34 Variable Administrative 35 Projected Variable Manufacturing Unit Cost (4.05) (4.06) (4.04) 42 43 44 Projected Total Variable Cost Per Unit (4.07) 45 46 53 54 Schedule of Fixed Costa 20x 1 Cost 20x2 Cost Projected Percent increase (4.08) lamps @_) 55 56 Fixed Overhead 57 (normal capacity of 64 Fixed Selling 65 Fixed Administrative 66 67 Projected Total Fixed Costs 68 75 (4.09) (4.10) (4.11) F B C DE G H COST vorume 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 dolars it may be easler to find the number of units and then multiply by the selling price per unit. B 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, S) {5.01) Contribution Margin Ratio (Round to four places, % is two of those places 14.02%) (5.02) For 20x2 the selling price per lamp will be $45.00. The desired net income in 20x2 is $195,000. What would sales in units have to be in 20x2 to reach the profit goal? 38 39 10 48 49 50 51 52 60 61 62 63 64 2 72 73 74 75 76 84 85 86 87 88 96 97 98 99 100 108 3 109 110 111 112 113 114 115 118 117 18 Breakeven sales in units (Since we cannot sell part of a unit round up to the natuntil reeded) {5.03) 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 breakeven? 119 120 121 122 Breakeven sales in units (Since we cannot sell part of a unit round up to the unit freded) 15.04) 123 For 20x2 the selling price per lamp will be $45.00. If the variable cost increase by $4.50 a unit how many lamps must be sold to breakeven? (0.01) Breakeven sales in units (Since we can sel part of a unit round up to the next neded) For 20x2 the selling price per lamp will be $45.00. If the variable cost decreased by $4,50 a unit how many lamps must be sold to breakeven? (6.02) Breakeven sales in units (Since we cannot sol part of and round up to the rest unti neded) 6. If for 20x2 the selling price per lamp is increased to $49.50 a unit how many lamps must be sold to breakeven? Breakeven sales in units (Since we cannot sol part of a unt round up to the next unit I needed (0.03) If for 20x2 the selling price per lamp is decreased to $40.50 a unit how many lamps must be sold to breakeven? Breakeven sales in units (Shoe we cool port aut round up to the nod it I needed) (8.04) 24 125 120 127 128 D E B PART 3 Budgets 8 32 33 34 7 Division N has decided to develop its budget based upon projected sales of 43,000 lamps at 8 $55.00 per lamp 9 The company has requested that you prepare a master budget for the year. This budget is to be used E for planning and control of operations and should be composed of 30 31 1. Production Budget 2. Materials Budget 40 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 74 Notes for Budgeting 75 86 The company wants to maintain the same number of units in the beginning and ending inventories of 87 work-in-process, and electrical parts while increasing the inventory of Lamp Kits to 725 pieces and B8 decreasing the finished goods by 20% 90 Complete the following budgets 1 Production Budget 102 Planned Salos Desired Ending Inventory of Finished Goods Less: Beginning Inventory Total Production 45 46 47 48 58 59 60 61 82 72 73 76 89 100 101 + Total Needed 103 104 114 115 116 117 118 128 129 130 131 ARA (7.01) 2 D 3 . 4 D 6 Ready D E F G 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, St#.##) 3 Direct Labor Budget (8.01) {8.02) {8.03) (8.04) (8.05) (8.06) (8.07) Labor Cost Per Lamp Production Total Labor Cost (Round to two places, $##.##) (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, sw.) Fixed Factory Overhead (8.09) (8.10) (8.11) Total Factory Overhead (Round to two places, St.) D m F G H 4040 4 Factory Overhead Budget Overhead Allocation rate based on: 1. Number of Units Total Factory Overhead / Number of Units (Round to two places, $#####) 5 Cost of making one unit next year Cost of one Lamp Kit Labor Cost Per Lamp Factory overhead per unit (9.01) 19.02) Total cost of one unit (Round to two places, S####) (9.03) {9.04) 6 Selling and Admin. Budget 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, $##.##) SL Goods (9.05) (9.06) 7 Sold Round dollar to two places, S. (9.07) (9.08) 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 Total Materials: Labor Overhead Cost of Goods Available Low: Ending Inventory, Finished Goods Cost of Goods Sold (9.09) (9.10) (0.11) (9.12) (9.13) (9.14) 7 Budgeted Income Statement 6 7 9 12 13 14 15 16 19 Sales Cost of Goods Sold Gross Profit Selling Expenses & Admin Expenses Net Income (10.01) ABC D E H J K NNN 19 20 21 22 23 8 Cash Budget 26 27 Assume actual cash receipts and disbursements will follow the pattem below: (Note: Receivables and 28 Payables of 12/31/x1 will have a cash impact in 20x2.) 29 30.1. 19.00% of sales for the year are made in November and Decembet. Since our customers have 60 day toms 33 those funds will be collected be collected in January and February 34 2. 83.00% of material purchases will be paid during the year, the remaining portion will be paid in Januay or February 35 3. All other manufacturing and operating costs are paid for when incurred. 36 4. The budgeted depreciation expense is equal to 0.6% of the fixed manufacturing, setting and administrative expenses. 37. 5. Minimum Cash Balance needed for 20x2, $150,000 1 See The Light Projected Cash Budget 42 For the Year Ending December 31, 20x2 40 41 Round dollars to two 43 places, S. 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) 47 48 49 50 51 54 55 56 57 58 81 62 63 64 85 58 80 70 71 72 73 74 75 ZA 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 Budgeted Cash Balance before financing Nooded Minimum Balance (10.00) (10.07) (10.00) (10.09) Amount to be borrowed of any (10.10) Budgeted Cash Balance 3 4 PART 4 6 Process Costing - Weighted Average 7 9 8 General Information 10. The I See The Light Company has a related company that produces the figurines. They use process costing 14 in the molding department. The factory overhead is applied at a rate of 50% of direct labor dollars. 15 The material is added at the beginning of the process. The labor and overhead costs are assumed 16 to be added uniformly throughout 17 18 22 23 24 25 Month of January 26 30 Selected information for January is presented below. Note that the applied overhead rate was 31 50% of direct labor costs in the molding department 32 33 34. Molding Department 39 Goods in-process as of January 1 were 3,700 figurines at a cost of $61,959.00. Or this amount, $5,994.00 was from 40 raw materials added, $37,310.00 for labor and 518,655.00 for overhead. These 3,700 figurines were assumed to be 41 70.00% completo as to labor and overhead 42 46 During January 26,000 units were started, 539,744.00 of materials and $29,717.50 of labor costs were incurred, 38 47 48 The 8,500 figurines that were in process at the end of January wore assumed to be 25,00% complete to 49 labor and overhead 50 54 Al figurines in January passed inspection 55 56 F G H B c D E 7 8 MOLDING 9 10 Physical Flow of Units 11 16 Work-in-process. Beginning 17 Units Started this Period 18 Units to Account for 19 20 Total transferred out 25 Work-in-Process - Ending 26 Total Accounted for 27 28 29 34 Equivalent Units Material Round to two places, ###### 35 38 37 Equivalent Units Conversion Round to two places, ##.###.) 38 (12.01) (12.02) (12.03) (12.04) (12.05) (12.06) {12.07) {12.08) 44 45 Total cost of Material (Round to two places, ##..##) 48 47 52 Total cost of Conversion (Round to two places, ##.###. 53 Total cost to account for (Round to two places, ##.#) 54 55 56 61 Cost per equivalent unit of Material Round to two places, 62 63 54 Cost per equivalent unit of Conversion (Round to two places, ...) 65 70 71 72 73 74 79 Cost of the ending inventory material and convenion (Round to two places. $. 80 81 82 83 (12.09) (12.10) uwww9w 90 91 Cost of the units transferred material and convesion (Round to two places. S. 92 93 94 (12.11) 10 11 12. To keep records of the actual cost of a special order job, a Job Order Cost System has been developed. 18 Overhead is applied at the rate of 50% of the direct labor cost. 19 20 21 22 Job Order Costing Section 28 29 on January 1, 20x2. Division S began Job 2407 for the Client, THE BIG CHILDREN STORE. The 30 job called for 4,000 customized lamps. The following set of transactions occurred from 31 January 5 until the job was completed: 32 38 5 Jan Purchased 4,200 Lamp Kits @ $16.45 per kit. 39 9-Jan 4.125 sets of Lamp Kits were requisitioned. 17-Jan Payroll of 590 Direct Labor Hours @ $9.40 per hour. 41 30-Jan Payroll of 640 Direct Labor Hours @ $9.65 per hour. 30 Jan 3,990 lamps were completed and shipped. All materials requisitioned were 48 used or scrapped, and are a cost of normal processing. 50 Month End Overhead Information 51 Actual Variable Manufacturing Overhead $ 1.254.60 52 Actual Fixed Manufacturing Overhead $ 40,123.45 58 59 60 61 62 68 40 42 49 Round to two places $### wmwwmdwgwnmww 69 70 71 72 Cost of Direct Material incurred in Manufacturing Job 2407 (13.01) Cost of Direct Labor Incurred in Manufacturing Job 2407 (13.02) Cost of Manufacturing Overhead Applied to Job 2407 81 82 88 89 90 91 92 98 99 100 101 102 103 104 105 106 107 100 109 (13.03) Cost of manufacturing one lamp (13.04) 1 2 Special order lamps are manufactured in division S. Because of the precise nature of the process a 3 standard cost system has been developed. The following standards are used for the special orders: 20 21 22 32 23 Standards 24 Lamp Kits $ 16.000000 per lamp 31 Direct Labor 2.400000 per lamp (4 lamps/hr.) Variable Overhead 0.250000 per lamp (4 lamps/hr.) 33 ** Fixed Overhead 10.000000 per lamp 34 Total $ 28.650000 35 42 ** Fixed overhead is based on expected production of 4,008 customized lamps each month. 43 44 To keep records of the actual cost of a job, a Job Order Cost System has been developed. Entries 45 are made to the Job Order System at actual cost (overhead is applied based on actual labor hours) 46 while entries are made to the accounting system at standard. Variance analysis is used to analyze the 53 differences 54 55 56 57 Job Order Costing Section 84 65 On January 1, 20x2. Division S began Job 1101 for the client, THE BIG CHILDREN STORE. The 66 job called for 4,000 customized lamps. The following set of transactions occurred from 67 January 5 until the job was completed: 68 75 5 Jan Purchased 4,200 Lamp Kits @ $16.45 por kit. 77 9-Jan 4,125 sets of Lamp Kits were requisitioned. 78 17-Jan Payroll of 590 Direct Labor Hours @ $9.40 per hour. 79 30-Jan Payroll of 840 Direct Labor Hours @ $9.65 per hour. 30-Jan 3,992 lamps were completed and shipped. All materials requisitioned were used or scrapped 88 76 88 87 89 90 97 98 99 100 101 108 109 110 111 112 Month End Overhead Information Actual Variable Overhead Actual Fixed Overhead $ 1,254,60 $ 40,123.45 6 7 10 11 Ready 4 12 13 14 How many Lamps were completed? 15 16. Note: Show favorable variances as negative numbers 24 Round dollars to two places $#### 25 26 27 28. What was the total material price variance for the Lamp Kits purchased? (15.01) 36 37 (15.02) 30 What was the material usage variance for Lamp Kits? 40 48 49 50 51 522 60 What was the direct labor ciency variance ? 61 52 83 4. What was the direct labor rate variance? 72 73 (15.03) (15.04) (16.01) (16.02) 14 Note: Show favorabie variances as negative numbers 15 16 17 18 27 28 29 30 What was the variable overhead officiency variance ? 31 40 41 42 43 What was the variable of spending variance ? 44 53 54 55 56 57 56 67 GB 69 What in the fixed OH volume (denominator) variance? 70 70 BO 81 82 LAR 92 93 What is the foxed OH spending variance? 34 95 96 105 (16:03) (16.04) PART 7 {17.01) (17.02) Capital Decision Making 6 17 8 Big Alglves his worker's a one hour lunch and two fifteen minute breaks each day. He believes that a 19 cold soda machine would be appreciated by his workers, and an appreciated worker is a good worker. 20. He has priced a machine at a national member only warehouse for $2,100. The machine should be 30 usable for 3 years, after which it would be inefficient, obsolete and would have to be disposed of at the 31 dumo. Big Al believes that 8 cans a day will be purchased. The plant is open five days a week. 50 32 weeks per year. A case of soda (24 cans) costs $6.24 and Big Al believes that a price of $.80 per 33 can would win him good will 34 What is the estimated annual sales in cans of soda? 45 46 47 48 What is the contribution margin por can of soda? (rounded to two places, $1.4) 58 59 80 51 62 72 How many cans of soda must be sold each year to broakoven? (Round up to zero places, ### ### cans) 73 74 75 78 86 87 Annual incremental cash inflows from the soda machine? (rounded to two places SA 88 89 90 100 101 102 103 104 What is the payback period in years? (rounded to two places, years) 114 115 116 117 1113 128 129 (17.03) (17.04) (17.05)