in Question One .. why the Cash receipts in April from march 315000 ?? it should be 420000 (520000-100000) !!!

Question 1 Tilson Company has projected sales and production in units for the second quarter of the coming year as follows: Cash-related production costs are budgeted at $7 per unit produced. Of these production costs, 40% are paid in the month in which they are incurred and the balance in the following month. Selling and administrative expenses will amount to $110,000 per month. The accounts payable balance on March 31 totals $193,000, which will be paid in April. All units are sold on account for $16 each. Cash collections from sales are budgeted at 60% in the month of sale, 30% in the month following the month of sale, and the remaining 10% in the second month following the month of sale. Accounts receivable on April 1 totalled $520,000 $(100,000 from February's sales and the remainder from March). Required: Prepare a schedule for each month showing budgeted cash receipts for Tilson Company. Payments relating to the prior month (March) in April represent the balance of accounts payable at March 31. solution Question 2 Future Enterprises produces and sells a part used in the production of motor vehicles. The unit costs associated with this part are as follows: Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead Total cost $.15 .30 .25 .10 $.80 Jupiter Manufacturing has approached Future Enterprises with an offer to purchase 20,000 units of this part at a price of $.72. Accepting this special sales order will put idle manufacturing capacity to use and will not affect regular sales. Total fixed costs will not change. Required: Determine whether or not the special order should be accepted. Justify your conclusion. solution Variable manufacturing expenses per unit: $.15 + $.30 + $.25 = $.70 $.72 - $.70 = $.02/unit 20,000 units = $400 increase in profit Future Enterprises should accept the offer as this would increase profit by $400. Points to consider: Total fixed costs will not change Idle capacity exists No affect on regular sales Question 3 Shoes R Us manufactures kids' sneakers and kids' shoes. The company's product line income statement follows: Total Sales revenue $850,000 Cost of sales: Variable 220,000 Fixed 290,000 Total cost of sales 510,000 Gross profit $340,000 Marketing and administrative expenses: Variable 140,000 Kids' Sneakers Kids' Shoes $580,000 $270,000 116,000 184,000 300,000 $280,000 104,000 106,00 210,000 $ 60,000 58,000 82,000 Fixed Total marketing and administrative expenses Profit (loss) 105,000 79,000 26,000 245,000 $ 95,000 137,000 $143,000 108,000 $(48,000) Management is considering dropping the kids' shoes product line. Accountants for the company estimate that dropping the kids' shoes line will decrease fixed costs of goods sold by $60,000 and fixed marketing and administrative expenses by $20,000. Required: Prepare an analysis supporting your opinion about whether or not the kids' shoes product line should be dropped. solution Contribution margin income statement for kids' shoes: Sales revenue Currently $270,000 Variable expenses: Manufacturing Marketing and administrative Contribution margin 104,000 82,000 $ 84,000 Fixed expenses: Manufacturing Marketing and administrative Profit (loss) 106,000 26,000 $(48,000) If Dropped $0 $ 0 0 0 46,000 6,000 $(52,000) The company should keep producing and selling kids' shoes because profit will decrease by $4,000 if the product line is dropped. Question 4 A small school desires to earn $10,000 for a new playground. They are considering the following two projects. Cost Information Project A - Candy Bar Sale The bars sell for $2.00 per bar. Project B - Cookie Sale Advertising is provided by supplier The cookies sell for $6 per box. Required: (1) For each project, compute the number of items that must be sold to earn the desired profit. (2) Recommend one project and explain your answer. Identify other information you would obtain to improve the quality of your decision. Solution (1) Required bars to be sold $10,000=$2X-.85X-925 X=number of bars = 9500 Required boxes of cookies to be sold $10,000=$6x-4.125X-125 X= number of boxes = 5,400 (2) Items to be considered Selling bars, they will need to sell more items than if they sell cookies - depending upon the energy of the sales force it may be easier to sell fewer items. Each bar will deliver a greater percentage of money toward profit than so people will be making a greater contribution for each dollar spent. How will these sales impact other fundraising projects - if people spend $6 on a box of cookies, will they still be willing to contribute in other ways? Are any other scare resources involved? Question 5 AAA Metal Bearings produces two sizes of metal bearings (sold by the crate) standard and heavy. The standard bearings require $200 of direct materials per unit (per crate) and the heavy bearings require $245 of direct materials per unit. The operation is mechanised and there is no direct labour. Previously AAA used a single plant-wide allocation rate for manufacturing overhead, which was $1.55 per machine hour. Based on the single rate, gross profit data were as follows: Per unit Direct materials cost Direct labour cost Manufacturing overheads Total manufacturing cost Price per unit Gross profit per unit Standard $200.00 $0.00 $124.00 $324.00 Heavy $245.00 $0.00 $93.00 $338.00 $350.00 $26.00 $370.00 $32.00 Although the data showed that the heavy bearings were more profitable than the standard bearings, the plant manager knew that the heavy bearings required much more processing in the metal fabrication phase than the standard bearings, and that this factor was not adequately reflected in the single allocation rate. He suspected that it was distorting the profit data. He suggested adopting an activity-based costing approach. Working together, the engineers and accountants identified the following three manufacturing activities, and broke down the annual overhead costs as shown: Activities: Metal fabrication Machine processing Packaging Estimated Cost $420 000 $152 000 $17 000 $589 000 Engineers believed that metal fabrication costs should be allocated by weight, and estimated that the plant processed12 000 kilos of metal per year. Machine processing costs were correlated to machine hours, and the engineers estimated a total of 380 000 machine hours for the year. Packaging costs were the same for both types of products, and so they could be allocated simply by the number of units produced. The production plan provided for 4 000 units of standard and 1 000 units of heavy bearings to be produced during the year. Additional data on a per unit basis are as follows: Kilos per unit Machine hours per unit Standard 2.00 80.00 Heavy 4.00 60.00 Using the data above, follow the ABC methodology: Calculate the production cost and gross profit for one unit of standard bearings. Solution $420 000/12 000 = $35.00 $152 000/380 000 = $0.40 $17 000/5 000 = $3.40 2 $35 = $70 80 $0.40 = $32 Production cost for one unit of Standard bearing =$200 + $70 + $32 + $3.40 = $305.40 Gross profit for one unit of Standard bearing = $350 - $305.40 = $44.60 Question 6 Cascade, Inc., has assembled the estimates shown below relating to a proposed new product. These estimates are based on a 5-year project life, at the end of which the new equipment would be sold, working capital would revert to other uses in the company, and the product would be discontinued. Cascade uses a discount rate of 18%. Required: Compute the net present value of the new product. Solution