Memories, Inc., needs a cash budget for Year 3 and has provided you with the following information. Sales are all on account (no cash) and are estimated to be collected over a three-month period, with 70 percent collected in the month of sale, 25 percent collected in the next month, and 4 percent collected in the third month. The remaining 1 percent is estimated to be uncollectible. December and November sales from Year 2 were $201,638 and $185,000, respectively. Because of the lag in collecting cash from sales on account, MI delays payment on some of its purchases of materials. MI estimated that 60 percent of each month's material purchases are paid in the month of purchase and 40 percent in the following month. The accounts payable balance for materials at the end of Year 2 was $20,000. MI requires a minimum balance of $40,000 in cash at the end of each month. The company will use its line of credit when needed to bring the balance up to that minimum level. For any money borrowed, the interest rate is 6 percent compounded annually. For simplicity, you can assume that cash is borrowed on the first day of the month and that loan repayments are made at the end of the month. The loan payable balance at the end of Year 2 was zero. The cash balance at the end of Year 2 was $40,000. Memories, Inc. plans to exercise the option on the leased production equipment in March (see Part Ten). The purchase price on the equipment will be $153,450 with payments of $3,260.36 per month. MI also plans on expanding the existing production space in May at a cost of $200,000. The company would like to finance the expansion out of current earnings and so will use the line of credit, if necessary, in May. The expansion will cause fixed manufacturing overhead to increase by $10,000 per month, starting in May. To remind you, the following costs still hold: Direct material costs $.74 per doll and $.62 per replica Direct labor costs $2.51 per doll and $2.78 per replica Fixed selling and admin costs $15,300 per month Fixed manufacturing overhead costs $2,851 per month Variable overhead costs $.55 per figurine Sales price $5.00 per doll and $5.25 per replica

Part Eight (Variances) In December of Year 2 operations (month 24), Memories, Inc. actually produced and sold 32,675 figurines, consisting of 30,570 dolls and 2,105 replicas. The budgeted sales price for dolls was $5.00, and $5.25 for replicas. The estimated production and sales during December was 31,678 dolls and 2,595 replicas. Required: figurines produced for $137,565 (dolls) and $9,051 (replicas). What might explain these variances? B. Compute the price and quantity variances for direct materials for each type of figurine. Ml paid $29,093 to purchase 32,325 units of raw materials for dolls and $1,453 to purchase 2,401 units of raw materials for replicas. (A unit consists of plastic, molds, varnish, paint, and packaging materials.) From the materials purchased, 30,995 units were used to produce the dolls and 2,149 were used to produce the replicas. How would these variances be interpreted? What might have caused them? Would you consider them large enough to be important? C. Compute the labor rate and efficiency variances for each type of figurine. Ml paid $71,350 in labor costs for 7,150 direct labor hours for dolls and $6,425 in labor costs for 650 direct labor hours for replicas. How would these variances be interpreted? What might have caused them? Would you consider them large enough to be important? Assuming MI used a predetermined overhead rate of $2.13 per DLH, compute the variable overhead rate and efficiency variances. MI actually paid $20,852 in total overhead costs, consisting of $17,002 of variable overhead and $3,850 of fixed overhead. How would these variances be interpreted? What might have caused them? Would you consider them large enough to be important? E. How might Ml extend its variance analysis to be compatible with activity-based costing if they decided to switch to that method? Part Eight (Variances) In December of Year 2 operations (month 24), Memories, Inc. actually produced and sold 32,675 figurines, consisting of 30,570 dolls and 2,105 replicas. The budgeted sales price for dolls was $5.00, and $5.25 for replicas. The estimated production and sales during December was 31,678 dolls and 2,595 replicas. Required: figurines produced for $137,565 (dolls) and $9,051 (replicas). What might explain these variances? B. Compute the price and quantity variances for direct materials for each type of figurine. Ml paid $29,093 to purchase 32,325 units of raw materials for dolls and $1,453 to purchase 2,401 units of raw materials for replicas. (A unit consists of plastic, molds, varnish, paint, and packaging materials.) From the materials purchased, 30,995 units were used to produce the dolls and 2,149 were used to produce the replicas. How would these variances be interpreted? What might have caused them? Would you consider them large enough to be important? C. Compute the labor rate and efficiency variances for each type of figurine. Ml paid $71,350 in labor costs for 7,150 direct labor hours for dolls and $6,425 in labor costs for 650 direct labor hours for replicas. How would these variances be interpreted? What might have caused them? Would you consider them large enough to be important? Assuming MI used a predetermined overhead rate of $2.13 per DLH, compute the variable overhead rate and efficiency variances. MI actually paid $20,852 in total overhead costs, consisting of $17,002 of variable overhead and $3,850 of fixed overhead. How would these variances be interpreted? What might have caused them? Would you consider them large enough to be important? E. How might Ml extend its variance analysis to be compatible with activity-based costing if they decided to switch to that method