Part 1 12 marks

The manager of Caf Leblanc is preparing their budget for the upcoming fiscal quarter, commencing 1 April. The following information is available:

The following balances are expected for the end of this fiscal quarter (31 March): cash $48,000; accounts receivable $33,000, accounts payable $26,000 and unpaid expenses $1,000. The manager expects 90% of the amount outstanding from customers at the end of this fiscal quarter to be collected in April and the remainder uncollectable.

The manager purchased and paid for new equipment costing $18,000 in May. The equipment is depreciated on a straight-line basis and have an estimated useful life of six years with no residual value.

Projected balances for the next quarter are as follows:

	April	May	June
Sales revenue	56,000	58,000	60,000
Purchases	30,000	31,000	32,000
Salaries	2,400	2,400	2,400
Other expenses	1,800	2,000	1,900

60% of monthly sales are on credit. Receipts from credit customers are normally 95% in the month following the sale and the remainder is considered uncollectable.

One months credit is received from inventory suppliers and Caf Leblanc utilises this payment term, paying the total amount owed one day before it is due.

Salaries are paid before the end of each month. 50% of other monthly expenses are paid for in the month incurred and the remainder paid in the following month.

The manager makes monthly cash drawings of $1,400.

Required:

Prepare the cash budget for April and May. (12 marks)

Part 2 16 marks

Arcana Ltd produces a single product. Manufacturing overhead is applied to products on the basis of production volume. The standard variable cost is as follows:

Direct material: 8 kgs at $1.50 per kg	$ 12.00
Direct labour: 0.5 hours at $28 per hour	$ 14.00
Variable manufacturing overhead: $5.60 per unit	$ 5.60
Total standard variable cost per unit	$ 31.60

Annual budgeted fixed overhead is $144,000 and is assumed to be incurred evenly throughout the year. Arcana Ltd plans to produce 3,200 units in November.

During November, 3,400 units were produced. The costs and other information associated with Novembers operations were as follows:

Material purchased: 28,000 kgs at $1.50 per kg	$ 42,000
Material used in production (kgs)	26,000
Direct labour: 1,600 hours at $30.00 per hour	$ 48,000
Variable manufacturing overhead costs incurred	$ 20,000
Fixed manufacturing overhead costs incurred	$ 11,500

Required:

1. Calculate the following variances for November, indicating whether each is favourable or unfavourable.

(a) Direct material price variance and quantity variance. (4 marks)

(b) Direct labour rate variance and efficiency variance. (4 marks)

(c) Variable overhead spending variance and efficiency variance. (4 marks)

2. Prepare the journal entry to record the use of direct materials in production. (4 marks)