PART III - FIXED & FLEXIBLE BUDGETS; VARIANCE ANALYSIS (chapters 22 & 23 review) Front Range Furniture is preparing a Cash Budget for the second quarter of the coming year. Management would like to give you additional exposure to budgeting during your internship and has assigned you the task of preparing this Cash Budget. You will present this to your accounting supervisor for review. The following data has been forecasted: April May Sales $150,000 $157,000 Merchandise Purchases 107,000 112,400 Operating Expenses Payroll 13,600 14,280 Advertising 5,400 5,700 2,500 2,500 Depreciation 7,500 7,500 End of April balances Rent Bank loan payable 26,000 Additional data: A. Sales are 40% cash and 60% credit. The collection pattern for credit sales is 50% in the month following the sale and 50% in the month thereafter. Total sales in March were $125,000. B. Purchases are all on credit, with 40% paid in the month of purchase; the balance is paid in the following month. C. Operating expenses are paid in the month they are incurred. D. A minimum cash balance of $25,000 is required at the end of each month. E. Loans are used to maintain the minimum cash balance. At the end of each month; interest of 1% per month is paid on the outstanding loan balance as of the beginning of the month. Repayments are made whenever excess cash is available. Required: 1. Prepare the company's cash budget for May on the next page. Show the ending loan balance at May 1. After accurate completion of the Cash Budget for the month of May, your supervisor wants to see how much you remember about Flexible Budgets and Variance Analysis from your introductory accounting principles course. Management of Front Range Furniture wants to begin using flexible budgets in the hopes of better planning for future operations. Your next task assigned is to create a flexible budget from the information below with a basic variance analysis. This will require review and approval before sending on to the company controller. Front Range Furniture provides the following Fixed Budget data for the year: $630,000 Sales (20,000 units; $31.50 per unit) Cost of sale: Direct materials Direct labor Variable overhead Fixed overhead Gross Profit Operating expense: Fixed Variable Income from operations $210,000 168,000 63,000 80,000 500,000 $130,000 $12,000 40,000 62,000 $78,000 $651,000 The company's actual activity for the year follows: Sales (21,000 units) Cost of goods sold: Direct materials Direct labor Variable overhead Fixed overhead Gross Profit Operating expense: Fixed Variable Income fro operations $231,000 168,000 73,500 77,500 550,000 $101,000 $12,000 39,500 51,500 2.500 Required: 2. Prepare a flexible budget performance report for the year using the contribution margin format on the appropriate tab of your working papers. You will be "flexing the budget to a sales level of 21,000. Be sure to complete all columns provided. Be sure to answer the questions below the chart in your working papers. CHAPTER 22 REVIEW Front Range Furniture Flexible Budget Performance Report Sales in Units CHAPTER 23 REVIEW Flexible Budget per Unit Budget 20,000 21,000 Variance Actual 21,000 Favorable (F) vs. Unfavorable (U) Neutral $ 0 (A) Cash Collections May cash sales 50% of April credit sales 50% of March credit sales % Totalcash collections from customers 62,800 45,000 37500 145,300 $ 31.50 0 F $ 0 0 $ (B) Cash Payments 40% of May purchases 60% of April purchases Totalcash payments for purchases 44,960 64,200 109,160 0 0 0 $ 0 0 Sales in Dollars Variable costs: : Direct materials Direct labor Variable overhead Variable operating expenses Total Variable Costs Contribution Margin Fixed costs: : Overhead Operating expenses Totalfixed costs Income from Operations 0 0 0 0 0 Neutral 0 0 0 0 0 0 0 Amount Favorable vs. Unfavorable Front Range Furniture Cash Budget For the month of May Beginning cash balance $ 25,000 $ Cash reciepts from sales $ 145,300 Total $ 170,300 Cash Disbursements Payments for merchandise $ 109,160 Payroll $ 14,280 Advertising $ 5,700 Rent $ 2,500 Interest $ 7,500 Totalcash disbursements $ 260 $ 139,140 Preliminary cash balance $ 31,160 Loan repayment $ 6,900 Cash balance, ending $ 25,000 Loan balance, end of the month $ 19840 Selected Variance Analysis Variable Cost Variance Fixed Cost Variance Total Cost Variance Sales Revenue Variance Average Sales price per unit Variance Analysis: Insert your analysis here. You may expand this text box as needed