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Problem 10-2 The results of operations for the Penny Worth Bug Spray Manufacturing Company for the fourth quarter of 2017 were as follows (in thousands):

Problem 10-2

The results of operations for the Penny Worth Bug Spray Manufacturing Company for the fourth quarter of 2017 were as follows (in thousands):

Sales of bug spray

$580,000Less variable cost of goods sold

324,800Contribution margin

255,200

Less fixed bug removal costs

$81,200

Less fixed selling and administrative expenses

34,800116,000Income before taxes

139,200Less taxes on income

55,680Net income

$83,520

Note:Penny Worth uses the variable costing method. Thus, only variable costs are included in the cost of goods sold. Fixed costs are charged to expense in the period incurred.

The company's balance sheet as of the end of the fourth quarter of 2017 was as follows (in thousands):

Assets:

Cash

$34,200Accounts receivable

290,000Total current assets

324,200

Fixtures and equipment

$140,000Less accumulated depreciation

70,00070,000Total assets

$394,200

Liabilities and owners' equity:

Accounts payable

$51,968Retained earnings

234,832Common stock

107,400Total liabilities and owners' equity$394,200

Additional information:

1.Sales and variable costs of sales are expected to increase by 5 percent in the next quarter.

2.All sales are on credit with 50 percent collected in the quarter of sale and 50 percent collected in the following quarter.3.Variable cost of sales consists of 40 percent materials, 38 percent direct labor, and 22 percent variable overhead. Materials are purchased on credit. 60 percent are paid for in the quarter of purchase, and the remaining amount is paid for in the quarter after purchase. There is no inventory. Also, direct labor and variable overhead costs are paid in the quarter the expenses are incurred.4.Fixed bug removal costs (other than $4,530 of depreciation expense) are expected to increase by 1.50 percent. Fixed bug removal costs requiring payment are paid in the quarter they are incurred.5.Fixed selling and administrative costs (other than $3,100 of depreciation expense) are expected to increase by 2 percent. Fixed selling and administrative costs requiring payment are paid in the quarter they are incurred.6.The tax rate is expected to be 40 percent. All taxes are paid in the quarter they are incurred.

7.No purchases of fixtures or equipment are expected in the first quarter of 2018.

budgeted income statement for the first quarter of 2018.(Round fixed bug removal costs to 3 decimal places, e.g. 0.100 and final answers to 0 decimal places, e.g. 5,275.)

Penny Worth Bug Spray Manufacturing Company

Budgeted Income Statement

March 31, 2018

For the Year Ended March 31, 2018

For the Quarter Ended March 31, 2018

Net income/(loss)

Variable cost of goods sold

Income before taxes

Contribution margin

Sales of bug spray

Fixed bug removal costs

Fixed selling and administrative expenses

Taxes on income

$

Less

Add

:

Sales of bug spray

Fixed bug removal costs

Taxes on income

Net income/(loss)

Variable cost of goods sold

Contribution margin

Fixed selling and administrative expenses

Income before taxes

Taxes on income

Sales of bug spray

Variable cost of goods sold

Net income/(loss)

Contribution margin

Fixed bug removal costs

Income before taxes

Fixed selling and administrative expenses

Add

Less

:

Taxes on income

Income before taxes

Fixed bug removal costs

Fixed selling and administrative expenses

Net income/(loss)

Sales of bug spray

Contribution margin

Variable cost of goods sold

$

Net income/(loss)

Income before taxes

Variable cost of goods sold

Taxes on income

Sales of bug spray

Contribution margin

Fixed bug removal costs

Fixed selling and administrative expenses

Fixed bug removal costs

Variable cost of goods sold

Fixed selling and administrative expenses

Income before taxes

Net income/(loss)

Taxes on income

Sales of bug spray

Contribution margin

Add

Less

:

Taxes on income

Fixed selling and administrative expenses

Variable cost of goods sold

Net income/(loss)

Sales of bug spray

Contribution margin

Fixed bug removal costs

Income before taxes

Sales of bug spray

Variable cost of goods sold

Net income/(loss)

Contribution margin

Fixed bug removal costs

Fixed selling and administrative expenses

Taxes on income

Income before taxes

$

budgeted statement of cash budget for the first quarter of 2018.

Penny Worth Bug Spray Manufacturing Company

Cash Budget

For the First Quarter, 2018

Payment for fixed selling and administrative expense

Cash collected from sales

Cash payments

Payment of income taxes

Payment for labor

Beginning cash balance

Excess/(deficiency) of receipts over disbursements

Ending cash balance

Payment of material

Payment for variable overhead

Depreciation of equipment

In quarter 4, 2017

In quarter 1, 2018

Payment for fixed bug removal costs

:

In quarter 1, 2018

Beginning cash balance

Depreciation of equipment

Payment of income taxes

In quarter 4, 2017

Payment for labor

Ending cash balance

Cash collected from sales

Cash payments

Payment for fixed bug removal costs

Payment of material

Payment for variable overhead

Payment for fixed selling and administrative expense

Excess/(deficiency) of receipts over disbursements

$

Ending cash balance

Payment of income taxes

Payment for variable overhead

Excess/(deficiency) of receipts over disbursements

Depreciation of equipment

In quarter 4, 2017

Payment for fixed bug removal costs

Cash collected from sales

In quarter 1, 2018

Cash payments

Payment for labor

Payment of material

Payment for fixed selling and administrative expense

Beginning cash balance

$

Cash collected from sales

Payment for variable overhead

Payment for fixed bug removal costs

Payment for fixed selling and administrative expense

Payment of income taxes

Excess/(deficiency) of receipts over disbursements

Beginning cash balance

Payment of material

Ending cash balance

Cash payments

Depreciation of equipment

In quarter 4, 2017

In quarter 1, 2018

Payment for labor

:

Excess/(deficiency) of receipts over disbursements

Payment for fixed bug removal costs

Beginning cash balance

Ending cash balance

Depreciation of equipment

Cash payments

Cash collected from sales

In quarter 1, 2018

In quarter 4, 2017

Payment for labor

Payment of income taxes

Payment for variable overhead

Payment for fixed selling and administrative expense

Payment of material

Beginning cash balance

In quarter 1, 2018

In quarter 4, 2017

Cash payments

Payment of material

Ending cash balance

Payment for fixed bug removal costs

Payment for labor

Payment for variable overhead

Depreciation of equipment

Cash collected from sales

Payment for fixed selling and administrative expense

Payment of income taxes

Excess/(deficiency) of receipts over disbursements

Excess/(deficiency) of receipts over disbursements

Payment for fixed bug removal costs

In quarter 4, 2017

Payment for fixed selling and administrative expense

Cash collected from sales

Depreciation of equipment

In quarter 1, 2018

Cash payments

Payment for labor

Beginning cash balance

Ending cash balance

Payment of material

Payment for variable overhead

Payment of income taxes

Ending cash balance

In quarter 4, 2017

In quarter 1, 2018

Payment for labor

Payment for variable overhead

Excess/(deficiency) of receipts over disbursements

Payment for fixed bug removal costs

Payment for fixed selling and administrative expense

Payment of income taxes

Beginning cash balance

Cash collected from sales

Payment of material

Depreciation of equipment

Cash payments

Payment of material

Cash collected from sales

Payment for fixed bug removal costs

Depreciation of equipment

Cash payments

Payment of income taxes

In quarter 4, 2017

Beginning cash balance

Payment for fixed selling and administrative expense

Excess/(deficiency) of receipts over disbursements

Ending cash balance

In quarter 1, 2018

Payment for labor

Payment for variable overhead

Beginning cash balance

Payment for labor

In quarter 4, 2017

Ending cash balance

Depreciation of equipment

Payment for fixed selling and administrative expense

Excess/(deficiency) of receipts over disbursements

Payment of income taxes

Payment of material

Cash collected from sales

Cash payments

In quarter 1, 2018

Payment for variable overhead

Payment for fixed bug removal costs

Beginning cash balance

Payment for fixed selling and administrative expense

Cash payments

Ending cash balance

Payment of material

In quarter 4, 2017

In quarter 1, 2018

Payment for labor

Payment for variable overhead

Depreciation of equipment

Cash collected from sales

Payment for fixed bug removal costs

Payment of income taxes

Excess/(deficiency) of receipts over disbursements

Payment of material

Cash collected from sales

Payment for labor

Payment for variable overhead

Depreciation of equipment

Payment of income taxes

Payment for fixed bug removal costs

Excess/(deficiency) of receipts over disbursements

Payment for fixed selling and administrative expense

Beginning cash balance

Cash payments

Ending cash balance

In quarter 4, 2017

In quarter 1, 2018

Depreciation of equipment

Payment for fixed selling and administrative expense

Payment of material

Payment for labor

Beginning cash balance

In quarter 4, 2017

Excess/(deficiency) of receipts over disbursements

Ending cash balance

Cash collected from sales

In quarter 1, 2018

Payment of income taxes

Cash payments

Payment for variable overhead

Payment for fixed bug removal costs

Add

Less

:

Depreciation of equipment

Payment for labor

In quarter 1, 2018

Excess/(deficiency) of receipts over disbursements

Payment for variable overhead

Payment for fixed bug removal costs

In quarter 4, 2017

Beginning cash balance

Payment for fixed selling and administrative expense

Payment of income taxes

Cash payments

Ending cash balance

Cash collected from sales

Payment of material

In quarter 1, 2018

Beginning cash balance

Excess/(deficiency) of receipts over disbursements

Payment for fixed bug removal costs

Payment for fixed selling and administrative expense

Cash collected from sales

Payment of material

Payment of income taxes

Ending cash balance

In quarter 4, 2017

Depreciation of equipment

Cash payments

Payment for labor

Payment for variable overhead

$

budgeted balance sheet as of the end of the first quarter of 2018.(List assets in order of liquidity. Round answers to 0 decimal places, e.g. 5,275.)

Penny Worth Bug Spray Manufacturing Company

Budgeted Balance Sheet

March 31, 2018

For the Year Ended March 31, 2018

For the Quarter Ended March 31, 2018

Assets

Current Assets

Intangible Assets

Liabilities

Long-term Investments

Long-term Liabilities

Net Income / (Loss)

Property, Plant and Equipment

Stockholders' Equity

Total Assets

Total Current Assets

Total Intangible Assets

Total Liabilities

Total Liabilities and Stockholders' Equity

Total Long-term Investments

Total Long-term Liabilities

Total Property, Plant and Equipment

Total Stockholders' Equity

$

Current Assets

Intangible Assets

Liabilities

Long-term Investments

Long-term Liabilities

Net Income / (Loss)

Property, Plant and Equipment

Stockholders' Equity

Total Assets

Total Current Assets

Total Intangible Assets

Total Liabilities

Total Liabilities and Stockholders' Equity

Total Long-term Investments

Total Long-term Liabilities

Total Property, Plant and Equipment

Total Stockholders' Equity

Add

Less

:

Current Assets

Intangible Assets

Liabilities

Long-term Investments

Long-term Liabilities

Net Income / (Loss)

Property, Plant and Equipment

Stockholders' Equity

Total Assets

Total Current Assets

Total Intangible Assets

Total Liabilities

Total Liabilities and Stockholders' Equity

Total Long-term Investments

Total Long-term Liabilities

Total Property, Plant and Equipment

Total Stockholders' Equity

$

Liabilities and Stockholders' Equity

Current Assets

Intangible Assets

Liabilities

Long-term Investments

Long-term Liabilities

Net Income / (Loss)

Property, Plant and Equipment

Stockholders' Equity

Total Assets

Total Current Assets

Total Intangible Assets

Total Liabilities

Total Liabilities and Stockholders' Equity

Total Long-term Investments

Total Long-term Liabilities

Total Property, Plant and Equipment

Total Stockholders' Equity

$

Current Assets

Intangible Assets

Liabilities

Long-term Investments

Long-term Liabilities

Net Income / (Loss)

Property, Plant and Equipment

Stockholders' Equity

Total Assets

Total Current Assets

Total Intangible Assets

Total Liabilities

Total Liabilities and Stockholders' Equity

Total Long-term Investments

Total Long-term Liabilities

Total Property, Plant and Equipment

Total Stockholders' Equity

Current Assets

Intangible Assets

Liabilities

Long-term Investments

Long-term Liabilities

Net Income / (Loss)

Property, Plant and Equipment

Stockholders' Equity

Total Assets

Total Current Assets

Total Intangible Assets

Total Liabilities

Total Liabilities and Stockholders' Equity

Total Long-term Investments

Total Long-term Liabilities

Total Property, Plant and Equipment

Total Stockholders' Equity

Current Assets

Intangible Assets

Liabilities

Long-term Investments

Long-term Liabilities

Net Income / (Loss)

Property, Plant and Equipment

Stockholders' Equity

Total Assets

Total Current Assets

Total Intangible Assets

Total Liabilities

Total Liabilities and Stockholders' Equity

Total Long-term Investments

Total Long-term Liabilities

Total Property, Plant and Equipment

Total Stockholders' Equity

Current Assets

Intangible Assets

Liabilities

Long-term Investments

Long-term Liabilities

Net Income / (Loss)

Property, Plant and Equipment

Stockholders' Equity

Total Assets

Total Current Assets

Total Intangible Assets

Total Liabilities

Total Liabilities and Stockholders' Equity

Total Long-term Investments

Total Long-term Liabilities

Total Property, Plant and Equipment

Total Stockholders' Equity

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed
*Problem 10-2 The results of operations for the Penny Worth Bug Spray Manufacturing Company for the fourth quarter of 2017 were as follows (in thousands): Sales of bug spray $580,000 Less variable cost of goods sold 324,800 Contribution margin 255,200 Less fixed bug removal costs $81,200 Less fixed selling and administrative expenses 34,800 116,000 Income before taxes 139,200 Less taxes on income 55,680 Net income $83,520 Note: Penny Worth uses the variable costing method. Thus, only variable costs are included in the cost of goods sold. Fixed costs are charged to expense in the period incurred. The company's balance sheet as of the end of the fourth quarter of 2017 was as follows (in thousands): Assets: Cash $ 34,200 Accounts receivable 290,000 Total current assets 324,200 Fixtures and equipment $140,000 Less accumulated depreciation 70,000 70,000 Total assets $394,200 Liabilities and owners' equity: Accounts payable $ 51,968 Retained earnings 234,832 Common stock 107,400 Total liabilities and owners' equity $ 394,200 Additional information: 1. Sales and variable costs of sales are expected to increase by 5 percent in the next quarter. 2. All sales are on credit with 50 percent collected in the quarter of sale and 50 percent collected in the following quarter. 3. Variable cost of sales consists of 40 percent materials, 38 percent direct labor, and 22 percent variable overhead. Materials are purchased on credit. 60 percent are paid for in the quarter of purchase, and the remaining amount is paid for in the quarter after purchase. There is no inventory. Also, direct labor and variable overhead costs are paid in the quarter the expenses are incurred. 4. Fixed bug removal costs (other than $4,530 of depreciation expense) are expected to increase by 1.50 percent. Fixed bug removal costs requiring payment are paid in the quarter they are incurred. 5. Fixed selling and administrative costs (other than $3,100 of depreciation expense) are expected to increase by 2 percent. Fixed selling and administrative costs requiring payment are paid in the quarter they are incurred. 6. The tax rate is expected to be 40 percent. All taxes are paid in the quarter they are incurred. 7. No purchases of fixtures or equipment are expected in the first quarter of 2018.Prepare a budgeted income statement for the first quarter of 2018. (Round fixed bug removal costs to 3 decimal places, e.g. 0.100 and final answers to 0 decimal places, e.g. 5,275.) Penny Worth Bug Spray Manufacturing Company Budgeted Income Statement v v: v v Sales of bug spray Variable cost of goods sold Net income/(loss) for the first quarter of 2018. Contribution margin Fixed bug removal costs ights Reserved. A Division of John Wiley & Sons, Inc. Fixed selling and administrative expenses Taxes on income Income before taxesPrepare a budgeted statement of cash budget for the first quarter of 2018. Penny Worth Bug Spray Manufacturing Company Cash Budget For the First Quarter, 2018Prepare a budgeted balance sheet as of the end of the first quarter of 2018. (List assets in order of liquidity. Round answers to 0 decimal places, e.g. 5,275.) Penny Worth Bug Spray Manufacturing Company Budgeted Balance Sheet Assets Liabilities and Stockholders' Equity $

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