PROBLEM 8-13 Comprehensive Problem with Labour Fixed

Zurgot Inc. has just organized a new division to manufacture and sell specially designed computer tables, using select hardwoods. The division's monthly costs are shown in the schedule below:

Manufacturing costs: Variable costs per unit:

Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 152

Variable manufacturing overhead . . . . . . . . . . . . . . . . . . $10

Fixed manufacturing overhead costs (total) . . . . . . . . . . . . .$340,000

Selling and administrative costs:

Variable ........................................ 15% of sales

Fixed(total).....................................$160,000

Zurgot regards all of its workers as full-time employees, and the company has a long-standing no-layoff policy. Furthermore, production is highly automated. Accordingly, the company includes its labour costs in its fixed manufacturing overhead. The tables sell for $400 each.

During the first month of operations, the following activity was recorded:

Units produced . . . . . . . . . 4,000

Units sold . . . . . . . . . . . . . . 3,200

Required:

1. Compute the unit product cost under a. Absorption costing. b. Variable costing.

2. Prepare income statement for the month using absorption costing.

3. Prepare contribution format income statement for the month using variable costing.

4. Assume that the company must obtain additional financing. As a member of top management,

which of the statements that you have prepared in (2) and (3) above would you prefer to have with

you when you negotiate with the bank? Why?

5. Reconcile the absorption costing and variable costing operating income figures in (2) and (3)

above.

PROBLEM 9-20 Completing a Master Budget [LO2] The following data relate to the operations of Soper Company, a wholesale distributor of consumer goods, as of March 31:

Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,000

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . .20,000

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000

Building and equipment, net . . . . . . . . . . . . . . . . .120,000

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 21,750

Common shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 12,250

a. The gross margin is 25% of sales.

b. Actual and budgeted sales data are as follows:

March (actual). . . . . . . . . . . . . . . . . . . . . . . . . . . .$50,000

April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000

May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000

June . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000

July . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000

c. Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.

d. Each month's ending inventory should equal 80% of the following month's budgeted cost of goods sold.

e. One-half of a month's inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.

f. Monthly expenses are as follows: commissions, 12% of sales; rent, $2,500 per month; other ex-

penses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly.Depreciation is $900 per month (includes depreciation on new assets).

g. Equipment costing $1,500 will be purchased for cash in April.

h. The company must maintain a minimum cash balance of $4,000. An open line of credit is available at a local bank. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. The monthly interest rate is 1%. Interest must be paid at the end of each month

based on the total loans outstanding for that month.

Required:

Using the data above, complete the following:

1. Schedule of expected cash collections: