Problem Solving Questions 1. Deakin Lid prepares monthly cash budgets. Provided below is a set of relevant data extracted from existing reports, and the sub-budgets for the two months of September and October. September October Credit sales $314,000 $412,000 Direct materials $162,000 $216,000 Direct labour $51,400 $55,200 Manufacturing overhead $21,600 $23,400 Marketing expenses $39,000 $39,000 Proceeds from sale of $8,200 equipment Cash payment for new IT $16,500 equipment All sales are on credit. Credit sales are collected in the following pattern: 60 per cent in the month of sale, 30 per cent in the month following the sale, and 10 per cent in the second month following the sale. Sales in June, July and August were $295 000, $266 000 and $302 000 respectively. Direct material purchases are paid for in the month following the purchase. Purchases in August were $182 000 Manufacturing overhead includes $12 500 for depreciation expense, while the marketing and administration expenses include an amount off $5 600 for depreciation expenses. Deakin Lid expects to be able to repay the principal on a $50 000 loan in October. Required a) How are budgets related to organisational strategies? b) Describe the types of information that managers use to develop budgets. c) Prepare a schedule of receipts from debtors for the two months ending 31 October. d) Prepare a cash budget for September and October. The cash balance at 31 August was $12 600. e) As part of its long-term plans, Deakin Lid was hoping to commence a product reinvention program for one of its core products. The project would require an initial cash commitment of $40 000. Management was hoping to fund this from the cash flows of the business. Does this seem feasible? 2. Zenc Ltd allocates overhead on the basis of direct labour hours. Two direct labour hours are required for each unit of product. Planned production for the period was set at 9 000 units. Manufacturing overhead is estimated at $135 000 for the period (20 per cent of this cost is fixed). The 17 200 hours worked during the period resulted in the production of 8 500 units. Variable Page 2 of 4 ASSESSMENT BRIEF manufacturing overhead cost incurred was $108 500 and the fixed manufacturing overhead cost was $28 000. Required a) Discuss factors that affect accountant's decisions to investigate the reasons for variances. b) Should managers view favourable variances as always good news and unfavourable variances as always bad news? Discuss. c) Determine the variable overhead spending variance d) Determine the variable overhead efficiency (quantity) variance. e) Determine the fixed overhead spending (budget) variance. You have been asked by the production manager of Zenc Itd to prepare a variance report for product costs so that they can identify areas in need of improved cost control. List all of the variances you would present in the variance report for production costs and explain why each is useful