Question 1 (Total 5 marks)

MingMing Company expects a peak sales will occur in third quarter. It has requested a $20,000, 90-day loan from its bank to help meet cash requirements during the quarter (July to September). Since MingMing Company has experienced difficulty in paying off its loan in the past, the loan officer at the bank has asked the company to prepare a cash budget for the quarter. In response to this request, the following data has been assembled.

a. On July 1, the company has a cash balance of $30,000.

b. Actual sales for the last two months and budgeted sales for third quarter follow (all sales are on account).

May (actual)	$180,000	June (actual)	$220,000
July (budgeted)	$300,000	August (budgeted)	$380,000
September (budgeted)	$350,000

Past experience shows that 25% of a months sales are collected in the month of sale, 65% in the month following sale, and 5% in the second month following sale. The remainder is uncollectible.

c.Budgeted merchandise purchases and budgeted expenses for the third quarter are given below:

	July	August	September
Merchandise purchase	$180,000	$228,000	$210,000
Salaries and wages	30,000	32,000	32,000
Advertising	80,000	80,000	70,000
Rent payments	6,000	6,000	6,000
Depreciation	5,000	5,000	5,000

Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30, which will be paid during July total $135,000.

d. Equipment costing $14,000 will be purchased for cash during July.

e. In preparing the cash budget, assume that the $20,000 loan will be made in July and repaid in September. Interest on the loan will be total $600.

1

Required:

1. Prepare a schedule of expected cash collections for July, August and September. (2 marks)

2. Prepare a cash budget by month from July to September. (3 marks)

Question 2 (Total 5 marks)

In January 2021, Linda Co. has the following standard and actual costs related to 500 units actually produced:

	Standard	Actual
Direct Materials
Standard: 2 kilogram per unit at $1.5/kg	$3.00
Actual: 1.9 kilogram per unit at $1.6/kg		$3.04
Direct Labor
Standard: 1.5 hours per unit at $6.00/hr	9.00
Actual: 1.7 hours per unit at $6.30/hr		10.71

Required:

Calculate the following variances, staying whether the variance is favorable (F) or unfavorable (U):

1. Direct material price variance. (1 mark)

2. Direct material quantity variance. (1 mark)

3. Direct labor rate variance. (1 mark)

4. Direct labor quantity(efficiency) variance. (1 mark)

5. Give TWO reasons why an unfavorable price variance for direct materials might be reported. (1 mark)