ACCT 210 Exam 3 PRACTICE PROBLEMS
On January 1, Sunland Company has a beginning cash balance of $306000. During the year, the company expects cash disbursements of $1090000 and cash receipts of $920000. If Sunland requires an ending cash balance of $230000, Sunland Company must borrow
$94000
Labor Price Variance
(AH x AR) - (AH x SR) = LPV
Total Labor Variance Formula
(AH x AR) - (SH x SR) = TLV
Labor Quantity Variance
(AH x SR) - (SH x SR) = LQV
Materials Price Variance Formula
(AQ x AP) - (AQ x SP) = MPV
Total Materals Variance Formula
(AQ x AP) - (SQ x SP) = TMV
Materials Quantity Variance Formula
(AQ x SP) - (SQ x SP) = MQV
Average Operating Assets Formula
(beginning assets + ending assets) / 2
Important end-product of operating budgets Indicates expected profitability of operations Provides a basis for evaluating company performance Prepared from operating budgets (sales, DM, DL, MOH, Selling and Administrative)
Budgeted Income Statement
Internal Rate of Return First Formula
Capital Investment / Net Annual Cash Flow = PV of Annuity Factor
Shows anticipated cash flows with beginning and ending cash balances Important output in preparing financial budgets Indicates when excess cash will be available and alerts the need for additional financing before actual need arises Three sections: Cash Receipts or Collections (inflow) Cash Disbursements or Payments (outflows) Financing - Borrowing if Deficiency/Repayment if Surplus
Cash Budget
Shows both quantity of hours and cost of direct labor necessary to meet production requirements Critical in maintaining a labor force that can meet expected production
Direct Labor Budget
Direct Materials Budget
Direct Material Units Required for Production + Desired Ending DM Units - Beg DM Units = DM Required to be Purchased
T/F: The budgeted income statement is the starting point in preparing financial budgets.
False
Actual Costs LESS THAN Standard Costs
Favorable variance
Balanced Scorecard
Financial, Customer, Internal Process, Learning and Growth
Internal Rate of Return Decision
Internal Rate of Return Compared to Required Rate of Return If equal to or greater than: ACCEPT If less than: REJECT
Wayne Company is considering a long-term investment project called ZIP. ZIP will require an investment of $111,252. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $82,400, and annual cash outflows would increase by $44,300. The company's required rate of return is 12%. Click here to view PV table. Calculate the internal rate of return on this project. Determine whether this project should be accepted.
Internal rate of return on this project is between 12% and 15% ACCEPT
Kaspar Industries expects credit sales for January, February, and March to be $210,900, $266,000, and $311,900, respectively. It is expected that 75% of the sales will be collected in the month of sale, and 25% will be collected in the following month. Compute cash collections from customers for each month.
January x January: $158,175 JAN TOTAL: 158,175 January x February: $52,725 February x February: $199,500 FEB TOTAL: 252,225 February x March: $66,500 March x March: $233,925 MARCH TOTAL: 300,425
Shows expected manufacturing overhead costs for budget period Distinguishes between variable and fixed costs - Variable in total will fluctuate based on units produced (indirect materials, indirect labor, variable portion of utilities, maintenance. etc) - Fixed will stay the same in total, regardless of the number of units produced (supervisor salary, equipment depreciation, property tax, insurance, etc)
Manufacturing Overhead Budget
Thunder Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $128,967 and have an estimated useful life of 6 years. It can be sold for $64,300 at the end of that time. (Amusement parks need to rotate exhibits to keep people interested.) It is expected to increase net annual cash flows by $20,300. The company's borrowing rate is 8%. Its cost of capital is 10%. Click here to view PV table. Calculate the net present value of this project to the company and determine whether the project is acceptable
NPV: $(4260) REJECT
Wayne Company is considering a long-term investment project called ZIP. ZIP will require an investment of $129,600. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $80,100, and annual cash outflows would increase by $40,600. The company's required rate of return is 8%. Click here to view PV table. Calculate the net present value on this project.
NPV: 1129 ACCEPT
Net Present Value Method
Present Value of Net Cash Flows - Capital Investment = Net Present Value If zero or positive > ACCEPT If negative > REJECT
Paige Company estimates that unit sales will be 11,100 in quarter 1, 12,400 in quarter 2, 14,300 in quarter 3, and 18,800 in quarter 4. Using a sales price of $84 per unit. Prepare the sales budget by quarters for the year ending December 31, 2020.
Q1: $932,400 Q2: $1,041,600 Q3: $1,201,200 Q4: 1,579,200 Year: $4754400
Actual Gross Profit
Sales Revenue Less: COGS = Standard Gross Profit Less/Add: Variances = Actual Gross Profit:
Projection of anticipated operating expenses (period costs) Variable: shipping, sales commissions Fixed: advertising, sales salaries, office depreciation
Selling and Administrative Expense Budget
Levine Inc., which produces a single product, has prepared the following standard cost sheet for one unit of the product. Direct materials (8 pounds at $2.40 per pound) $19.20 Direct labor (5 hours at $12.00 per hour) $60.00 During the month of April, the company manufactures 260 units and incurs the following actual costs. Direct materials purchased and used (2,400 pounds) $6,240 Direct labor (1,310 hours) $15,458 Compute the total, price, and quantity variances for materials and labor.
TMV: 1248 U MPV: $480 U MQV: $768 U TLV: $142 F LPV: $262 F LQV: $120
Which of the following lists includes only financial budgets? a. Budgeted income statement, budgeted balance sheet, and sales budget. b. Cash budget, production budget, and capital expenditures budget. c. Budgeted balance sheet, cash budget, and the capital expenditures budget. d. Capital expenditure budget, sales budget, and budgeted income statement.
c. Budgeted balance sheet, cash budget, and the capital expenditures budget.
Each of the following budgets is used in preparing the budgeted income statement except the sales budget capital expenditure budget selling and administrative budget direct labor budget
capital expenditure budget
Controllable Margin
contribution margin - controllable fixed costs
Return on Investment Equation
controllable margin / average operating assets
The direct labor budget and manufacturing overhead budget are prepared directly from the a. sales budget b. cash budget c. budgeted income statement d. production budget
d. production budget
The Master Budget
sales budget, production budget, DM DL MOH Budgets, Selling and Administrative Expense Budget, Budgeted Income Statement, Capital Expenditure Budget > Cash Budget > Budgeted Balance Sheet
Production Budget Explanation
shows the units that must be produced to meet anticipated sales (sales budget plus desired change in FG)
Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $195,500 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $34,500. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. Assume a discount rate of 10%. Click here to view PV table. Calculate the net present value. How much would the reduction in downtime have to be worth in order for the project to be acceptable?
$(11,445) $11,445
Brady Corp. is considering the purchase of a piece of equipment that costs $20,000. Projected net annual cash flows over the project's life are: (1) $4000 (2) 8000 (3) 12000 Calculate the net present value of the equipment. Assume a discount rate of 10%.
$(736.20) REJECT
In October, Pine Company reports 19,300 actual direct labor hours, and it incurs $121,900 of manufacturing overhead costs. Standard hours allowed for the work done is 23,000 hours. The predetermined overhead rate is $5.35 per direct labor hour. Compute the total overhead variance.
$1150 Favorable
Concord Design provided the following budgeted information for April through July: Projected Sales: (April) $104500, (May) $122900, (June) $115300, (July) $132200 Projected Merchandise Purchases: (April) $81700, (May) $92200, (June) $78100, (July) $66300 The cash balance on June 1 is $11500. The company pays 40% of merchandise purchases in the month purchased and 60% in the following month. General operating expenses are budgeted to be $31000 per month of which depreciation is $3200 of this amount. Management pays operating expenses in the month incurred. The company makes loan payments of $3600 per month of which $610 is interest and the remainder is principal. How much are budgeted cash disbursements for June?
$117960
Hsung Company accumulates the following data concerning a proposed capital investment: cash cost $248,238, net annual cash flows $44,200, and present value factor of cash inflows for 10 years is 5.89 (rounded). Determine the net present value, and indicate whether the investment should be made.
$12,100 ACCEPT
Tomy Toys is planning to sell 200 action figures and to produce 190 action figures in July. Each action figure requires 100 grams of plastic and a half hour of direct labor. The cost of the plastic used in each action figure is $5 per 100 grams. Employees of the company are paid at a rate of $15.00 per hour. Manufacturing overhead is applied at a rate of 120% of direct labor costs. Tomy Toys has 90,000 grams of plastic in its beginning inventory and wants to have 80,000 grams in its ending inventory. What is the amount of budgeted direct labor cost for the month of July?
$1425
At the beginning of the year, Opal Company has a cash balance of $23,000. During the year, the company expects cash disbursements of $160,000, and cash receipts of $140,000. If Opal Company requires an ending cash balance of $20,000, how much must the company borrow?
$17,000
Concord Office Goods budgeted 12100 and produced 10000 tape dispensers during June. Ivanhoe used to make the dispensers is purchased by the pound. Standards and actual costs follow for June: Materials: 3.00 pounds @ $5.00 a pound Labor: 0.25 hours @ $14.00 per hour VOH: $3.25 per dispenser FOH: $1.70 per dispenser
$23.45
Jones Manufacturing incurred fixed overhead costs of $8,000 and variable overhead costs of $4,600 to produce 1,000 gallons of liquid fertilizer. It takes 2 hours of direct labor to produce 1 gallon of fertilizer. The standard hours allowed to produce 1,000 gallons of fertilizer is 2,000 hours. Predetermined overhead rate is $5/direct labor hour. What is the total overhead variance?
$2600 U
In producing product AA, 6,300 pounds of direct materials were used at a cost of $1.10 per pound. The standard was 6,000 pounds at $1.00 per pound. The direct materials quantity variance is
$300 unfavorable
Jent Company reported the following information for 2019: Budgeted Sales: October: $320,000 November: $340,000 December: $360,000 Budgeted Purchases: October: $120,000 November: $128,000 December: $144,000 All sales are on credit Customer amounts on account are collected 40% in the month of sale and 60% in the following month. Compute the amount of cash Jent will receive during November
$328,000
Tropic Zone Corporation experienced the following variances: materials price $360 U, materials quantity $1,730 F, labor price $820 F, labor quantity $510 F, and total overhead $1,220 U. Sales revenue was $93,900, and cost of goods sold (at standard) was $52,600. Determine the actual gross profit
$42,780
Hank Itzek manufactures and sells homemade wine, and he wants to develop a standard cost per gallon. The following are required for production of a 50-gallon batch. 3,360 ounces of grape concentrate at $0.02 per ounce 54 pounds of granulated sugar at $0.55 per pound 60 lemons at $0.90 each 150 yeast tablets at $0.26 each 250 nutrient tablets at $0.14 each 2,400 ounces of water at $0.005 per ounce Hank estimates that 4% of the grape concentrate is wasted, 10% of the sugar is lost, and 25% of the lemons cannot be used. Compute the standard cost of the ingredients for one gallon of wine
$5.22
Expected direct materials purchases in Read Company are $70,000 in the first quarter and $90,000 in the second quarter. Forty percent of the purchases are paid in cash as incurred, and the balance is paid in the following quarter. The budgeted cash payments for purchases in the second quarter are
$78,000
At the beginning of the year, Goldenrod had beginning inventory of 2,000 scooters. Goldenrod estimates it will sell 5,000 units during the first quarter of the current year, with a 10% increase in sales each quarter. It is Goldenrod's policy to maintain an ending inventory equal to 20% of the next quarter's budgeted sales. Each scooter costs $100 to produce and sold for $150. How much is the budgeted sales revenue for the third quarter of the current year?
$907,500
Direct materials inventories are kept in pounds in Byrd Company, and the total pounds of direct materials needed for production is 9,500. If the beginning inventory is 1,000 pounds and the desired ending inventory is 2,200 pounds, the total pounds to be purchased are
10,700 (amount needed for production + desired ending - beginning inv)
Kanye Company is evaluating the purchase of a rebuilt spot-welding machine to be used in the manufacture of a new product. The machine will cost $175,000, has an estimated useful life of 7 years, a salvage value of zero, and will increase net annual cash flows by $37,138. What is its approximate internal rate of return?
11%
Kanye Company is evaluating the purchase of a rebuilt spot-welding machine to be used in the manufacture of a new product. The machine will cost $180,000, has an estimated useful life of 7 years, a salvage value of zero, and will increase net annual cash flows by $39,441. Click here to view PV table. What is its approximate internal rate of return?
12%
A company budgeted unit sales of 204000 units for January, 2017 and 180000 units for February 2017. The company has a policy of having an inventory of units on hand at the end of each month equal to 30% of next month's budgeted unit sales. If there were 61200 units of inventory on hand on December 31, 2016, how many units should be produced in January, 2017 in order for the company to meet its goals?
196800 units
Pitt Corp. makes and sells a single product, widgets. Two pounds of sand are needed to make one widget. Budgeted production of widgets for the next two months follows: September 25,000 units October 31,000 units The company wants to maintain monthly ending inventories of sand equal to 20% of the following month's production needs. On August 31, 10,000 pounds of sand were on hand. How much sand should be purchased in September?
52,400
Linkin Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company's current truck (not the least of which is that it runs). The new truck would cost $55,500. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $7,400. At the end of 8 years, the company will sell the truck for an estimated $27,700. Traditionally the company has used a rule of thumb that a proposal should not be accepted unless it has a payback period that is less than 50% of the asset's estimated useful life. Larry Newton, a new manager, has suggested that the company should not rely solely on the payback approach, but should also employ the net present value method when evaluating new projects. The company's cost of capital is 8%. Compute the cash payback period and net present value of the proposed investment.
7.5 years, REJECT $1991 NPV, ACCEPT
Brutus Inc. is considering the purchase of a new machine for $500,000. It is expected that the equipment will generate annual cash inflows of $100,000 and annual cash outflows of $37,500 over its 10 year life. Annual depreciation is $50,000. Compute the cash payback period.
8 years
Rihanna Company is considering purchasing new equipment for $527,000. It is expected that the equipment will produce net annual cash flows of $62,000 over its 10-year useful life. Annual depreciation will be $52,700. Compute the cash payback period
8.5 years
The flexible budget formula is fixed costs $50,000 plus variable costs of $4 per direct labor hour. What is the total budgeted cost at (a) 9,000 hours and (b) 12,345 hours?
9000 hours: $86,000 12345 hours: $99,380
Total Overhead Variance
Actual Overhead - Overhead Applied
Cahs Payback Period Formula (equal)
Cost of Capital Investment / Net Annual Cash Flow
Cash Payback Period Formula (Unequal)
Cumulative net cash flows from investment = cost of investment
Actual Costs MORE THAN Standard Costs
Unfavorable variance
Direct Labor Cost Formula
Units to be Produced x Direct Labor Hours per Unit = Total Required Direct Labor Hours x Direct Labor Cost per hour = Total Direct Labor Cost
Standard Cost
What it should cost a company to make one unit of product
Labor data for making one gallon of finished product in Bing Company are as follows. (1) Price— hourly wage rate $16.10, payroll taxes $0.50, and fringe benefits $1.80. (2) Quantity—actual production time 1.50 hours, rest periods and cleanup 0.30 hours, and setup and downtime 0.30 hours. Compute the following. a. Standard direct labor rate per hour b. Standard direct labor hours per gallon c. Standard labor cost per gallon
a. $18.40 b. 2.10 hours c. $38.64
Simba Company's standard materials cost per unit of output is $9.00 (2.00 pounds x $4.50). During July, the company purchases and uses 2,420 pounds of materials costing $12,826 in making 1,100 units of finished product. Compute the total, price, and quantity materials variances a. Total materials variance b. Materials price variance c. Materials quantity variance
a. $2926 Unfavorable b. $1936 Unfavorable c. $990 Unfavorable
Tang Company accumulates the following data concerning raw materials in making one gallon of finished product. (1) Price—net purchase price $2.70, freight-in $0.60, and receiving and handling $0.50. (2) Quantity—required materials 3.50 pounds, allowance for waste and spoilage 0.90 pounds. Compute the following: a. Standard direct materials price per gallon b. Standard direct materials quantity per gallon c. Total standard materials cost per gallon
a. $3.80 b. 4.40 pounds c. $16.72
Mordica Company's standard labor cost per unit of output is $33.00 (3.00 hours x $11.00 per hour). During August, the company incurs 2,970 hours of direct labor at an hourly cost of $9.90 per hour in making 1,100 units of finished product. Compute the total, price, and quantity labor variances
a. $6897 Favorable b. $3267 Favorable c. $3630 Favorable
Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $22,220. Each project will last for 3 years and produce the following net annual cash flows. AA: (1) 7070, (2) 9090, (3) 12120 BB: (1) 10100, (2) 10100, (3) 10100 CC: (1) 13130, (2) 12120, (3) 11110 Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $22,220. Each project will last for 3 years and produce the following net annual cash flows. a. Compute each project's payback period. b. What is the most desirable project based on payback? And least desirable? c. Compute net present value of each project. d. What is the most desirable project based on NPV? And least desirable?
a. AA: 2.50 years BB: 2.20 years CC: 1.75 years b. Most desirable: CC Least desirable: AA c. AA: (34) BB: 2038 CC: 7073 d. Most desirable: CC Least desirable: AA
Palo Alto Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company's current truck (not the least of which is that it runs). The new truck would cost $87,804. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate annual cost savings of $14,921. At the end of 9 years the company will sell the truck for an estimated $12,688. Traditionally the company has used a rule of thumb that a proposal should not be accepted unless it has a payback period that is less than 50% of the asset's estimated useful life. Larry Newton, a new manager, has suggested that the company should not rely solely on the payback approach, but should also employ the net present value method when evaluating new projects. The company's cost of capital is 10%. (discount rate) a. Compute the cash payback period and net present value of the proposed investment. b. Does the project meet the company's cash payback criteria? c. Does it meet the net present value criteria for acceptance?
a. Cash Payback Period: 5.88 years NPV: $3,507 b. No, REJECT c. Yes, ACCEPT
Indicate which of the four perspectives in the balanced scorecard is most likely associated with the objectives that follow a. Percentage of repeat customers. b. Number of suggestions for improvement from employees. c. Contribution margin. d. Brand recognition. e. Number of cross-trained employees. f. Amount of setup time.
a. Customer perspective b. Learning and growth perspective c. Financial perspective d. Customer perspective e. Learning and growth perspective f. Internal process perspective
In most cases, not-for-profit entities a. begin the budgeting process by budgeting expenditures rather than receipts. b. can ignore budgets because they are not expected to generate net income. c. know budgeted cash receipts at the beginning of a time period, so they budget only for expenditures. d. prepare budgets using the same steps as those used by profit-oriented enterprises
a. begin the budgeting process by budgeting expenditures rather than receipts.
Net Annual Cash Flow
annual cash inflows - annual cash outflows
Production Budget Formula
budgeted sales units + desired ending inventory in units = total units needed - beginning inventory in units = required production units
