# Chapter 6 and 7 Problems

September 29, 2018

Chapter 6 and 7
Problems

Please complete the following 8 exercises
below in a word document (but must be single document). You must show your work
where appropriate (leaving the calculations within Excel cells is acceptable).
Chapter
6 Exercise 2
2. Schedule
of cash collections
Sugarland Company sells a single product and anticipates opening a new facility
in Charlotte on May 1 of the current year. Expected sales during the first
three months of activity are: May, \$60,000; June, \$80,000; and July, \$85,000.
Thirty percent of all sales are for cash; the remaining 70% are on account.
Credit sales have the following collection pattern:
Collected in the month of sale 60%
Collected in the month
following sale 35

Uncollectible 5

a. Prepare a schedule
of cash collections for May through July.
b. Compute the
expected balance in Accounts Receivable as of July 31.

Chapter
6 Exercise 4
4. Production and cash-outlay computations
RPR, Inc., anticipates that 120,000 units of product K will be sold during May.
Each unit of product K requires four units of raw material A. Actual
inventories as of May 1 and budgeted inventories as of May 31 follow.

1-May

31-May

Product K
(Units)

55,000

60,000

Rate Materials
A (Units)

40,000

37,000

Each unit of raw
material A costs \$8; RPR pays for all purchases in the month of acquisition.
Invoices that account for 80% of the cost of materials acquired will be paid
within 10 days of receipt, entitling the company to a 2% cash discount.

a.
Determine the number of units
of product K to be manufactured in May.
b.
Compute the May cash outlay for
purchases of raw material A.

July

August

September

Beginning cash balance

\$10,000

\$ ?

\$ ?

50,000

63,000

71,000

Deduct: Cash payments

-64,000

-58,000

-64,000

Cash excess (deficiency) before
financing

(\$4,000)

\$ ?

\$ ?

Financing

Borrowing to maintain minimum balance

?

?

?

Principal repayment

?

?

?

Interest payment

?

?

?

Ending cash balance

\$ ?

\$ ?

\$ ?

Chapter 6 Exercise 5
5. Abbreviated cash budget; financing emphasis
An abbreviated cash budget for Big Chuck Enterprises follows.

Big
Chuck wishes to maintain a \$10,000 minimum cash balance at all times.
Additional financing is available (and retired) in \$1,000 multiples at a 12%
interest rate. Assume that borrowings take place at the beginning of the month;
retirements, in contrast, occur at the end of the month. Interest is paid at
the time of repaying principal and computed on the portion of principal repaid.

a. Find the unknowns
in Big Chuck’s abbreviated cash budget.
b.
Determine the outstanding loan balance as of September 30,
after any repayments have been made.

Chapter 6 Problem 3
3. Comprehensive budgeting
The balance sheet of Watson Company as of December 31,
20X1, follows.

WATSON
COMPANY

Balance
Sheet

December
31, 12X1

Assets

Cash

\$4,595

Accounts
receivable

10,000

Finished goods
(575 units x \$7.00)

4,025

Direct
materials (2,760 units x \$0.50)

1,380

Plant &
equipment

\$50,000

Less:
Accumulated depreciation

10,000

40,000

Total assets

\$60,000

Liabilities
& Stockholders’ Equity

Accounts
payable to suppliers

\$14,000

Common stock

\$25,000

Retained
earnings

21,000

46,000

Total
liabilities &. stockholders’ equity

\$60,000

The following information has been extracted from the firm’s
accounting records:
1. All sales are
made on account at \$20 per unit. Sixty percent of the sales are collected in
the month of sale; the remaining 40% are collected in the following month.
Forecasted sales for the first five months of 20X2 are: January, 1,500 units,-
February, 1,600 units; March, 1,800 units; April, 2,000 units; May, 2,100
units.
2. Management wants
to maintain the finished goods inventory at 30% of the following month’s sales.
3. Watson uses four
units of direct material in each finished unit. The direct material price has
been stable and is expected to remain so over the next six months. Management
wants to maintain the ending direct materials inventory at 60% of the following
month’s production needs.
4. Seventy percent
of all purchases are paid in the month of purchase; the remaining 30% are paid
in the subsequent month.
5. Watson’s product
requires 30 minutes of direct labor time. Each hour of direct labor costs \$7.
Instructions:
a. Rounding
computations to the nearest dollar, prepare the following for January through
March:
1) Sales budget
2) Schedule of cash
collections
3) Production budget
4) Direct material purchases
budget
5) Schedule of cash
disbursements for material purchases
6) Direct labor budget
b. Determine the
balances in the following accounts as of March 31:
1) Accounts Receivable
2) Direct Materials
3) Accounts Payable

Chapter 7
Exercise 3
3. Variances for
direct materials and direct labor
Banner Company manufactures flags of various countries.
Each flag has a standard of eight square feet of fabric and three hours of
direct labor time. Information about recent production activity follows.

Actual cost of fabric: \$4.50
per square foot
Fabric consumed: 32,080
square feet
Standard price per square foot of fabric: \$4.25
Standard direct labor rate: \$10.00 per hour
Actual direct labor rate: \$10.20 per hour
Actual labor hours worked: 11,940
Actual production completed: 4,000 flags

a.
Compute the materials price
variance and the materials quantity variance.
b.
Compute the labor rate variance
and the labor efficiency variance.

Chapter 7
Exercise 5
Nova Manufacturing applies factory overhead to products
on the basis of direct labor hours. At the beginning of the current year, the
company’s accountant made the following estimates for the forthcoming period:
·
\$500,000
·
\$400,000
·
Estimated direct labor hours:
40,000

It is now 12 months later. Actual total overhead
incurred in the manufacture of 7,900 units amounted to \$895,100. Actual labor
hours totaled 39,800. Assuming a direct labor standard of five hours per
finished unit, calculate the following:
a.
variance
b.
c.

Chapter 7 Problem
1
1. P26-A1 Basic
flexible budgeting (L.O. 2)
Centron, Inc., has the following budgeted production costs:

Direct materials

\$0.40 per unit

Direct labor

1.80 per unit

2.20 per unit

Supervision

\$24,000

Maintenance

18,000

Other

12,000

The company normally manufactures between 20,000 and 25,000 units
each quarter. Should output exceed 25,000 units, maintenance and other fixed
costs are expected to increase by \$6,000 and \$4,500, respectively.
During the recent quarter ended March 31, Centron produced 25,500
units and incurred the following costs:

Direct Materials

\$10,710

Direct Labor

47,175

51,940

Supervision

24,500

Maintenance

23,700

Other

16,800

Total production costs

\$174,825

Instructions:
a.
Prepare a flexible budget for
20,000, 22,500, and 25,000 units of activity.
b.
Was Centron’s experience in the
quarter cited better or worse than anticipated? Prepare an appropriate
c.
Explain the benefit of using
flexible budgets (as opposed to static budgets) in the measurement of
performance.

Chapter 7 Problem
5
5. P26-B3
Straightforward variance analysis (L.O. 5)
Arrow Enterprises uses a
standard costing system. The standard cost sheet for product no. 549 follows.

Direct materials: 4 units @ \$6.50

\$26.00

Direct labor: 8 hours @ \$8.50

68

@ \$7.00

56

@ 2.5

20

Total standard cost per unit

\$170.00

The following information pertains to activity for
December:
1.
Direct materials acquired
during the month amounted to 26,350 units at \$6.40 per unit. All materials were
consumed in operations.
2.
Arrow incurred an average wage
rate of \$8.75 for 51,400 hours of activity.
3.
amounted to \$508,400. Budgeted fixed overhead totals \$1.8 million and is spread
evenly throughout the year.
4.
Actual production amounted to
6,500 completed units.

Instructions:
a.
Compute Arrow’s direct material
variances.
b.
Compute Arrow’s direct labor
variances.
c.
Compute Arrow’s variances for