+1-415-315-9853

info@mywordsolution.com

## Accounting

 Accounting Basics Cost Accounting Financial Accounting Managerial Accounting Auditing Taxation

problem 1: Budgeting

Your friend Peter is planning to set up a new business which will manufacture and sell wooden tables. The parts that make up the table consist of a wooden table top measuring 1m by 0.5m, four legs and 3m of trim. The wooden table top supplied by the vendor measures 1m by 1m and has to be cut into two halves before assembly. The legs are also supplied by the same vendor. The trim is supplied by another supplier and comes in rolls of 30m.

Peter knows you are a management accountant and has asked you to help him prepare a budget for his new business so that he knows whether he can make any profit in the first six months. The following is Peter’s plan and estimates:

The new business will begin operations on 1 Jan 2013.

Peter will put in \$65,000 of his personal funds into the business and he has obtained a loan of \$50,000 from a bank to be available on 1 Jan 2013. The loan interest is 5% per annum on the loan outstanding and interest is to be paid on the last day of each month. A principal payment of \$1,000 will also be made at the end of each month.

Plant and machinery will be purchased on 1 Jan at a cost of \$36,000, to be paid in three equal monthly installments interest free. The plant and machinery is to be depreciated on a straight line basis over 5 years. Office equipment will be purchased on 1 Jan at a cost of \$30,000 to be paid in full in Feb. The office equipment will be depreciated on a straight line basis over 3 years.

Sales will start in Feb and Peter estimates that sales volume will be 400 units in Feb, increasing by 100 units every month until it reaches the production capacity of 1,000 units per month. Selling price is set at \$145 per unit. 75% of the sales is expected to be on credit and the rest for cash. For the credit sales, Peter predicts that 60% will pay in the month following the sale, 30% in the second month following the sale and 10% in the third month of the sale.

Unit costs for the parts are:

Table top (1m by 1m)  \$50
Leg (each)   \$4
Trim (30m roll)  \$100

Labour costs are:
Direct labour   1.5 hours per table
Direct labour rate  \$30 per hour

Peter wishes to have an ending finished goods inventory equal to 20% of the sales requirements of the following month. The  ending inventory for table top and legs should equal 30% of the production requirement of the next month. As for trims, it should be 10% of the production requirement of the next month rounded down to the nearest roll. There are no WIP inventories. Terms on purchases are 40% cash on delivery (COD) and 60% payable in the next month. A 2% discount is available for COD payments. Discounts received are reported as “Other Income” in the income statement. The company follows the terms of payment to take advantage of the COD discount. Direct labour cost is paid one month in arrears.

Variable manufacturing overhead is estimated to be \$2 per table. Fixed manufacturing overhead (excluding depreciation) is expected to be \$6,000 per month. Variable selling & administration expenses are expected to be 5% of sales. Fixed selling & administration expenses (excluding depreciation) are budgeted to be \$3,000 per month.

All manufacturing overhead and selling & administration expenses are paid in the month incurred.

The company uses absorption costing to determine its product cost.

Required:

Based on the information given, and ignoring GST and taxation, prepare the following from Jan to June 2013 for Peter’s company:

a) A monthly sales budget
b) A monthly production budget
c) A monthly purchase budget
d) A monthly cash receipts budget
e) A monthly cash disbursement budget for material purchase
f) A monthly cash disbursement budget for other items including the payment of long term loan principal and interest
g) A cash flow budget
h) A budgeted income statement for the six months from 1 Jan to 30 June 2013
i) A budgeted balance sheet as of 30 June 2013
j) A budgeted movement of owner’s equity for the six months

problem 2: Performance measurement

Brabham Enterprises manufactures tires for  the Formula One motor racing circuit. For August 2011, Brabham budgeted to manufacture and sell 3,000 tires at a variable cost of \$74 per tire and a total fixed cost of \$54,000. The budgeted selling price was \$110 per tire.  Actual results in August 2011 were 2,800 tires manufactured and sold at a selling price of \$112 per tire. The actual total variable costs were \$229,600 and the actual fixed costs were \$50,000.

Required:

a) Prepare a performance report that uses a flexible budget and static budget showing the different variances between the actual and the static budget and the flexible budget

b) Discuss the difference between a static budget and a flexible budget and comment on the results based on the performance report you have prepared for Brabham.

Accounting Basics, Accounting

• Category:- Accounting Basics
• Reference No.:- M91970

Have any Question?

## Related Questions in Accounting Basics

### Accounting for gov amp not for profit1 explain in 2-4

ACCOUNTING FOR GOV & NOT FOR PROFIT 1. Explain in 2-4 sentences the difference between government Agency funds and Fiduciary funds. 2. What information is or is not required to be reported in the RSI for pension plans un ...

### 1 which of the following statements about equity is

1. Which of the following statements about equity is correct? A. If equity is negative, debt exceeds total assets B. If equity is negative, total assets exceed debt C. If equity is negative, equity exceeds assets D. If e ...

### In this assignment you will use the internet and other

In this assignment, you will use the Internet and other sources to gather and interpret information related to service and manufacturing organizations. Select either a service or a manufacturing organization of interest ...

### Illustrative question- shane brookson july 1 2015 shane

Illustrative Question- Shane Brooks On July 1, 2015, Shane Brooks established an interior decorating business, Premium Designs. During the month, the following transactions are completed: July  1. Transferred cash from a ...

### Problem 1emma and laine form the equal el partnership emma

PROBLEM #1 Emma and Laine form the equal EL Partnership. Emma contributes cash of \$100,000. Laine contributes property with an adjusted basis of \$40,000 and a fair market value of \$100,000. A. How much gain. If any, must ...

### This assignment will assess the following learning

This assignment will assess the following learning outcomes: - Demonstrate the impact on the financial statements and the implication for different users of accounts of alternative ways of treating controversial accounti ...

### Discussionpart 1 please respond the following question no

Discussion Part 1 please respond the following question no less then 350 words (original work, no plagiarism, 1 reference "criminal fraud versus civil fraud and taxation of u.s. businesses operating abroad" please respon ...

### 1 the concept of cost-benefit permeates smart decision

1. The concept of "Cost-Benefit" permeates smart decision making and accounting principles. How does this concept relate to incremental analysis. Provide an example to illustrate your point. Cost Benefit Respond 2. A cos ...

### Assignment- review of accounting ethics papermany

Assignment- Review of Accounting Ethics Paper Many organizations have been in the news over the past few years due to accounting ethical breaches that have affected their customers, employees, or the general public. Sear ...

### After reading the article ernst amp youngs liability for

After reading the article "Ernst & Young's Liability for Lehman Larger Than Claimed," Discuss Ernst & Young's "going-on" liability after their 2007 arbitrary cutoff of responsibility from Lehman Brothers financial statem ...

• 13,132 Experts

## Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

### WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

### Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

### Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

### Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

### Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro