Introduction
Assignment 5 covers chapters 8 and 9 of the textbook and should be completed after Module 9. If you are following the Suggested Schedule, the assignment is
due at the end of Week 10. Be sure you review the relevant course material before completing this assignment and the Assignment Submission Instructions.
Instructions
Question 1
Timberline Ltd. manufactures and sells a single product. The company is preparing a monthly budget for the first quarter of 20x1. The following information
has been accumulated:
a. Projected sales for December 20x0 are $600,000. For the first quarter, the company believes that sales will increase by 10% each month over the previous month's sales. Sales will then remain constant for the second quarter. Sales on account are typically 75% of total sales. Records indicate that 55% of the credit sales are collected during the month of sale, and the remainder are collected during the following month.
b. Management has determined that an ending inventory equal to 25% of next month's sales is required to fit sales demands.
c. Cost of goods sold are typically 65% of sales. Inventory is purchased on account. Timberline pays for 20% of a month's purchases in the month of
purchase and the remainder in the following month.
d. Monthly expenses are estimated as follows:
| • Training and development |
$10,000 |
| • Property and business taxes |
1,000 |
| • Supervisor's salary |
7,000 |
| • Depreciation |
15,000 |
| • Insurance |
16,000 |
| • Administrative salaries |
25,000 |
| Property and business taxes are paid on March 31st for the six month period. |
| • Sales commissions are 2% of gross sales. |
e. Timberline has negotiated the purchase of the land beside its existing facility. The company expects to make the payment in January of the new year, in the amount of $250,000. This land will be used for a future expansion of the business. The company wants to pay for this purchase primarily with cash and short-term investments. If necessary, the remainder of the purchase will be financed using a short-term, threemonth loan from the bank. Interest rates are expected to be 6%. All borrowing is considered to happen on the first day of the month and repayments are on the last day of the month. All borrowings and repayments should be in multiples of $1,000.
f. The company requires a minimum cash balance of $20,000.
g. Income taxes are estimated to be 25% of net income. The balance in the payable account will not be paid until April 20x1.
h. Timberline has a policy of paying dividends at the end of each quarter. The board of directors is planning on continuing its policy of declaring and paying dividends of $75,000 per quarter.
i. Estimated balances in the company's ledger accounts as of December 31, 20x0, are as follows:
| • Cash |
$92,000 |
| • Short-term investments |
50,000 |
| • Accounts receivable |
202,500 |
| • Inventory |
107,250 |
| • Capital assets (net) |
900,000 |
| • Total assets |
$1,351,750 |
| |
|
| • Accounts payable |
$319,800 |
| • Income taxes payable |
25,000 |
| • Property & business taxes payable |
3,000 |
| • Share capital |
800,000 |
| • Retained earnings |
203,950 |
| • Total |
$1,351,750 |
Required:
1. Prepare a monthly master budget for Timberline for the first quarter of 20x1 including the following schedules:
a. Sales Budget
b. Cash Receipts Budget
c. Purchases Budget
d. Cash Disbursements Budget
e. Cash Budget
Where necessary, round to the nearest whole number. Adjust any rounding differences to inventory when completing the balance sheet.
2. Prepare the following financial statements:
• a budgeted income statement
• a budgeted statement of retained earnings
• a budgeted balance sheet, as at March 31, 20x1)
Question 2
The following information is available from the accounting records of Western Manufacturing Ltd.:
| Standard Cost |
Standard Quantity |
Standard Price/Rate |
|
| Direct material $20.00 |
10 pounds |
$2.00 per pound |
|
| Direct labour |
0.50 per hour |
$15.00 per hour |
$7.50 |
| Total |
|
|
$27.50 |
In September, Western purchased 200,000 pounds of direct material at a cost of $430,000. The total wages for September were $116,250, of which 90% was for
direct labour. Western manufactured 15,000 products during September, using 160,000 pounds of direct material and 7,000 direct-labour hours.
Required:
1. Calculate:
a. Direct material price variance
b. Direct material quantity variance
c. Direct labour rate variance
d. Direct labour efficiency variance
Question 3
Heinz Manufacturing Ltd. uses a standard cost system and has the following standards per unit and flexible-budget data:
Variable overhead: 4 hours at $8 per hour
Fixed overhead: 4 hours at $5.50* per hour
*based on planned monthly activity of 120,000 machine hours
Actual data for September were as follows:
Number of units produced: 32,000
Number of machine hours worked: 127,000
Variable overhead costs incurred: $1,100,000
Fixed overhead costs incurred: $775,000
Required:
1. Calculate the spending and efficiency variances for variable overhead.
2. Calculate the budget and volume variances for fixed overhead.