Leo Company Master Budget and Flexible Budget Final Exam
1. Leo Company expects its Sales in January to be 2,400 units at an expected sales price of $110 per unit and expects Sales to grow by 2% each month.
2. 40% of all sales are cash sales and the remaining 60% are credit sales. For credit sales the company expects to collect 10% of credit sales in the month of the sale, the remaining 90% in the month after the sale.
3. The cost of goods sold is equal to 62% of sales.
4. Leo Company likes to keep an ending inventory equal to 10% of next month's expected cost of goods sold.
5. All purchases of inventory are on account, and the company pays for 80% of all purchases in the month of the purchase, 20% in the month after the purchase.
6. The company pays its sales force a commission equal to 5% of sales.
7. The company also believes that its supplies expense is equal to $4,000 plus 2% of sales.
8. Salaries are $12,000, Rent is $4,500 per month, Advertising is $3,000 per month, Depreciation is $1,000 per month, and Utilities are $1,200 per month.
9. The company purchased an insurance policy covering 12 months for $24,000 on January 1.
10. All selling and administrative expenses are paid in the month they are incurred except for commissions that are paid in the month after they are earned and the insurance which is paid one year in advance.
11. On January 31, Leo Company purchased Land costing $58,000. Leo paid cash for the land.
12. Interest on long-term debt is equal to 1% of the beginning balance and is paid each month. The company must maintain a minimum balance in cash of $15,000 and will use any cash surplus to pay down long-term debt. The company borrows cash in $1,000 increments.
13. The company is subject to a 25% income tax rate. The company pays income taxes in the month after they are accrued (expensed).
14. In January, the company will declare a $10,000 cash dividend that it will pay in February.
15. The company had a beginning balance sheet (as of January 1) as follows:
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ASSETS:
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LIAB & STOCKHOLDERS EQUITY
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Current Assets
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Current Liabilities
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Cash
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$15,200
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Accounts Payable
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$9,828
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Accounts Receivable
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$129,600
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Commissions Payable
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$8,100
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Prepaid Insurance
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0
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Income Taxes Payable
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$5,000
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Inventory
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$10,800
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Dividends Payable
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$-0-
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Total Currents Assets
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$155,600
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Total Current Liabilities
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$22,928
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Property, Plant, & Equipment
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Long Term Debt
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$140,000
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Land
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$10,000
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Stockholders Equity
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Equipment
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$40,000
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Common Stock
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$10,000
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Accumulated Depreciation
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($20,000)
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Retained Earnings
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$12,672
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Total PPE
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$30,000
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Total Stockholders Equity
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$22,672
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Total Assets
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$185,600
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Total Liab & SE
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$185,600
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Actual unit sales were 2,125. Actual Results for the month of January are as follows:
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Sales
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$244,375
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Cost of Sales
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$144,500
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Gross Profit
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$99,875
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Operating Expenses
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Commissions Expense
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$9,775
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Salaries
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$12,500
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Supplies Expense
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$11,331
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Rent Expense
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$4,800
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Advertising Expense
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$2,000
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Depreciation Expense
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$1,000
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Utilities Expense
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$1,300
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Insurance Expense
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$2,050
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Interest Expense
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$1,400
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Pretax Income
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$53,719
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Income Tax Expense
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$4,000
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Net Income
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$49,719
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Note that these values have been rounded to the nearest dollar. For the template, it is necessary that you link values and not type values.
REQUIRED:
1. Prepare a Master Budget for January, February and March.
2. Determine the Activity Variances, Revenue Variance and Spending Variances for January for Leo Company.
3. Calculate the following (using the planning budget values to answer the following):
a. Contribution margin percentage (ratio).
b. Sales at the breakeven point.
c. Dollar margin of safety.
d. Sales dollars needed to achieve a $50,000 before tax net income.
e. Sales dollars needed to achieve a $50,000 after tax net income.
Attachment:- Assignment Files.rar