Task1.

Shastri Bicycle of Bombay, India, produces an inexpensive, yet rugged, bicycle for use on the city’s crowded streets that it sells for 500 rupees. (Indian currency is denominated in rupees, denoted by R.) Selected data for the company’s operations last year follow: Units in starting inventory . . . . . . . . . . . . . . . . . 0 Units produced . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 Units sold  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 Units in ending inventory. . . . . . . . . . . . . . . . . . . . 2,000 Variable costs per unit: Direct materials  . . . . . . . . . . . . . . . . . . . . . . . . . R120 Direct labour  . . . . . . . . . . . . . . . . . . . . . . . . . . . . R140 Variable manufacturing overhead  . . . . . . . . . . . R50 Variable selling and administrative  . . . . . . . . . . R20 Fixed costs: Fixed manufacturing overhead  . . . . . . . . . . . . . R600, 000 Fixed selling and administrative  . . . . . . . . . . . . R400, 000

Required:    

1. Suppose that the company uses absorption costing. find out the unit product cost for one bicycle.    

2. Suppose that the company uses variable costing. find out the unit product cost for one bicycle.

Task2.

Refer to the data in Exercise 6–1 for Shastri Bicycle. The absorption costing income statement prepared through the company’s accountant for last year appears below: Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R4, 000,000 Cost of goods sold  . . . . . . . . . . . . . . . . . . . .   2,960,000 Gross margin  . . . . . . . . . . . . . . . . . . . . . . . . 1,040,000 Selling and administrative expense  . . . . . . . .    560,000 Net operating income . . . . . . . . . . . . . . . . . . R   480,000  

Required:    

1. Find out how much of the ending inventory includes fixed manufacturing overhead cost deferred in inventory to the next period.    

2. Make an income statement for the year using variable costing. describe the differentiation in net operating income between the two costing techniques.

Task3.

Maxwell Company manufactures and sells a single product. The following costs were incurred throughout the company’s first year of operations: Variable costs per unit:  Manufacturing: Direct materials  . . . . . . . . . . . . . . . . . . . . . . . . . . Direct labor  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Variable manufacturing overhead  . . . . . . . . . . . . Variable selling and administrative  . . . . . . . . . . . . . . Fixed costs per year: Fixed manufacturing overhead  . . . . . . . . . . . . . . . . Fixed selling and administrative expenses  . . . . . . . $18 $7 $2 $2 $200,000 $110,000

Throughout the year, the company produced 20,000 units and sold 16,000 units. The selling price of the company’s product is $50 per unit.

Required:

1. Suppose that the company uses absorption costing:    

a. find out the unit product cost.  

b. Make an income statement for year.    

2. Suppose that company uses variable costing:    

a. find out the unit product cost.    

b. Make an income statement for year.    

3. The company’s controller believes which the company should have set last year’s selling price at $51 instead of $50 per unit. She estimates the company could have sold 15,000 units at a price of $51 per unit, thereby increasing the company’s gross margin by $2,000 and its net operating income by $4,000. Supposing the controller’s estimates are accurate, do you think the price increase would have been a good idea?

Task4.

Midwest Products is a wholesale distributor of leaf rakes. Thus, peak sales occur in August of each year as shown in the company’s sales budget for the third quarter, given below:

July Budgeted sales (all on account). . . . . . . August $600,000 $900,000 September $500,000 Total $2,000,000

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. May sales totalled $430,000, and June sales totalled $540,000.

Required:

1. Make a schedule of expected cash collections from sales, by month and in total, for the third quarter. 

2. Suppose that the company will prepare a budgeted balance sheet as of September 30. find out the accounts receivable as of that date.

Task5.

Crystal Telecom has budgeted the sales of its innovative mobile phone over the next four months as follows: July . . . . . . . . . . . . . . . . . . . . . . . . August . . . . . . . . . . . . . . . . . . . . . . September . . . . . . . . . . . . . . . . . . . October . . . . . . . . . . . . . . . . . . . . . Sales in Units 30,000 45,000 60,000 50,000 The company is now in the process of preparing a production budget for the third quarter. Past experience has shown that end-of-month finished goods inventories must equal 10% of the next month’s sales. The inventory at the end of June was 3,000 units.

Required:

Make a production budget for the third quarter showing the number of units to be produced every month and for the quarter in total.

Task6.

Micro Products, Inc. has developed an extremely powerful electronic calculator. Each calculator requires three small “chips” that cost $2 each and are purchased from an overseas supplier. Micro Products has prepared a production budget for the calculator by quarters for Year 2 and for the first quarter of Year 3, as shown below: Year 2 First Budgeted production, in calculators  . . . . 60,000 Second 90,000 Third Year 3 Fourth First 150,000 100,000 80,000

The chip used in production of the calculator is sometimes hard to get, so it is needed to carry large inventories as a precaution against stock outs. For this reason, the inventory of chips at the end of a quarter must equal 20% of the subsequent quarter’s production needs. A total of 36,000 chips will be on hand to start the first quarter of Year 2.

Required:

Make a direct materials budget for chips, by quarter and in total, for Year 2. At the bottom of your budget, elucidate the dollar amount of purchases for each quarter and for the year in total.

Task7.

The production manager of Junnen Corporation has submitted the following forecast of units to be produced for each quarter of the upcoming fiscal year. 1st Quarter Units to be produced . . . . . . 5,000 2nd Quarter 4,400 3rd Quarter 4,500 4th Quarter 4,900 Each unit requires 0.40 direct labor-hours and direct labour-hour workers are paid $11 per hour.

Required:

1. Construct the company’s direct labour budget for the future fiscal year, supposing that the direct labour workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced.