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```CLASS GROUP CASES – ACCT 2302
1) Problem 7-3A
Merline Manufacturing makes its product for \$75 per unit and sells it for \$150 per
unit. The sales staff receives a 10% commission on the sale of each unit. Its
December income statement follows.
Management expects December's results to be repeated in January, February,
and March of 2016 without any changes in strategy. Management, however, has
an alternative plan. It believes that unit sales will increase at a rate of 10% each
month for the next three months (beginning with January) if the item's selling
price is reduced to \$125 per unit and advertising expenses are increased by 15%
and remain at that level for all three months. The cost of its product will remain at
\$75 per unit, the sales staff will continue to earn a 10% commission, and the
remaining expenses will stay the same.
Required
1) Prepare budgeted income statements for each of the months of January,
February, and March that show the expected results from implementing the
proposed changes. Use a three-column format, with one column for each
month.
Analysis Component
2) Use the budgeted income statements from part 1 to recommend whether
management should implement the proposed changes. Explain.
CLASS GROUP CASES – ACCT 2302
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2) Problem 7-2B
A1 Manufacturing is preparing its master budget for the quarter ended September
30, 2015. Budgeted sales and cash payments for product costs for the quarter
follow.
Sales are 20% cash and 80% on credit. All credit sales are collected in the month
following the sale. The June 30 balance sheet includes balances of \$12,900 in
cash; \$47,000 in accounts receivable; \$5,100 in accounts payable; and a \$2,600
balance in loans payable. A minimum cash balance of \$12,600 is required. Loans
are obtained at the end of any month when a cash shortage occurs. Interest is 1%
per month based on the beginning of the month loan balance and is paid at each
month-end. If an excess balance of cash exists, loans are repaid at the end of the
month. Operating expenses are paid in the month incurred and consist of sales
commissions (10% of sales), office salaries (\$4,600 per month), and rent (\$7,100
per month).
Required
1) Prepare a cash receipts budget for July, August, and September.
2) Prepare a cash budget for each of the months of July, August, and
September. (Round amounts to the dollar.)
CLASS GROUP CASES – ACCT 2302
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3) Problem 8-1A
Phoenix Company's 2015 master budget included the following fixed budget
report. It is based on an expected production and sales volume of 15,000 units.
Required
1. Classify all items listed in the fixed budget as variable or fixed. Also
determine their amounts per unit or their amounts for the year, as
appropriate.
2. Prepare flexible budgets (see Exhibit 8.3) for the company at sales volumes
of 14,000 and 16,000 units.
3. The company's business conditions are improving. One possible result is a
sales volume of 18,000 units. The company president is confident that this
volume is within the relevant range of existing capacity. How much would
operating income increase over the 2015 budgeted amount of \$159,000 if
this level is reached without increasing capacity?
4. An unfavorable change in business is remotely possible; in this case,
production and sales volume for 2015 could fall to 12,000 units. How much
income (or loss) from operations would occur if sales volume falls to this
level?
CLASS GROUP CASES – ACCT 2302
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4) Problem 8-4B
Kryll Company set the following standard unit costs for its single product.
The predetermined overhead rate is based on a planned operating volume of 80%
of the productive capacity of 60,000 units per quarter. The following flexible
budget information is available.
During the current quarter, the company operated at 70% of capacity and
produced 42,000 units of product; direct labor hours worked was 250,000. Units
produced were assigned the following standard costs:
Actual costs incurred during the current quarter follow:
CLASS GROUP CASES – ACCT 2302
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Required
1. Compute the direct materials cost variance, including its price and quantity
variances.
2. Compute the direct labor cost variance, including its rate and efficiency
variances.
3. Compute the total overhead controllable and volume variances.
CLASS GROUP CASES – ACCT 2302
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5) Problem 9-2A
National Bank has several departments that occupy both floors of a two-story
building. The departmental accounting system has a single account, Building
Occupancy Cost, in its ledger. The types and amounts of occupancy costs
recorded in this account for the current period follow.
The building has 4,000 square feet on each floor. In prior periods, the accounting
manager merely divided the \$66,000 occupancy cost by 8,000 square feet to find
an average cost of \$8.25 per square foot and then charged each department a
building occupancy cost equal to this rate times the number of square feet that it
occupied.
Diane Linder manages a first-floor department that occupies 1,000 square feet,
and Juan Chiro manages a second-floor department that occupies 1,800 square
feet of floor space. In discussing the departmental reports, the second-floor
manager questions whether using the same rate per square foot for all
departments makes sense because the first-floor space is more valuable. This
manager also references a recent real estate study of average local rental costs
for similar space that shows first-floor space worth \$30 per square foot and
second-floor space worth \$20 per square foot (excluding costs for heating,
lighting, and maintenance).
Required
1. Allocate occupancy costs to the Linder and Chiro departments using the
current allocation method.
2. Allocate the depreciation, interest, and taxes occupancy costs to the Linder
and Chiro departments in proportion to the relative market values of the
floor space. Allocate the heating, lighting, and maintenance costs to the
Linder and Chiro departments in proportion to the square feet occupied
(ignoring floor space market values).
CLASS GROUP CASES – ACCT 2302
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Analysis Component
3. Which allocation method would you prefer if you were a manager of a
second-floor department? Explain.
CLASS GROUP CASES – ACCT 2302
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6) Problem 9-4B
Sadar Company operates a store with two departments: videos and music.
The company also incurred the following indirect costs.
Indirect costs are allocated as follows: advertising on the basis of sales; salaries
on the basis of number of employees; and office expenses on the basis of square
Required
1. For each department, determine the departmental contribution to overhead
and the departmental net income.
2. Should the video department be eliminated? Explain.
CLASS GROUP CASES – ACCT 2302
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