Download ACC 232 Module lll Chapter 23 Problem Solving

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Module lll: Chapter 23: Budgeting for Planning and Control: Problem Solving Assignment
Problem 1.
Black Diamond Company produces snow skis. Each ski requires 2 pound of carbon fiber. The
company’s management predicts that 5,000 skis and 6.000 pounds of carbon fiber will be in
inventory on June 30 of the current year and that 150,000 skis will be sold during the next
(third) quarter. A set of two skis sells for $300. Management wants to end the third quarter
with 3,500 skis and 4,000 pounds of carbon fiber in inventory. Carbon fiber can be purchased
for $15 per pound. Each ski requires 0.5 hours of direct labor at $20 per hour. Variable
overhead is applied at the rate of $8 per direct labor hour. The company budgets fixed
overhead of $1,782,000 for the quarter.
Required
1. Prepare the third-quarter production budget for skis.
 148,500 skis
2. Prepare the third quarter direct materials (carbon fiber) budget; include the dollar cost
of purchases.
 $4,425,000
3. Prepare the direct labor budget for the third quarter.
 $1,485,000
4. Prepare the factory overhead budget for the third quarter.
 $2,376,000
Problem 2.
Built-Tight is preparing its master budget for the quarter ended September 30, 2015. Budgeted
sales and cash payments for product cost for the quarter follow:
Budgeted sales
Budgeted cash
payments for:
Direct materials
Direct labor
Factory overhead
July
$64,000
August
$80,000
September
$48,000
16,160
4,040
20,200
13,440
3,360
16,800
13,760
3,440
17,200
Sales are 20% cash and 80 credit. All credit sales are collected in the month following the sale.
The June 30 balance sheet includes balances of $15,000 in cash; $45,000 in accounts receivable;
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$4,500 in accounts payable; and a $5,000 balance in loans payable. A minimum cash balance of
$15,000 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. Operating expenses are paid in the month incurred and consist of sales
commissions (10% of sales), office salaries ($4,000 per month), and rent ($6,500 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).

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Problem 3.
Pheonix 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.
PHOENIX COMPANY
Fixed Budget Report
For Year Ended December 31, 2015
Sales
Cost of goods sold:
Direct materials
Direct labor
Machinery repairs
(Variable cost)
Depreciation-Equipmentstraight-line
Utilities ($45,000 is
variable)
Plant managers salaries
Gross Profit
Selling expenses:
Packaging
Shipping
Sales salaries (fixed
annual amount)
General/Adm. Expenses:
Advertising Expense
Salaries
Entertainment expense
Income from operations
$3,000,000
$975,000
225,000
60,000
300,000
195,000
200,000
75,000
105,000
250,000
125,000
241,000
90,000
1,955,000
1,045,000
430,000
456,000
$159,000
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 budget for the company at 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
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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
operation would occur if sales volume falls to this level?
