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ACCT 2332 MANAGERIAL ACCOUNTING
GROUP PROJECT – SPRING 2016
REQUIRED:Thisprojectisworth36points. It is an opportunity to put together someofthethingsyouhavelearnedindifferentpartsof thiscourse. You can work in groups of three (maximum), two or individually. Readthecaseand answer the requirements below.
Thenames, usernames and Peoplesoft numbers of thegroup members must be written clearly below.
To receive credityou must writefullanswers, using the templates provided for each requirement. Wemust ask you to handwriteyour answers and show any calculations youfeelareneeded.
Handyourprojectintothe accounting lab 133MH duringlabhoursonorbeforeThursday April 21 at3 PM. (Syllabus says 3 pm so Lab can close at “normal” time)
1) GROUP MEMBERS:
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YOUR RECEIPT NUMBER (lab assistants will give you this)
MannyFoldownsafactorythatspecializesin making titanium valves for high performance engines onajustintimebasis.Thus,Mannyproduceswhathesellsinaparticularmonth.Thereareno inventoriesoffinishedgoodsor work in process. However, Manny does require that aninventory of direct raw materials equal to20%of next month’s production requirementbeavailableattheendofeach month.Tobuildhisbusinessandgainnew customers Mannyhasextendedgenerous credit termsto his customers. While Manny is confident about the fundamentals of his business, he is concernedaboutthepossible income andcashflow implications.
The variable costs of producingavalvearebudgetedat$7.20pervalvefordirect materials (3/4poundof titaniumalloy costing $9.60 per pound), $2.80 per valve for direct labor,and $5.50 per valve forvariablemanufacturing overhead. Fixed manufacturing overheadis budgeted at $74,700 permonthduringthe2ndquarter.Thedetailedcomponents ofvariableandfixed overhead are as listed below.
Forvariableoverhead,electricpowerisbudgetedat$2.30perunit, indirect labor is budgeted at $2.50perunit,andsuppliesarebudgetedat$.70perunit. Forfixedoverheaddepreciationisbudgetedat
$10,000permonth,Supervisionand other factorysalariesarebudgeted at $40,000 per month, propertytax and insurance combined are budgeted at $8,000 per month (which have been paid in advance through June 15 – see below), maintenance is budgeted at $7,000 permonth, licensing fees and permitstouseproprietarytechnologyare budgeted at $3,400 per month, andother miscellaneous fixed overheadexpenses arebudgetedat$6,300permonth.
Manny’s customers drive a hard bargain because theycaneasilyswitchsuppliers.They alldo payeventually, but many of themtaketheir time aboutdoingsoandMannyisreluctanttogettoughwiththemfor fear they will take their business elsewhere. Hetellsyouthatallhissalesareoncredit(nocashsales).Hetypically collects only 10% of sales in the month ofthesale,30%ofsalesinthe monthafterthesaleand60%ofsalestwomonthslater(forexample 10% of June sales would becollected inJune, 30% in July and 60% in August). On the other hand he must pay for 70% of his materialspurchases in the same month of the purchaseand30%inthemonthafter.Cashcostsoflaborandoverhead other than depreciation, property taxesandinsurancearepaidin the samemonth they areincurred.Propertytaxesand insurance are paid in advance through June 15. The amount due for the next 6months (starting June 16) must be paid in early June.
Allofthesellingand administrative expensesarefixed. Monthly fixed sellingand administrativecosts,otherthaninterest, amount to$43,600,of which $6,000 is depreciation. These operating costs,exceptingdepreciation,arepaidincashinthe month incurred.Mannyhaslargetax loss carry forwardsfroma previous unsuccessful business venture.Thereforehedoesnot expect to pay any income taxesthis year. (In other wordsyou may ignore income taxes).
Manny plans to buy new equipment costing $80,000 during the month of June. This equipment will bereadyforusestartinginJuly.
ThebudgetedsellingpriceofvalvesforApril, May, and June is $23 per valve. Because of marketcompetitionthereisnotmuch flexibility to adjust the price and the price is expected to be stableduringthe2ndquarterof2014.MannybudgetedsalesinunitsforAprilat17,000units.ForMayheexpects tosellonly18,000units.Hehas projectedsales of 19,000 units for June and18,000 units for July.
Manny requires a minimumcash balance of $10,000 at theendofeachmonth.Ifthebudgetedmonthend cash balance will fall below this levelMannyplanstoborrow enoughcashatthebeginningofthatsame month to keep his ending balance up to the minimum level. Manny’s bank charges himinterest atthe rate of ½ % per monthon the balance outstandingduringthat month. Manny’s bank charges him interest at the rate of ½ % per month on the balance outstanding during that month. Mannypaystheinterestatthebeginning ofthe following monthand plans to repay as much as he can at the beginning of that monthwithout letting his budgeted cash balance go below $10,000 at month end. (On the budgeted incomestatementroundinterestexpensetothenearestdollar)
The company’s managerial accountant has resignedunexpectedlybeforethe2ndquarterbudgetcouldbecompleted.Youhavebeencontractedtocompletethe master budgetforJuneandforthe2ndquarter (includingsome missing numbers fromMay). Balances as of March 31 for all relevantaccounts have already been calculated bythisaccountanttogetherwith some of the amounts for Apriland May. You may assume that these balances and amounts shown in the tables below are correct.
REQUIREMENTS: (To Equal 36 project points)
1) Construct Manny’s budgeted income statement for June and the total for the 2ndquarter.AprilandMayhavealreadybeen provided. Complete the templateprovidedbelow. Show any necessary calculations. (10 points)
2) Using the same forecast as in requirement1construct Manny’s budgetforrawmaterialspurchases inJune and the total for the 2nd quarter(Youwillalso have to completethebudgetforMay) Complete thetemplateprovided which already has information forApril and May. (4 points)
3) Usingthe same forecastasyouusedinrequirement 1 construct Manny’scashbudgetsfor June and the total for the 2nd quarter(Youwillalsohavetoprovide the missingnumber for May payments for purchases). Complete thetemplatesprovidedbelowwhich already have information for April and May.Show any necessary calculations.(5 points)
4) Using the same forecast as you used inrequirement 1 constructManny’sbudgetedbalancesheetattheendofJune.Complete the templateprovidedwhichalreadyhastheMarch31balances.(5 points)
5) DuringMarchMannyactuallyproducedandsold 16,500 valves. Actual sales revenues were$381,950.Actualcostsandthe original March budget based on 16,000 valveswereasdetailed inthe table below.Complete the table by constructing a flexiblebudget based on 16,500 valves and determining the variances for the performancereport.Usethe templateprovided below for your answer.(10 points)
6) Write abriefreportexplaining some possiblereasonswhyManny’sprofitsweredifferentfromthe amount projected in the master budgetforMarch(2points).
|SALESREVENUES||$391,000||$414,000|| || |
|DIRECTMATERIALS USED||($122,400)||($129,600)|| || |
|DIRECTLABOR||($47,600)||($50,400)|| || |
|VARIABLEOVERHEAD||($93,500)||($99,000)|| || |
|CONTRIBUTIONMARGIN||$127,500|| || || |
|FIXED OVERHEAD||($74,700)||($74,700)|| || |
|FIXED OPERATINGEXPENSES||($43,600)||($43,600)|| || |
|OPERATINGINCOME||$9,200|| || || |
|INTERESTEXPENSE||$0|| || || |
|NET INCOME||$9,200|| || || |
REQUIREMENT #2 BUDGETED PURCHASES OF TITANIUM ALLOY (directmaterial)
| ||April||May||June||2nd Quarter|
|Valves to beproduced||17,000||18,000|| || |
|X Pounds perunit||0.75||0.75|| || |
|Titaniumto be used||12,750||13,500|| || |
|Desired endinginventory(20%)||2,700|| || || |
|Pounds ofTitanium Needed||15,450|| || || |
|Less BeginningInventory||2,550||2,700|| || |
|Pounds to be purchased||12,900|| || || |
|Cost per pound||$9.60|| || || |
|Cost ofPurchases||$123,840|| || || |
COMPUTATION OF CASH COLLECTIONS (Use this to calculate March & Feb sales)
| ||April||May||June||2nd Quarter|
|SalesMade2 Months Ago||$213,900||$220,800|| || |
|SalesMade1 Month Ago||$110,400||$117,300|| || |
|SalesMadethisMonth||$39,100||$41,400|| || |
|Total Cash Collections||$363,400||$379,500|| || |
COMPUTATION OF CASH PAYMENTS
|Payments forpurchasesofmaterials||$121,680(used to calculate March purchases)|| || || |
|Payments fordirectLabor||$47,600||$50,400|| || |
|Payments forVariableOverhead||$93,500||$99,000|| || |
|Payments for FixedOverhead||$56,700||$56,700|| || |
|Payments for PropertyTaxes and Insurance||$0||$0|| || |
|Payments for otheroperating expenses||$37,600||$37,600|| || |
|Capital Expenditures||$0||$0|| || |
|TotalCash Payments||$357,080|| || || |
| ||April||May||June||2nd Quarter|
|Beginning Balance of Cash||$10,324||$16,644|| || |
|Cash Collections||$363,400||$379,500|| || |
|Totalcashavailable||$373,724||$396,144|| || |
|Less: CashPayments||$357,080|| || || |
|Ending Cash Balance BeforeFinancing:||$16,644|| || || |
|Borrowings||$0|| || || |
|Repayments||$0|| || || |
|InterestPayments||$0|| || || |
|End CashBalance||$16,644|| || || |
REQUIREMENT #4: BUDGETED BALANCE SHEET FOR JUNE 30