ACC 206 Week 4 Assignment

Please complete the following exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.

1. Comprehensive budgeting

The balance sheet of Watson Company as of December 31, 20X1, follows.

  

WATSON COMPANY   

 

Balance Sheet 

 

December 31,   12X1 

 

Assets 

 

Cash 


$4,595 

 

Accounts receivable 


10,000

 

Finished goods (575 units x $7.00) 


4,025

 

Direct materials (2,760 units x $0.50) 


1,380

 

Plant & equipment 


$50,000 

 

Less: Accumulated depreciation 


10,000


40,000

 

Total assets 


$60,000 

 

Liabilities & Stockholders' Equity 

 

Accounts payable to suppliers 


$14,000 

 

Common stock 


$25,000 

 

Retained earnings 


21,000


46,000

 

Total liabilities &. stockholders'   equity 


$60,000 

The following information has been extracted from the firm's accounting records:

1. All sales are made on account at $20 per unit. Sixty percent of the sales are collected in the month of sale; the remaining 40% are collected in the following month. Forecasted sales for the first five months of 20X2 are: January, 1,500 units,- February, 1,600 units; March, 1,800 units; April, 2,000 units; May, 2,100 units.

2. Management wants to maintain the finished goods inventory at 30% of the following month's sales.

3. Watson uses four units of direct material in each finished unit. The direct material price has been stable and is expected to remain so over the next six months. Management wants to maintain the ending direct materials inventory at 60% of the following month's production needs.

4. Seventy percent of all purchases are paid in the month of purchase; the remaining 30% are paid in the subsequent month.

5. Watson's product requires 30 minutes of direct labor time. Each hour of direct labor costs $7.

Instructions:

a. Rounding computations to the nearest dollar, prepare the following for January through March:

1) Sales budget

2) Schedule of cash collections

3) Production budget

4) Direct material purchases budget

5) Schedule of cash disbursements for material purchases
6) Direct labor budget

b. Determine the balances in the following accounts as of March 31:

1) Accounts Receivable

2) Direct Materials

3) Accounts Payable

2. Basic flexible budgeting
Centron, Inc., has the following budgeted production costs:

  

Direct materials 


$0.40 per unit 

 

Direct labor 


1.80 per unit 

 

Variable factory overhead 


2.20 per unit 

 

Fixed factory overhead 

 

Supervision 


$24,000 

 

Maintenance 


18,000

 

Other 


12,000

The company normally manufactures between 20,000 and 25,000 units each quarter. Should output exceed 25,000 units, maintenance and other fixed costs are expected to increase by $6,000 and $4,500, respectively.

During the recent quarter ended March 31, Centron produced 25,500 units and incurred the following costs:

  

Direct Materials


$10,710 

 

Direct Labor


47,175

 

Variable factory overhead


51,940

 

Fixed factory overhead

 

 Supervision


24,500

 

Maintenance


23,700

 

Other


16,800

 

Total production costs


$174,825 

Instructions:

a. Prepare a flexible budget for 20,000, 22,500, and 25,000 units of activity. 

b. Was Centron's experience in the quarter cited better or worse than anticipated? Prepare an appropriate performance report and explain your answer. 

c. Explain the benefit of using flexible budgets (as opposed to static budgets) in the measurement of performance. 

3. Straightforward variance analysis 

Arrow Enterprises uses a standard costing system. The standard cost sheet for product no. 549 follows.

  

Direct materials: 4   units @ $6.50 


$26.00 

 

Direct labor: 8 hours @   $8.50 


68

 

Variable factory   overhead: 8 hours


@ $7.00 


56

 

Fixed factory overhead:   8 hours 


@ 2.5


20

 

Total standard cost per   unit 


$170.00 

The following information pertains to activity for December: 

1. Direct materials acquired during the month amounted to 26,350 units at $6.40 per unit. All materials were consumed in operations. 

2. Arrow incurred an average wage rate of $8.75 for 51,400 hours of activity. 

3. Total overhead incurred amounted to $508,400. Budgeted fixed overhead totals $1.8 million and is spread evenly throughout the year. 

4. Actual production amounted to 6,500 completed units. 

Instructions: 

a. Compute Arrow's direct material variances. 

b. Compute Arrow's direct labor variances. 

c. Compute Arrow's variances for factory overhead.

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