Manny Fold owns a factory that specializes in making titanium valves for high pe
ID: 2565581 • Letter: M
Question
Manny Fold owns a factory that specializes in making titanium valves for high performance engines on a just in time basis. Thus, Manny produces what he sells in a particular month. There are no inventories of finished goods or work in process. However, Manny does require that an inventory of direct raw materials equal to 20% of next month’s production requirement be available at the end of each month. To build his business and gain new customers Manny has extended generous credit terms to his customers. While Manny is confident about the fundamentals of his business, he is concerned about the possible income and cash flow implications.
The variable costs of producing a valve are budgeted at $7.20 per valve for direct materials (3/4 pound of titanium alloy costing $9.60 per pound), $2.80 per valve for direct labor, and $5.50 per valve for variable manufacturing overhead. Fixed manufacturing overhead is budgeted at $74,700 per month during the 2nd quarter. The detailed components of variable and fixed overhead are as listed below.
For variable overhead, electric power is budgeted at $2.30 per unit, indirect labor is budgeted at $2.50 per unit, and supplies are budgeted at $.70 per unit. For fixed overhead depreciation is budgeted at
$10,000 per month, Supervision and other factory salaries are budgeted at $40,000 per month, property tax 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 per month, licensing fees and permits to use proprietary technology are budgeted at $3,400 per month, and other miscellaneous fixed overhead expenses are budgeted at $6,300 per month.
Manny’s customers drive a hard bargain because they can easily switch suppliers. They all do pay eventually, but many of them take their time about doing so and Manny is reluctant to get tough with them for fear they will take their business elsewhere. He tells you that all his sales are on credit (no cash sales). He typically collects only 10% of sales in the month of the sale, 30% of sales in the month after the sale and 60% of sales two months later (for example 10% of June sales would be collected in June, 30% in July and 60% in August). On the other hand, he must pay for 70% of his materials purchases in the same month of the purchase and 30% in the month after. Cash costs of labor and overhead other than depreciation, property taxes and insurance are paid in the same month they are incurred. Property taxes and insurance are paid in advance through June 15. The amount due for the next 6 months (starting June 16) must be paid in early June.
All of the selling and administrative expenses are fixed. Monthly fixed selling and administrative costs, other than interest, amount to $43,600, of which $6,000 is depreciation. These operating costs, excepting depreciation, are paid in cash in the month incurred. Manny has large tax loss carry forwards from a previous unsuccessful business venture. Therefore, he does not expect to pay any income taxes this year. (In other words you may ignore income taxes).
Manny plans to buy new equipment costing $80,000 during the month of June. This equipment will be ready for use starting in July.
The budgeted selling price of valves for April, May, and June is $23 per valve. Because of market competition there is not much flexibility to adjust the price and the price is expected to be stable during the 2nd quarter. Manny budgeted sales in units for April at 17,000 units. For May he expects to sell only 18,500 units. He has projected sales of 20,000 units for June and 18,000 units for July.
Manny requires a minimum cash balance of $10,000 at the end of each month. If the budgeted month end cash balance will fall below this level Manny plans to borrow enough cash at the beginning of that same month to keep his ending balance up to the minimum level. Manny’s bank charges him interest at the rate of ½ % per month on the balance outstanding during that month. Manny’s bank charges him interest at the rate of ½ % per month on the balance outstanding during that month. Manny pays the interest at the beginning of the following month and plans to repay as much as he can at the beginning of that month without letting his budgeted cash balance go below $10,000 at month end. (On the budgeted income statement round interest expense to the nearest dollar)
The company’s managerial accountant has resigned unexpectedly before the 2nd quarter budget could be completed. You have been contracted to complete the master budget for June and for the 2nd quarter (including some missing numbers from May). Balances as of March 31 for all relevant accounts have already been calculated by this accountant together with some of the amounts for April and May. You may assume that these balances and amounts shown in the tables below are correct.
REQUIREMENTS: Round all numbers & $ amounts to the nearest whole number or dollar.
1) Construct Manny’s budgeted income statement for June and the total for the 2nd quarter. April and May have alrerady been provided. Complete the template provided below. Show your calculation where indicated on the extra page provided.
2) Using the same forecast as in requirement 1 construct Manny's budget for raw materials purchases in June and the total for the 2nd quarter (You will also have to complete the budget for May) Complete the template provided which already has information for April and May.
3) Using the same forecast as you used in requirement 1 construcy Manny's cash budgets for June and the total for 2nd quarter(You will also have to provide the missing number for May payments for purchases). Complete the templates provide below which already have information for April and May. Show your calculations where indicated on the extra page provided.
4) Using the same forecast as you used in requirement 1 construct Manny's budgeted balance sheet at the end of June. Complete the template provided which already has the March 31 balances.
5) During March, Manny actually produced and sold 16,500 valves. Actual sales revenues were $$381,950. Actual cost and the original March budget based on 16,000 valves were as detailed in the table below. Complete the table by constructing a flexible budget based on $16,500 valves and determining the variances for the performance report. Use the template provided below for your answer
6) Write a brieft report explaining some possible reasons why Manny's profit were different from the amount projected in the master budget for March.
REQUIREMENT 1
Budgeted Income Statement
Direct Material
used
($122,400)
($133,200)
($47,600)
($51,800)
($74,700)
($43,600)
($43,600)
$ 9,200
$0
$9,200
SHOW CALCULATIONS FOR JUNE AMOUNTS
JUNE
Show Calculations for all items not marked NA
SALES REVENUES
DIRECT MATERIALS USED
DIRECT LABOR
VARIABLE OVERHEAD
CONTRIBUTION MARGIN
NA - ADDITION/SUBTRACTION ONLY
FIXED OVERHEAD
FIXED OPERATING EXPENSES
OPERATING INCOME
NA - ADDITION/SUBTRACTION ONLY
INTEREST EXPENSE
NET INCOME
NA - ADDITION/SUBTRACTION ONLY
REQUIREMENT #2 BUDGETED PURCHASES OF TITANIUM ALLOY (direct material)
Valves to be produced
17,000
18,500
20,000
X Pounds per unit
0.75
0.75
Titanium to be used
12,750
13,875
Desired ending inventory (20%)
2,775
Pounds of Titanium Needed
15,525
Less: Beginning Inventory
2,550
2,775
Pounds to be purchased
12,975
Cost per pound
$9.60
Cost of Purchases
$124,560
REQUIREMENT #3
COMPUTATION OF CASH COLLECTIONS (Use this to calculate March & Feb sales)
Sales Made 2 Months Ago
$213,900
$220,800
Sales Made 1 Month Ago
$110,400
$117,300
Sales Made this Month
$39,100
$42,550
Total Cash Collections
$363,400
$380,650
Show Calculation for June Total Cash Collections
REQUIREMENT #3 (CONTINUED)
COMPUTATION OF CASH PAYMENTS - SHOW CALCULATIONS ON NEXT PAGE
Payments for purchases of materials
Payments for direct Labor
$47,600
Payments for Variable Overhead
$93,500
Payments for Fixed Overhead
$56,700
Payments for Property Taxes and Insurance
$0
$0
Payments for other operating expenses
$37,600
$37,600
Capital Expenditures
$0
$0
Total Cash Payments
$357,584
COMBINED CASH BUDGET- SHOW CALCULATIONS ON NEXT PAGE
Beginning Balance of Cash
$10,324
$16,140
Cash Collections
$363,400
$380,650
Total cash available
$373,724
$396,790
Less: Cash Payments
$357,584
Ending Cash Balance Before Financing:
$16,140
Borrowings
Repayments
Interest Payments
End Cash Balance
$16,140
Show Calculations for all items not marked NA
Payments for purchases of materials for MAY
Payments for purchases of materials for JUNE
Payments for direct Labor
Payments for Variable Overhead
Payments for Fixed Overhead
Payments for Property Taxes and Insurance
Payments for other operating expenses
Capital Expenditures
Total Cash Payments
NA - ADDITION/SUBTRACTION ONLY
Beginning Balance of Cash
NA- Amounts Already Provided
Cash Collections
NA- Amounts Already Provided
Total cash available
NA- Amounts Already Provided
NA - Addition/Subtraction Only
Less: Cash Payments
Ending Cash Balance Before Financing:
Borrowings
Interest Payments
End Cash Balance
NA - Addition/Subtraction Only
NA - Addition/Subtraction Only
ASSETS:
Current Assets
$10,324
Accounts Receivable
$545,100
Inventory (raw materials)
$24,480
Prepaid Insurance and Property Taxes
$20,000
Total Current Assets
$599,904
Equipment and Furniture
$880,000
Accumulated Depreciation
($540,000)
Equipment & Furniture (net)
$340,000
Total Assets
$939,904
LIABILITIES AND EQUITY
Liabilities (all current)
Accounts Payable
$34,992
Interest Payable
Bank Loans Payable
Total Liabilities
$34,992
Owner’s Equity
$904,912
Total Liabilities and Equity
$939,904
Actual Costs and Template for Requirement #5 Use this page to answer this requirement.
Cost Item
Actual results
Flexible Budget Variance
Flexible Budget for 16,500 units
Sales Volume Variance
Static Master Budget for 16,000 units
Sales Revenues
$381,950
$368,000
Direct Materials used
$118,720
$115,200
Direct Labor
$45,600
$44,800
Electric Power
$38,454
$36,800
Indirect Labor
$49,360
$40,000
$16,686
$11,200
Supervision and other salaries
$37,858
$40,000
Maintenance
$8,925
$7,000
Insurance and property tax
$8,000
$8,000
Permits and license fees
$3,400
$3,400
Factory depreciation
$10,000
$10,000
Other Overhead expenses
$8,650
$6,300
Total Production Expenses
$322,700
Total Selling & Administrative Expenses
$39,867
$43,600
Total Expenses
$366,300
Operating Income
$1,700
REQUIREMENT 6 (SPACE FOR REPORT)
April May June 2nd Quarter Sales revenue $391,000 $425,500Direct Material
used
($122,400)
($133,200)
Direct Labor($47,600)
($51,800)
Variable Overhead ($93,500) ($101,750) Contribution Margin $127,500 Fixed Overhead ($74,700)($74,700)
Fixed Operating Expense($43,600)
($43,600)
Operating Income$ 9,200
Interest Expense$0
Net income$9,200
Explanation / Answer
20% of Next Month production
Apr Sales *60% + May Sales *3
0% + Jun Sales * 10%
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.