Dunnzabar Industries produces \"Cardemonium\", an all-in-one playing card set in
ID: 2586245 • Letter: D
Question
Dunnzabar Industries produces "Cardemonium", an all-in-one playing card set including two regular decks as well as a Pinochle one, casino-quality poker chips, and a Tripoly tray. Each set has a variable cost of $35 and Dunnzabar sustains a monthly fixed cost of $5,000. The company sells its product for $55. As of December 31, Dunnzabar had been producing Cardemonium for three months using rented facilities. The balance sheet on that date was as follows:
Assets:
Liabilities and Equity:
December's sales had been 750 units, up from 500 in November, enough to report a profit in December for the month and to eliminate the deficit accumulated during October and November. Sales are expected to be 1,000 units in January and Dunnzabar's projections showed sales increases of 500 units per month after that. Thus, by May monthly sales are expected to be 3,000 units and by September that figure would be 5,000 units.
Dunnzabar wanted to keep its product well stocked, so production was scheduled 30 days in advance of predicted sales. For example, Dunnzabar produced 1,000 sets in December for January's sales. All of the sales were on credit, due in the month after sale, but Dunnzabar wanted to build rapport and did not strictly enforce these credit terms. As a result, customers paid for the product in the second month after sale. All of the company's costs were paid in the month in which they incurred.
1.) Prepare projected monthly income statements (using variable costing) and cash budgets (receipts and disbursements) for January through September. Carefully consider the timing of production and its associated cash impact, as well as the timing of sale and its associated cash impact. Assume that Dunnzabar is able to borrow funds to cover any cash shortfall.
Cash $46,250 Accounts Receivable $68,250 Inventory $35,000Explanation / Answer
INCOME STATEMENT
For the period from Jan to September
January
Feb
Mar
April
May
June
July
Aug
Sept
Sale in units
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Selling price per unit
$55
$55
$55
$55
$55
$55
$55
$55
$55
Sales in dollars
$55,000
$82,500
$1,10,000
$1,37,500
$1,65,000
$1,92,500
$2,20,000
$2,47,500
$2,75,000
Variable cost- at $35 each
$35,000
$52,500
$70,000
$87,500
$1,05,000
$1,22,500
$1,40,000
$1,57,500
$1,75,000
Contribution Margin
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$1,00,000
Fixed cost
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
Operating Income
$15,000
$25,000
$35,000
$45,000
$55,000
$65,000
$75,000
$85,000
$95,000
Cash Budget
For the period from Jan to September
January
Feb
Mar
April
May
June
July
Aug
Sept
Balance Beginning
$46,250
$57,000
$37,000
$27,000
$27,000
$37,000
$57,000
$87,000
$1,27,000
Add: Collections from credit sales
$68,250
$55,000
$82,500
$1,10,000
$1,37,500
$1,65,000
$1,92,500
$2,20,000
$2,47,500
Total cash available
$1,14,500
$1,12,000
$1,19,500
$1,37,000
$1,64,500
$2,02,000
$2,49,500
$3,07,000
$3,74,500
Less: cost of Purchases
$52,500
$70,000
$87,500
$1,05,000
$1,22,500
$1,40,000
$1,57,500
$1,75,000
$1,92,500
Fixed costs
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
Total cash payments
$57,500
$75,000
$92,500
$1,10,000
$1,27,500
$1,45,000
$1,62,500
$1,80,000
$1,97,500
Ending Cash Balance
$57,000
$37,000
$27,000
$27,000
$37,000
$57,000
$87,000
$1,27,000
$1,77,000
INCOME STATEMENT
For the period from Jan to September
January
Feb
Mar
April
May
June
July
Aug
Sept
Sale in units
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Selling price per unit
$55
$55
$55
$55
$55
$55
$55
$55
$55
Sales in dollars
$55,000
$82,500
$1,10,000
$1,37,500
$1,65,000
$1,92,500
$2,20,000
$2,47,500
$2,75,000
Variable cost- at $35 each
$35,000
$52,500
$70,000
$87,500
$1,05,000
$1,22,500
$1,40,000
$1,57,500
$1,75,000
Contribution Margin
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$1,00,000
Fixed cost
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
Operating Income
$15,000
$25,000
$35,000
$45,000
$55,000
$65,000
$75,000
$85,000
$95,000
Cash Budget
For the period from Jan to September
January
Feb
Mar
April
May
June
July
Aug
Sept
Balance Beginning
$46,250
$57,000
$37,000
$27,000
$27,000
$37,000
$57,000
$87,000
$1,27,000
Add: Collections from credit sales
$68,250
$55,000
$82,500
$1,10,000
$1,37,500
$1,65,000
$1,92,500
$2,20,000
$2,47,500
Total cash available
$1,14,500
$1,12,000
$1,19,500
$1,37,000
$1,64,500
$2,02,000
$2,49,500
$3,07,000
$3,74,500
Less: cost of Purchases
$52,500
$70,000
$87,500
$1,05,000
$1,22,500
$1,40,000
$1,57,500
$1,75,000
$1,92,500
Fixed costs
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
Total cash payments
$57,500
$75,000
$92,500
$1,10,000
$1,27,500
$1,45,000
$1,62,500
$1,80,000
$1,97,500
Ending Cash Balance
$57,000
$37,000
$27,000
$27,000
$37,000
$57,000
$87,000
$1,27,000
$1,77,000
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