Question

Cost accounting problem

HW HF 10.37 Master budget, budgeted financial statements, solve for unknown Anchor Manufacturing has 02 forecasted sales of 5,000 units of its product at $75 each for the next month. Beginning inventory consists of 800 pounds of direct materials and 300 units of finished goods. The managers would like to end the month with 1,200 pounds of raw materials, no units in work in process, and 500 units in finished goods. The firm accounts for inventory using the first-in, first-out (FIFO) method. Three pounds of materials are required per unit of product manufactured. Each unit also requires two hours of direct labor time. Materials cost $0.50 per pound, and labor is paid $15 per hour. Fore- --casted overhead is $20,000 plus $2 per unit manufactured. Sales commissions are paid at the rate of $1 per unit, and administrative costs are estimated to be $15,000 for the month. The firm's customers usually pay 25% of their bill in the month of the sale and 73% in the next month (the other 2% are generally uncollectible). The firm pays its materials suppliers 70% in the month of purchase and 30% in the following month. Laborers, sales personnel, administrators, and all overhead purchases are paid in the month that services are received. Overhead costs include $5,000 of depreciation on plant and equipment. Sales last month were $240,000, and direct materials purchases were $6,000. A partially complete balance sheet as of the beginning of the month is given here. $ Assets Cash Accounts receivable Direct materials inventory Work-in-process inventory Finished goods inventory Plant & equipment (net) Total assets $ 3,000 ? 400 0 4,650 245,000 Liabilities and Equity Accounts payable Common stock 200,000 Retained earnings Total liabilities and equity REQUIRED: A. Complete the beginning balance sheet. B. Prepare a master budget, including budgeted financial statements, for next month. C. Analyze the income statement, cash budgets, and balance sheet, particularly the changes in receivables and inventory. What changes would you suggest to improve Anchor's perfor- mance?

Answer 1

A) Beginning Balance Sheet:
Assets	Amount $	Liabilities & Equity	Amount $
Cash	3000	Acc Payable (6000*0.3)	1800
Acc Rece (240000*0.73)	175200	Common Stock	200000
DM inventory	400	Retained earnings	226450
WIP inventory	0
FG inventory	4650
Plant & Equip (net)	245000
Total Assets	428250	Total liabi. & Equity	428250
B) Master budget:
Production budget:
Sales	5000
add: ending inventory	500
Total need	5500
less:begin inventory	300
Production	5200
RM budget:
Need for Production	15600	5200*3
Add:ending RM	1200
Total need	16800
Less:begin RM	800
RM purchase	16000
RM rate	0.5
Total RM purchases	8000
Operating budget:
Labor	156000	5200*2*15
Overhead	30400	20000 + (2*5200)
Total Operating Budget	186400
Cash Operating Budget	181400	186400-5000 dep
Cost of Closing Inventory:
Total production	194200	7800+186400
Units produced	5200
Closing inventory	500
Cost of Closing Inventory:	18673	194200*500/5200
Cost of Goods sold:
300 units	4650
4700 units	175527	194200*4700/5200
total COGS	180177
Cash budget:
Opening Cash	3000
Add: Received cash:
Last month	175200
this month	93750	(5000*75)*0.25
total Cash available	271950
Less: disbursements:
purchases:
Last month	1800	6000*0.3
this month	5600	8000*0.7
Operating budget	181400
Sales commission	5200	5200*1
Admin costs	15000
Total disbursements	209000
Closing Cash	62950
C) Income Statement:
Sales	375000	5000*75
Less : COGS	180177
Gross Profit	194823
Less: expenses:
Commission	5200
Administration	15000
Bad Debts	7500	375000*2%
total expenses	27700
Income before taxes	167123
Less:taxes	0
Net Income	167123
Balance Sheet:
Assets	Amount $	Liabilities & Equity	Amount $
Cash	62950	Acc Payable (8000*0.3)	2400
Acc Rece (375000*0.73)	273750	Common Stock	200000
DM inventory (1200*0.5)	600	Retained earnings	226450
WIP inventory	0	add:Net Income	167123
FG inventory	18673
Plant & Equip (net)(245000-5000)	240000
Total Assets	595973	Total liabi. & Equity	595973
Changes to improve the performance:
1) Reduce the FG inventory level.
2) Reduce the labor hours per unit
of production.
3) Overheads of the production
should be reduced for least cost
of production.
4) Better use of excess cash in
business.
5) Reduce the receivables, 73%
is too high.