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Assignment #2
Q1. (15 marks) On March 31, Streuling Enterprises, a merchandising firm, had an inventory of 38,000 units, and it had accounts receivable totalling $85,000. Sales, in units, have been budgeted as follows for the next four months:
|
April |
60,000 |
|
May |
75,000 |
|
June |
90,000 |
|
July |
81,000 |
Streuling’s board of directors has established a policy to commence in April that the inventory at the end of each month should contain 40% of the units required for the following month’s budgeted sales.
The selling price is $2 per unit. One-third of sales are paid for by customers in the month of the sale; the balance is collected in the following month.
Required:
a) Prepare a merchandise purchases budget showing how many units should be purchased for each of the months April, May, and June. Remember there is a difference between units and $of the units – use the right figures in the right spots
b) Prepare a schedule of expected cash collections for each of the months April, May, and June. Remember the existing A/R balance
Q2.
(15 marks) The Doley Company has planned the following sales for the next three months:
|
|
January |
February |
March |
|
Budgeted Sales |
$40,000 |
$50,000 |
$70,000 |
Sales are made 20% for cash and 80% on account. From experience, the company has learned that a month’s sales on account are collected according to the following pattern:
|
Month of sale |
60% |
|
First month following sale |
30% |
|
Second month following sale |
8% |
|
Uncollectible |
2% |
The company requires a minimum cash balance of $5,000 to start a month. The beginning cash balance in March is budgeted to be $6,000.
Required
a) Compute the budgeted cash receipts for March. Rember to think in terms of when actual cash is planned to be received. If you are not going to receive the cash it is not part of the budget. Also pay close attention to cash vs credit sales
b) The following additional information has been provided for March:
|
Inventory purchases (all paid in cash in March) |
$28,000 |
|
Operating Expenses (all paid in cash in March) |
$40,000 |
|
Depreciation expense for March |
$5,000 |
|
Dividends paid in March |
$4,000
|
Prepare a cash budget in good form for the month of March, using this information and the budgeted cash receipts you computed for part a) above. The company can borrow in any dollar amount and will not pay interest until April.
Q3. (20 marks) Fougere Realtors, Inc. specializes in home re-sales. It earns revenue from selling fees. Fougere Realtors’ major costs are commissions for salespersons, listing agents, and listing companies. Its business has improved steadily over the last ten years. As usual, Chris Fougere, the managing partner of Fougere Realtors, Inc., received a report summarizing the performance for the most recent year.
Fougere Realtors, Inc.
Performance Report
For the year ended December 31, 2007
Budget Actual Variance
Number of home re-sales 180 202 22 F
Variable expenses
Sales commissions $1,102,950 $1,205,183 $102,233 U
Automobile 36,000 39,560 3,560 U
Advertising 171,000 192,690 21,690 U
General overhead 656,100 716,970 60,870 U
Total $1,966,050 $2,154,403 $188,353 U
Fixed expenses
General overhead 60,000 62,300 2,300 U
Total expenses $2,026,050 $2,216,703 $190,653 U
Required:
a) Explain the major weakness of this performance report and why all the variances for the variable expenses are unfavourable (U) (5 marks)
b) As a first step in helping Chris Fougere to evaluate cost / expense control in the organization, complete the following for the year ended December 31, 2007, assuming the only cost driver is the number of home re-sales. (Note: Indicate any variance as either favourable (F) or unfavourable (U).) (15 marks)
Budget Actual Variance
Number of home re-sales 202 202 0
Variable expenses
Sales commissions $ $ 1,205,183 _________
Automobile $ _________ 39,560 _________
Advertising $ _________ 192,690 _________
General overhead $ _________ 716,970 _________
Total $ _________ $2,154,403 _________
Fixed expenses
General overhead $ _________ 62,300 _________
Total expenses $ $2,216,703
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