Babu Enterprise sells packaged baby foods for $50/unit and is preparing budget for the 1st quarter of 2020. His actual and budgeted data include:

Details . . . . . . . . . . . . Nov 2019 . . . Dec 2019 . . . Jan 2020 . . . Feb 2020 . . . Mar 2020 . . . Apr 2020 . . . May 2020
Production in units . . . . . 5600 . . . . . . 8300 . . . . . . 4900 . . . . . . 5500 . . . . . . . 6400 . . . . . . 5400 . . . . . . 6400

Each unit of product requires 20 kilograms of raw materials to produce. And Babu keeps an ending inventory of raw materials equal to 50% of the following month’s production needs of raw materials. The price of raw material is $2/kilogram. An advance payment of 50% is to be made a month prior to purchase. 10% is paid in the month of purchase. The rest is paid in the month following purchase.

Instructions: For the 1st quarter of 2020, prepare:

 (A) Direct Materials Budget, 

(B) Cash Payment (disbursement) Schedule for Raw Materials and 

(C) Calculate the balance of accounts payable at the end of the first quarter of 2020 .

a) Why should Babu seek cooperation of other business functions while preparing budgets? 

b) Among ROI, RI and Balanced Scorecard, which one is the most preferable measure of measuring the performance of a decentralized organization? why and why not? 

SECTION - C

Gopi and Rashi started a new business manufacturing cooker. They both kept separate set of accounts of their business. However, at the end of the first year of operations their net incomes didn’t match. A fight was about to start between the two owing to discrepancy in net incomes. Kokila, their friend, asked them to present their income statements. As such information relating to the business’s the first year of operation follow:

Production in units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25000
Sales in units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20000
Variable manufacturing cost per unit produced. . . . . . . . . . . . . $7
Variable selling and administrative expense per unit sold. . . . . $3
Fixed manufacturing overhead costs (total) . . . . . . . . . . . . . . . $307900

Using the above data, Rashi presented the following income statement:
Sales (20000 units) . . . . . . . . . . . . . . . . . . . . . . . . . . $860000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . $386320.00000000006
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $473679.99999999994
Selling and administrative expenses . . . . . . . . . . . . $259600
Net operating income. . . . . . . . . . . . . . . . . . . . . . . . . $214079.99999999994

Gopi, on the other hand asked for your help to prepare a variable costing income statement. Prepare a variable costing income statement of Gopi and Rashi and explain why the net income between the two methods differ.

Problem #3 -

Kowkeela has recently opened The Cooker Shop, a store that specializes in one type of cooker. Kowkeela has just received a degree in business and she is anxious to apply the principles she has learned to her business. In time, she hopes to open a chain of cooker shops. As a first step, she has prepared the following analysis for her new store:

Sales price per cooker . . . . . . . . . . . $50
Variable expenses per cooker. . . . . . $20
Fixed expenses per year:
- - - Building rental . . . . . . . . . . . . . . $13300
- - - Equipment depreciation . . . . . . $5600
- - - Selling . . . . . . . . . . . . . . . . . . . . . $15800
- - - Administrative . . . . . . . . . . . . . . $16000

(a)

During the first year, the store sold only 2800 cookers. Prepare a contribution approach income statement.

(b)

In relation to (a), Kowkeela’s degree of operating leverage (in two decimal places) is

(c)

In relation to (a), Kowkeela is confident that with a more intense sales effort and with a more creative advertising program she can increase sales by 60% next year. The expected percentage increase in net operating income (in 2 decimal places) is (only input the value not the % symbol)

(d)

Refer to the original data, Kowkeela has decided that she must earn at least $18000 the first year to justify her time and effort. The number of cookers to be sold to reach this target profit is

(e)

What will be the impact of a reduction of CM ratio on break-even point and why?

Problem #4 -

Chacha Inc is a manufacturing firm and has provided following data related to costs:

Details……………………….…..Fixed Cost/Month ($)…………..Cost/unit of production ($)
Wages and Salaries…………………….. 22700………………………….. 15
Parts and Supplies………………………..x………………………………….. 7
Equipment Depreciation…………….. 1600………………………….. 0.4
Lorry Operating Expenses…………….. 5600………………………….. 1.5
Rent…………………………………………….. 3330 …………………….……. x
Administrative Expenses…………….. 4500………………………….. 0.7

Chacha computes the total costs as “fixed cost/month plus variable cost”. The company expected to produce 2800 units in May, but actually produced 3000 units. The product’s selling price is $44 per unit.

Instructions: 

a) Prepare static budget at the company's expected level of production 

b) Prepare a flexible budget at the company's actual level of production 

c) Indicate the variances wheather favoarable or unfavorable 

Problem #5 - 

4.0 points possible (graded, results hidden)

EON Limited manufactures 30,000 units of part EA5 each year for use on its production line. At this level of activity, the cost per unit for part EA5 is:

Direct Materials............................... $3.60

Direct Labour.................................. $10.00

Variable Manufacturing Overhead...$2.40

Fixed Manufacturing Overhead......$9.00

Total cost per part........................ $25.00

An outside supplier has offered to sell 30,000 units of part EA5 each year to EON Limited for $21 per part. If EON Limited accepts this offer, the facilities now being used to manufacture part EA5 could be rented to another company at an annual rental of $80,000. However, EON Limited has determined that two-thirds of the fixed manufacturing overhead being applied to part EA5 would continue even if part EA5 were purchased from the outside supplier.

Required:

(a) The relevant cost per unit if EON Ltd. produces the product by itself is $ ________/unit

(b) The total relevant cost if EON Ltd. produces the product by itself is $ ________

(c) The total relevant cost if EON Ltd. purchases the product from the outside supplier is $ ________

(d) Should EON accept the offer or not? Explain.

Answer rating: 100% (QA)

Direct Materials budget Items Jan Feb March Total Total 4200 5500 6600 16300 production of bab... View the full answer