ACG 2071 Test 5 Review Problems
1. Bunnell Inc. sells clay pots for $15 each. Budgeted amounts for the first 3 months of 2006
appear below.
January 16,000 units
February 18,000 units
March
17,000 units
Bunnell desires to have clay pots on hand at the end of each month equal to 15 percent of the
following month’s budgeted unit sales. Each pot requires 4.5 pounds of clay. At the end of each
month, Bunnell desires to have 20 percent of production material needs for the next month on
hand. The clay costs $0.80 per pound. Each pot produced requires 0.20 hours of direct labor.
Assume production for February is 17,850 units.
A.
How many pots should Bunnell produce during the month of January?
B. Determine the materials purchases budget amount for January.
C. How much is Raw Materials Inventory on Bunnell’s balance sheet at January 31?
2.Larkin Company budgeted sales, all on credit, for March through July as follows:
March
April
May
June
July
$40,000
$50,000
$60,000
$45,000
$54,000
Larkin expects cash collections to be 30% in month of sale, 60% in following month, and 8% in
the next month. Two percent of sales are uncollectible. Calculate budgeted cash receipts for
May.
How much is accounts receivable at May 31?
Walker Inc. budgeted direct materials purchases of $220,000 in March, $210,000 in April,
and $200,000 in May. Past experience indicates that the company pays for 30% of its
purchases in the month of purchase and the remaining 70% in the next month. Other costs
are paid 20% in the month of acquisition and the balance during the following month.
Accounts payable is used only for material purchases. During April, the following items were
budgeted:
Wages expense
$60,000
Purchase of office equipment
24,000
Selling and administrative expenses
62,000
Depreciation expense
11,000
A. How much is budgeted cash disbursements for April?
3.
B. How much is Accounts Payable at April 30 on Walker’s balance sheet?
4. Siggy
Inc. budgeted 12,000 and produced 11,000 tape dispensers during June. Resin
used to make the dispensers is purchased by the pound. Standards and actual costs
follow for May:
Standards
Actual
Materials
2 pounds @ $5.00 a pound
20,900 pounds @ $4.90 per pound
.25 hours @ $15.00 per
Labor
2,700 hours @$15.30 per hour
hour
Variable
$39,000
$36,500
Overhead
Fixed Overhead
$1.50 per dispenser
$17,250
How much is the standard cost of one tape dispenser?
5.AT, Inc.’s static budget for production of 10,000 widgets appears below:
Direct materials
$88,000
Direct labor
36,000
Variable manufacturing overhead costs
100,000
Fixed manufacturing overhead costs
50,000
The company produced 11,000 units in June. How much is the flexible budget amount for
production costs during June?
6. Cantave projected the following for 2006:
Credit sales, $240,000
Collections from customers, $246,000
Cost of goods sold, $92,000
Loan repayments, $16,000 total of which $1,000 is interest
Current period cash operating expenses, $80,000
Depreciation expense, $20,000
Loss on disposal of plant asset, $5,000
Merchandise purchase, $95,000 (10% due at year end)
Year end accrued wages, $12,000
Beginning cash balance, $36,000
How much is cash to be reported on Contave’s budgeted balance sheet at the end of 2006.
7. For each case listed as items 1 through 6, select the variance(s) the case would most likely
cause and write the letter of the variances in the answer space next to the case. You may use
some answers more than once or not at all. Print using legible CAPITAL letters.
Variances
A.
B.
C.
D.
E.
F.
favorable materials price variance
unfavorable materials price variance
favorable materials quantity variance
unfavorable materials quantity variance
favorable labor rate variance
unfavorable labor rate variance
Answer
G. favorable labor efficiency variance
H. unfavorable labor efficiency variance
J. favorable overhead controllable variance
K. unfavorable overhead controllable variance
L. favorable overhead volume variance
M. unfavorable overhead volume variance
Case
1. The company produced more units than anticipated.
2. Workers were paid more than they were worth.
3. The purchasing manager skillfully negotiated a better price.
4. The market had an unexpected oversupply of the required materials.
5. The company had a strike and unskilled workers were hired.
6. The factory janitor worked more hours than anticipated. (variable cost).
8. Markus reported the following amounts for 2006:
Actual material cost $75,000
Material price variance $1,100 F
Budgeted material $73.000
Material quantity
$1,050 U
cost
variance
Markus employs management by exception and has a 1.5% materiality threshold. Support with
calculations.
Should you investigate the material price variance? Briefly justify why or why not.
Should you investigate the material quantity variance? Briefly justify why or why not.
9. Shubert manufactures machinery. The following information is available for the year ending
October 31, 2009.
• Produced and sold 1,000 machines at $1,100 each.
• Production was budgeted at 1,200 machines.
• Standard variable costs per machine were:
• Direct materials: 100 pounds at $2 a pound
• Direct labor: 20 hours at $9
• Variable overhead: $145,000
 Fixed overhead was budgeted at $256,000.
• Actual production costs were:
• Direct materials purchased and used: 105,000 pounds at $1.80.
• Direct labor: 19,000 hours at $9.20
• Variable overhead: $147,000
• Fixed overhead: $271,000
A Prepare a flexible budget for October.
B. How does a performance report differ?