Accounting project

I have an accounting extra cedit project. its worth 25 points. I will attach it. here. Its due on the 9th of november. I am willing t pay 50 dollars for it.

REQUIRED:This project is worth 25 points. It is an opportunity to put together some of the

things you have learned in different parts of this course. Read the case and answer the

requirements below. To receive credit you must show your calculations and write full answers

using one side of a page for each requirement (1-5). We must ask you to handwrite your answers.

Hand your project in to the accounting lab 133MH during lab hours on or before Thursday

November 15 at 6 PM.

1) YOUR NAME ________________________________________________

2) YOUR PEOPLESOFT ID ____________________________________________

3) YOUR INSTRUCTOR’S NAME _____________________________

4) YOUR RECEIPT NUMBER _______________(lab assistants will give you this)

CASE

Manny Fold owns a factory that specializes in making titanium valves for high performance

engines on a just in time basis. Thus, Manny produces what he sells in a particular month. There

are no inventories of finished goods or work in process. However, Manny does require that an

inventory of direct raw materials equal to 10% of next month’s production requirement be

available at the end of each month. To build his business and gain new customers Manny has

extended generous credit terms to his customers. While Manny is confident about the

fundamentals of his business, he is concerned about the possible cash flow implications.

Manny’s clients drive a hard bargain because they can easily switch suppliers. They all do pay

eventually, but many of them take their time about doing so and Manny is reluctant to get tough

with them for fear they will take their business elsewhere. He tells you that all his sales are on

credit (no cash sales). He typically collects only 20% of sales in the month of the sale, 40% of

sales in the month after the sale and 40% of sales two months later (for example 20% of August

sales are collected in August, 40% in September and 40% in October). On the other hand he pays

for 70% of his materials purchases in the month of the purchase and only 30% in the month after.

Costs of labor and overhead other than depreciation property taxes and insurance are paid in the

same month they are incurred. Property taxes for 3 months will be paid in October. Monthly

fixed selling and administrative costs, other than interest, amount to $41,000, of which $10,000

is depreciation. These operating costs, excepting depreciation, are paid in cash in the month

incurred. There are no variable selling or administrative costs. Manny has large tax loss carry

forwards from a previous unsuccessful business venture. Therefore he does not expect to pay any

income taxes this year. (In other words you may ignore income taxes).

Sales revenues in August were $315,000 and in September are expected to be $325,500.

Purchases in September total $92,480. The budgeted selling price of valves for October,

November, and December is $21 per valve. Because of market competition there is no flexibility

to adjust the price and the price is expected to be stable over the 3 month period (however,

Manny has given some small discounts to some customers in recent months) Manny provides

the following information regarding his sales forecast in units for the next 3 months: October

18,000 units, November 20,000 units and December 21,000 units. After that production and

sales in January are expected to decrease back to 18,000 units.

The variable costs of producing a valve are budgeted at $6 per valve (3/4 pound of titanium alloy

costing $8 per pound for materials), $3 per valve for direct labor, and $5 per valve for variable

manufacturing overhead. Fixed manufacturing overhead is budgeted at $75,600 per month. The

detailed components of variable and fixed overhead are as listed below.

For variable overhead, supplies are budgeted at $1 per unit, electric power is budgeted at $2 per

unit, and indirect labor is budgeted at $2 per unit. For fixed overhead depreciation is budgeted

at $18,000 per month, Supervision and other factory salaries is budgeted at $27,000 per month,

property tax and insurance combined are budgeted at $8,000 per month, maintenance is budgeted

at $6,500 per month, licensing fees and permits to use proprietary technology are budgeted at

$6,000 per month, and other miscellaneous fixed expenses are budgeted at $10,100 per month.

Assume Manny’s opening cash balance on October 1 will be $10,000. Manny requires a

minimum cash balance of $10,000 at the end of each month. If the budgeted month end cash

balance will fall below this level Manny plans to borrow enough cash at the beginning of that

same month to keep his ending balance up to the minimum level. Manny’s bank charges him

interest at the rate of 1 % per month on the balance outstanding during that month. Manny pays

the interest at the beginning of the following month and plans to repay as much as he can at the

beginning of that month without letting his budgeted cash balance go below $10,000 at month

end. Manny’s bank requires that borrowing and repayments are in $100 increments (for example,

if $4321 is needed to get to the 10,000 minimum balance Manny would need to borrow $4,400).

Assume no borrowings were outstanding as of October 1.

Required (for requirements 1 to 4 pretend you are doing the work in September instead of

November while for requirements 5 and 6 you are actually doing them in November)

1) Construct Manny’s budget for raw materials purchases in October, November,
and December and the total for the 4

th
quarter. Use Exhibit 9-7 on page 524 as a

guide. (4 points)

2) Construct Manny’s budgeted operating income statement for the 3 months:
October, November, and December and the total for the 4th quarter. Use the

template provided below. Show any necessary calculations. (5 points)

3) Construct Manny’s cash budget for the 3 months October, November, and
December and the total for the 4th quarter. Use the templates provided below.

Show any necessary calculations. Note: there are no capital expenditures

budgeted for the 4
th

quarter and no dividends.(6 points)

4) Explain why Manny will be facing a cash flow problem in October even though
his business is profitable. (2 points)

5) During October Manny actually produced and sold 18,500 valves. Actual sales
revenues were $386,950. Actual costs were as detailed in the table below.

Complete the table by constructing a flexible budget and performance report

including variances for October based on 18,500 valves. Your performance

report should be similar to the performance report shown in exhibit 10.13 of page

611 except your report includes more detailed production cost line items. Use the

template provided below for your answer. (6 points)

6) Write a brief report explaining the most important reasons why Manny’s profits
were different from the amount projected in the master budget. (2 points)

Budgeted Income Statement (requirement 2)

October November December 4
th

Quarter

Raw Materials

Used

Direct Labor

Variable

Overhead

Fixed Overhead

Cost of Goods

Sold

October November December 4
th
Quarter

SALES

REVENUES

LESS COST OF GOODS

SOLD

(see

below)

GROSS PROFIT

LESS

OPERATING

EXPENSES

OPERATING

INCOME

COMPUTATION OF COST OF GOODS SOLD

October November December 4
th
Quarter

Beginning

Balance of Cash

Cash

Collections

(see below)

Total cash

available

Less: Cash

Payments (see

below)

Ending Cash

Balance Before

Financing:

Borrowings

Repayments

Interest

Payments

End Cash

Balance

COMPUTATION OF CASH COLLECTIONS

October November December 4
th
Quarter

Sales Made 2

Months Ago

Sales Made 1

Month Ago

Sales Made this

Month

Total Cash

Collections

COMBINED CASH BUDGET

COMPUTATION OF CASH PAYMENTS FOR OPERATIONS

October November December 4
th
Quarter

Payments for

purchases of

materials

Payments for

direct Labor

Payments for
Variable
Overhead

Payments for
Fixed Overhead

Payments for

Operating

Expenses

Total Cash
Payments

ANSWER SPACE FOR REQUIREMENT 4

Actual Costs and Template for Requirement #5

Use this page to answer this requirement.

Performance Report for October
Cost Item Actual results

Flexible

Budget

Variance

Flexible

Budget for

18,500 units

Sales Volume

Variance

Static Master

Budget for

18,000 units

Sales Revenues $386,950

Direct Materials

used

$113,720

Direct Labor $61,600

Supplies $16,686

Electric Power $39,454

Indirect Labor $36,450

Salaries and

Supervision

$27,500

Maintenance $8,925

Insurance $8,000

Permits and

license fees

$6,000

Factory

depreciation

$18,000

Other Overhead

expenses

$8,650

Total Production

Expenses

Total Selling &

Administrative

Expenses

$39,867

Total Expenses

Operating

Income

Use the back of this page to answer requirement #6