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ACCOUNTING 203 ON-LINE (CHAPTER 8) The East Division of Kensic-(Answered)

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ACCOUNTING 203 ON-LINE (CHAPTER 8)

The East Division of Kensic Company manufactures a vital component that is used in one of Kensic?s major product lines. The East Division has been experiencing some difficulty in coordinating activities between its various departments, which has resulted in some shortages of the component at critical times. To overcome the shortages, the manager of East Division has decided to initiate a monthly budgeting system that is integrated between departments.

The first budget is to be for the second quarter of the current year (April, May and June). To assist in developing the budget figures, the divisional controller has accumulated the following information.

Sales: Sales through the first three months of the current year were 30,000 units. Actual sales in units for January, February, and March, and planned sales in units over the next five months, are given below:

January (actual) 6,000

February (actual) 10,000

March (actual) 14,000

April (planned) 20,000

May (planned) 35,000

June (planned) 50,000

July (planned) 45,000

August (planned) 30,000

In total, the East Division expects to produce and sell 250,000 units during the current year.

Direct Material: Two different materials are used in production of the component. Data regarding these materials are given below:

Units of Direct Cost

Direct Materials per per Inventory at

Material Finished Component lb/ft March 31

No. 208 4 pounds $5.00 46,000 pounds

No. 311 9 feet 2.00 69,000 feet

Material No. 208 is sometimes in short supply. Therefore, the East Division requires that enough of the material be on hand at the end of each month to provide for 50% of the following month?s production needs. Material No. 311 is easier to get, so only one-third of the following month?s production needs must be on hand at the end of each month.

Direct Labor: The East Division has three department through which the components must past before they are completed. Information relating to direct labor in these departments is given below:

Direct Labor-Hours Cost per

Per Finished Direct

Department Component Labor-Hour

Shaping .25 $18.00

Assembly .70 16.00

Finishing .10 20.00

Direct labor is adjusted to the workload each month.

Manufacturing Overhead: East Division manufactured 32,000 components during the first three months of the current year. The actual variable overhead costs incurred during this three-month period are shown below. Each Division?s controller believes that the variable overhead costs incurred during the last nine months of the year will be at the same rate per component as experienced during the first three months.

Utilities $ 57,000

Indirect Labor 31,000

Supplies 16,000

Other 8,000

Total variable overhead $112,000

The actual fixed manufacturing overhead costs incurred during the first three months amounted to $1,170,000. The East Division has planned fixed manufacturing overhead costs for the entire year as follows:

Supervision $ 872,000

Property Taxes 143,000

Depreciation 2,910,000

Insurance 631,000

Other 72,000

Total fixed manufacturing

Overhead $4,628,000

Finished Goods Inventory: The desired monthly ending inventory of completed components is 20% of the next month?s estimated sales. The East Division has 4,000 units in the finished goods inventory on March 31.

Selling and Administrative Expenses: Selling and Administrative Expenses are budgeted at $400,000 per month plus 1% of total credit sales for the month.

REQUIRED:

  1. Prepare a production budget for the East Division for the second quarter ending June 30. Show computations by month and in total for the quarter.

(5 pts.) _____

  1. Prepare a direct materials purchases budget in units and dollars for each

type of material for the second quarter ending June 30. Again show computations by month and in total for the quarter.

(5 pts.) _____

  1. Prepare a schedule of cash payments for direct materials for the second quarter. Assume that all direct materials are purchased on account and the East Division pays for ? of the amount purchased in the month of purchase and the other ? in the month following the purchase. The balance in the Accounts Payable account at 3/31 was $351,200.

(5 pts.) _____

  1. Prepare a direct labor budget in hours and in dollars for the second quarter ending June 30. Again show computations by month in total for the quarter.

(5 pts.) _____

  1. Prepare a manufacturing overhead budget for the second quarter. Show computations by month and in total for the quarter.

(5 pts.) _____

  1. Compute a new ?selling price per unit? for the East Division that will enable them to accumulate a balance of $100,000 in their cash account by the end of the second quarter. Assume that the cash balance at March 31 was $10,000.

(5 pts.) _____

  1. Using the selling price per unit computed in #6 prepare a sales budget for the second quarter. Show computations by month and in total for the quarter.

(5 pts.) _____

  1. Prepare a schedule of expected cash collections for the second quarter using the selling price per unit calculated in question #6. Assume that the East Division collects on its credit sales as follows; 70% in the month of sale, 20% in the month following the credit sale, 10% in the second month following the credit sale. To compute the balance in Accounts Receivable at 3/31 assume that the selling price per unit prior to 3/31 was $75.00.

(5 pts.) _____

  1. Prepare a cash budget for the second quarter in month and in total for the East Division.

(10 pts.)

  1. Participation (25 pts.) _____ I will award these points based on the activity on each team?s discussion board in Canvas. If you collaborate outside of Canvas just document your collaboration by leaving me a note on your team?s discussion board.


ACCOUNTING 203 ON-LINE

 

(CHAPTER 8)

 

The East Division of Kensic Company manufactures a vital component

 

that is used in one of Kensic?s major product lines. The East Division

 

has been experiencing some difficulty in coordinating activities

 

between its various departments, which has resulted in some

 

shortages of the component at critical times. To overcome the

 

shortages, the manager of East Division has decided to initiate a

 

monthly budgeting system that is integrated between departments.

 

The first budget is to be for the second quarter of the current year

 

(April, May and June). To assist in developing the budget figures, the

 

divisional controller has accumulated the following information.

 

Sales: Sales through the first three months of the current year were

 

30,000 units. Actual sales in units for January, February, and March,

 

and planned sales in units over the next five months, are given below:

 

January (actual)

 

February (actual)

 

March (actual)

 

April (planned)

 

May (planned)

 

June (planned)

 

July (planned)

 

August (planned)

 


 

6,000

 

10,000

 

14,000

 

20,000

 

35,000

 

50,000

 

45,000

 

30,000

 


 

In total, the East Division expects to produce and sell 250,000 units

 

during the current year.

 

Direct Material: Two different materials are used in production of the

 

component. Data regarding these materials are given below:

 

Direct

 

at

 

Material

 

No. 208

 

No. 311

 


 

Units of Direct

 

Materials per

 

Finished Component

 

4 pounds

 

9 feet

 


 

Cost

 

per

 

lb/ft

 

$5.00

 

2.00

 


 

Inventory

 

March 31

 

46,000 pounds

 

69,000 feet

 


 

Material No. 208 is sometimes in short supply. Therefore, the East

 

Division requires that enough of the material be on hand at the end of

 


 

each month to provide for 50% of the following month?s production

 

needs. Material No. 311 is easier to get, so only one-third of the

 

following month?s production needs must be on hand at the end of

 

each month.

 

Direct Labor: The East Division has three department through which

 

the components must past before they are completed. Information

 

relating to direct labor in these departments is given below:

 


 

Department

 

Shaping

 

Assembly

 

Finishing

 


 

Direct Labor-Hours

 

Per Finished

 

Component

 

.25

 

.70

 

.10

 


 

Cost per

 

Direct

 

Labor-Hour

 

$18.00

 

16.00

 

20.00

 


 

Direct labor is adjusted to the workload each month.

 

Manufacturing Overhead: East Division manufactured 32,000

 

components during the first three months of the current year. The

 

actual variable overhead costs incurred during this three-month period

 

are shown below. Each Division?s controller believes that the variable

 

overhead costs incurred during the last nine months of the year will be

 

at the same rate per component as experienced during the first three

 

months.

 

Utilities

 

Indirect Labor

 

Supplies

 

Other

 


 

$ 57,000

 

31,000

 

16,000

 

8,000

 


 

Total variable overhead $112,000

 

The actual fixed manufacturing overhead costs incurred during the first

 

three months amounted to $1,170,000. The East Division has planned

 

fixed manufacturing overhead costs for the entire year as follows:

 


 

Supervision

 

Property Taxes

 

Depreciation

 


 

$ 872,000

 

143,000

 

2,910,000

 


 

Insurance

 

Other

 

Total fixed manufacturing

 

Overhead

 


 

631,000

 

72,000

 

$4,628,000

 


 

Finished Goods Inventory: The desired monthly ending inventory of

 

completed components is 20% of the next month?s estimated sales.

 

The East Division has 4,000 units in the finished goods inventory on

 

March 31.

 

Selling and Administrative Expenses: Selling and Administrative

 

Expenses are budgeted at $400,000 per month plus 1% of total credit

 

sales for the month.

 


 

REQUIRED:

 

1. Prepare a production budget for the East Division for the second

 

quarter ending June 30. Show computations by month and in

 

total for the quarter.

 

(5 pts.) _____

 

2. Prepare a direct materials purchases budget in units and dollars

 

for each

 

type of material for the second quarter ending June 30. Again

 

show computations by month and in total for the quarter.

 

(5 pts.) _____

 

3. Prepare a schedule of cash payments for direct materials for the

 

second quarter. Assume that all direct materials are purchased

 

on account and the East Division pays for ? of the amount

 

purchased in the month of purchase and the other ? in the

 

month following the purchase. The balance in the Accounts

 

Payable account at 3/31 was $351,200.

 

(5 pts.) _____

 

4. Prepare a direct labor budget in hours and in dollars for the

 

second quarter ending June 30. Again show computations by

 

month in total for the quarter.

 

(5 pts.) _____

 


 

5. Prepare a manufacturing overhead budget for the second

 

quarter. Show computations by month and in total for the

 

quarter.

 

(5 pts.) _____

 

6. Compute a new ?selling price per unit? for the East Division that

 

will enable them to accumulate a balance of $100,000 in their

 

cash account by the end of the second quarter. Assume that the

 

cash balance at March 31 was $10,000.

 

(5 pts.) _____

 

7. Using the selling price per unit computed in #6 prepare a sales

 

budget for the second quarter. Show computations by month and

 

in total for the quarter.

 

(5 pts.) _____

 

8. Prepare a schedule of expected cash collections for the second

 

quarter using the selling price per unit calculated in question #6.

 

Assume that the East Division collects on its credit sales as

 

follows; 70% in the month of sale, 20% in the month following

 

the credit sale, 10% in the second month following the credit

 

sale. To compute the balance in Accounts Receivable at 3/31

 

assume that the selling price per unit prior to 3/31 was $75.00.

 

(5 pts.) _____

 

9. Prepare a cash budget for the second quarter in month and in

 

total for the East Division.

 

(10 pts.)

 

10.

 

Participation (25 pts.) _____ I will award these points based

 

on the activity on each team?s discussion board in Canvas. If you

 

collaborate outside of Canvas just document your collaboration

 

by leaving me a note on your team?s discussion board.

 


 

 

Paper#9210180 | Written in 27-Jul-2016

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