Accounting

Exercise 7-29

1. Billed on 5th of Month of July (800,0002) 400,000
Pay within 10 days (400,000 x 80) 320,000
Discount Granted (320,000 x 2) (6,400)
Net Money Received 313,600
Billed on 20th of Month of July (900,0002) 450,000
Pay within 10 days (450,000 x 80) 360,000
Discount Granted (360,000 x 2) (7,200)
Net Money Received 352,800
Billed on 5th of Month of June (750,0002) 375,000
After 30 days billing (375,000 x 18) 67,500
Billed on 20th of Month of June (800,0002) 400,000
After 30 days billing (400,000 x 18) 72,000
Total Cash to be received in July 805,900

2. June Sales 800,000
Gross Profit (800,000 x 40) 320,000
Cost of goods sold 480,000
Ending Inventory on May (480,000 x 25) 120,000
3. July Sales 900,000
Gross Profit (900,000 x 40) 360,000
Cost of goods sold 540,000
Ending Inventory on June (540,000 x 25) 135,000
Merchandise Purchases of June
Opening Inventory 120,000
Purchases 495,000
Closing Inventory (135,000)
Cost of goods sold 480,000

4. September Sales 600,000
Gross Profit (600,000 x 40) 240,000
Cost of goods sold 360,000
Ending Inventory on August (360,000 x 25) 90,000
August Sales 900,000
Gross Profit (900,000 x 40) 360,000
Cost of goods sold 540,000
Ending Inventory on July (540,000 x 25) 135,000
Merchandise Purchases of August
Opening Inventory 135,000
Purchases 495,000
Closing Inventory (90,000)
Cost of goods sold 540,000
Half Paid in month of Purchase (495,0002) 247,500
Merchandise Purchases of July
Opening Inventory 135,000
Purchases 540,000
Closing Inventory (135,000)
Cost of goods sold 540,000
Half Paid one month after Purchase (540,0002) 270,000
Total Cash Payments for Merchandise Purchased 517,500

Exercise 7-32
Cash Collected during discount period
March Budgeted Sales450,000Time of Sales (50)225,000Discount Given (2)(4,500)Net Cash Received220,500Within first 10 days (10)45,000Discount Given (1)(450)Net Cash Received44,550Total Cash Received265,050Cash Collected after discount period
JanuaryFebruaryMarchBudgeted Sales400,000450,000450,0001 month after (25)100,000112,5002 months after (12)48,000Cash Received160,500Total Cash Received in March 265,050,  160,500  425,550

Exercise 7-37
Statement of Cash Receipts and Disbursements at October 20X7Cash Receipts  Sales29,340Cash Payments  Purchases17,000  Selling and General Administrative Expenses4,025  Total Cash Payments21,025Net Cash Receipts8,315Opening Cash Balance4,800Closing Cash Balance13,115Workings
Cash Receipt from Sales
AugustSeptemberOctoberSales12,00036,00030,000Month of Sale (60)18,000Discount (1)(180)Net Cash Receipt17,8201 Month after (30)3,60010,8002 Months after (6)720Cash Received11,520Total Cash Received29,340
Purchases of Merchandise
SeptemberOctoberSales (units) 1,8001,500Ending Inventory (units)750550Opening Inventory (units)(900)(750)Purchases (units)1,6501,300Purchases (at 12 per case)19,80015,600
Payment of Purchases
OctoberPurchases of September paid in October (13) 6,600Purchases of October paid in month of purchase (23)10,400Total Payments17,000

Selling and General Administrative Expenses
Total Fixed Expenses 24,000
Non-Cash Expense - Depreciation (13,200)
Fixed Expenses net of depreciation 10,800
 EMBED Equation.3
Variable Expenses 61,500 - 24,000  37,500
 EMBED Equation.3
Total Selling and General Admin. Expenses 900  3,125  4,025

Exercise 8-28
Budgeted Material Cost (750,000 x 0.25) 187,500
Actual Materials Support Costs 177,000
Static-Budget Variance 10,500 F
Standard Material Cost for actual movement (650,000 x 0.25) 162,500
Actual Materials Support Costs 177,000
Flexible-Budget Variance 14,500 (U)

Exercise 8-29
Material Price Variance  (Standard Price  Actual Price) x Actual Yards Used
Material Price Variance  (B700  B695) x 7,900  B39,500 F
 EMBED Equation.3
Material Quantity Variance
Standard yards for actual production (2 x 3,800) 7,600 yards
Actual yards used 7,900 yards
Material Quantity Variance (yards) 300 (U)
Standard price per yard B700
Material Quantity Variance (B) B210,000 (U)
Exercise 8-30
Labor Rate Variance (Standard Rate  Actual Rate) x Actual Hours Worked
-1,085  (14  Actual Rate) x 1,750
Actual Rate  (24,500  1,085),1,750  14.62
1. Actual Labor Rate per Hour 14.62
Total Direct Labor Budget Variance 1,855 F
Labor Rate Variance 1,085 (U)
Labor Efficiency Variance 2,940 F
Labor Efficiency Variance  (Standard Hours  Actual Hours) x Standard Rate
2,940  (Standard Hours  1,750) x 14
Standard Hours  (24,500  2,940)14  1,960

2. Standard Hours allowed for the Output Achieved 1,960.

Exercise 8-46
1. Computation of Variances
Material Price Variance  (5.50 - 5.30) x 27,000  5,400 F.
Material Usage Variance
Standard materials for actual production (60 x 430) 25,800 pounds
Actual materials used 27,000 pounds
Material Quantity Variance (pounds) 1,200 (U)
Standard Rate 5.50
Material Quantity Variance () 6,600 (U)
Total Material Variance 5,400 - 6,600  1,200 (U).
Labor Rate Variance (16 - 15.90) x 670  67 F
Labor Efficiency Variance
Standard hours for actual production (1.5 x 430) 645 hours
Actual hours worked 670 hours
Labor Efficiency Variance (hours) 25 (U)
Standard Labor Rate 16
Labor Efficiency Variance () 400 (U)
Total Labor Variance 67 - 400  333 (U)
Standard Overhead (2,808  (430 x 5.76) 5,285
Actual Overheads 5,335
Overhead Expenditure Variance 50 (U)
Actual Production 430
Budgeted Production 450
Production Variance 20 (U)
Overhead Absorption Rate 12
Overhead Volume Variance 240 (U)

2. A favorable material price variance indicates that actual price of materials was lower than the envisaged price.  This may be because the purchasing manager bought materials of a lower quality, which hold a lower price.  On the contract an unfavorable material usage variance was noted, which means that more material was used than expected.  The reason behind such variance may be that since the material was of a lower quality more wastage took place leading to higher usage.

A favorable labor rate variance was outlined, which implies that actual labor rate was lower than expected.  Such a favorable variance may arise due to lower skilled workers employed who demand a lower wage rate.  The opposite occurred for the labor efficiency variance, where an adverse variance took place.  This pinpoints lower efficiency for employees, where more time was taken to produce the units.  If lower skilled workers were employed there is the possibility that their level of efficiency is lower than what is normally expected leading to such variance.

The unfavorable overhead expenditure variance means that more overheads were incurred than budgeted.  This may result due to higher utilization of resources leading to more variable overheads since employees may be unskilled.  The adverse overhead volume variance indicates that less production was made than expected.  Such lower production may be the result of ineffective resources or unskilled workers unable to reach the desired production.

3. Standard Hours for Actual Production 645
Actual Hours Worked 670
25 (U)
Standard Variable Overhead Rate 3.84
Variable Overhead Efficiency Variance 96 (U)
Standard Overhead (2,808  (670 x 3.84) 5,381
Actual Overheads 5,335
Overhead Expenditure Variance 46 F

This change in the cost function would lead to a favorable overhead expenditure variance rather than an adverse one.  In this case, the actual overhead expenditure is higher than the budgeted one, which is a positive element.  However, the unfavorable variable overhead efficiency variance still indicates problems in the production process in line with the premise above.  An adverse variance is still taking placing because employees were less skilled than expected.