Problem 1:

The following information is used for Lucky’s Inc.’s monthly master budget.

June’s balance sheet balances:

Cash

$10,500

Accounts payable

$53,760

Accounts receivable

$80,000

Capital stock

$260,000

Inventory

$26,000

Retained earnings

$2,740

Building and equipment (net)

$200,000

Actual sales for June and budgeted sales for July, August, and September:

June (actual)

$140,000

July (budget)

$320,000

August (budget)

$180,000

September (budget)

$200,000

Sales are 25% cash and 75% on credit. All credit sales are collected in the following month. There are no bad debts.

Gross margin percentage is 60% of sales.

The desired ending inventory is expected to be 20% of the following
month’s cost of goods sold. One fifth of the purchases are paid for in
the month of purchase, and the remaining balance is purchased on credit
and paid in the following month.

The monthly cash operating expenses are $80,000, including the monthly depreciation expense of $7,000.

During July, Lucky’s Inc. will purchase new office equipment for $17,000 cash.

Dividends of $13,500 were declared and paid in July.

The company must maintain a minimum cash balance of $25,000. A line
of credit is used to maintain this balance. Borrowing will be made in
increments of $1,000. All borrowing is done at the beginning of the
month, and repayments are made at the end of the month. The annual
interest rate is 12%, paid when the loan is repaid (ignore accrual of
interest).

Required:

Prepare a balance sheet, income statement, and cash budget for the month of July.

Problem 2:

The Sparkly Corporation has the following budget and actual results.

Budgeted data

Unit sales

30,000

Unit production

30,000

Fixed overhead

Supervision

$54,000

Depreciation

$60,000

Rent

$30,000

Variable costs per unit

Direct materials

$18.00

Direct labor

$25.00

Supplies

$0.25

Indirect labor

$1.20

Electricity

$0.15

Actual results

Unit sales

33,000

Unit production

36,000

Fixed overhead

Supervision

$53,550

Depreciation

$60,000

Rent

$30,000

Variable costs

Direct materials

$642,000

Direct labor

$960,000

Supplies

$7,500

Indirect labor

$30,000

Electricity

$4,500

Required:

Prepare a performance report for all costs, showing static budget variances (indicate F or U).

Prepare a performance report for all costs, showing flexible budget variances (indicate F or U).




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