Financial Planning: Sales, Costs, and Budgeting
Walsh Company Production
Walsh Company expects sales of Product W to be 60,000 units in April, 75,000 units in May, and 70,000 units in June. D Company desires that the inventory on hand at the end of each month be equal to 40% of the next month’s expected unit sales. Due to excessive production during March, on March 31 there were 25,000 units of Product W in the ending inventory. Given this information, Walsh Company’s production of Product W for the month of April should be: 65,000 units
Dimitrov Corporation Income
Dimitrov Corporation, a company that produces and sells a single product, has provided its contribution format income statement for July.
If the company sells 6,900 units, its net operating income should be closest to: $34,500
Petersheim Snow Removal Costs
Petersheim Snow Removal’s cost formula for its vehicle operating cost is $1,750 per month plus $484 per snow-day. For the month of November, the company planned for activity of 15 snow-days, but the actual level of activity was 14 snow-days. The actual vehicle operating cost for the month was $8,360. The vehicle operating cost in the flexible budget for November would be closest to: $8,526
Wadhams Snow Removal Costs
Wadhams Snow Removal’s cost formula for its vehicle operating cost is $1,900 per month plus $430 per snow-day. For the month of December, the company planned for activity of 16 snow-days, but the actual level of activity was 21 snow-days. The actual vehicle operating cost for the month was $11,470. The vehicle operating cost in the planning budget for December would be closest to: $8,780
Fussner Medical Clinic Expenses
Fussner Medical Clinic measures its activity in terms of patient-visits. Last month, the budgeted level of activity was 1,610 patient-visits & the actual level of activity was 1,670 patient-visits. The cost formula for administrative expenses is $3.30 per patient-visit plus $17,900 per month. The actual administrative expense was $24,600. In the clinic’s flexible budget performance report for last month, the spending variance for administrative expenses was: $1,189 U
Cindy, Inc. Sales Impact
Cindy, Inc. sells a product for $10 per unit. The variable expenses are $6 per unit, and the fixed expenses total $35,000 per period. By how much will net operating income change if sales are expected to increase by $40,000? $16,000 increase
Sales and Profit Analysis
A total of 30,000 units were sold last year. The contribution margin per unit was $2, and fixed expenses totaled $20,000 for the year. This year fixed expenses are expected to increase to $26,000, but the contribution margin per unit will remain unchanged at $2. How many units must be sold this year to earn the same profit as was earned last year? 43,000 units
Cash Collections
Avril Company makes collections on sales according to the following schedule:
Cash collections in March should be budgeted to be: $113,000
Mahapatra Corporation Overhead
The manufacturing overhead budget at Mahapatra Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 7,900 direct labor-hours will be required in May. The variable overhead rate is $9.50 per direct labor-hour. The company’s budgeted fixed manufacturing overhead is $112,970 per month, which includes depreciation of $18,170. All other fixed manufacturing overhead costs represent current cash flows.
The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for May should be: $23.80
Lhu Corporation Direct Labor Budget
Lhu Corporation makes and sells a product called Product WZ. Each unit of Product WZ requires 2.5 hours of direct labor at the rate of $15.00 per direct labor-hour. Management would like you to prepare a direct labor budget for June.
The budgeted direct labor cost per unit of Product WZ would be: $37.50
The company plans to sell 38,000 units of Product WZ in June. The finished goods inventories on June 1 & June 30 are budgeted to be 600 & 100 units, respectively.
Budgeted direct labor costs for June would be: $1,406,250
True or False Statements
If fixed expenses increase by $10,000 per year, then the level of sales needed to break even will also increase by $10,000. False
A flexible budget can be used to determine what costs should have been at a given level of activity. True
For a given level of sales, a low contribution margin ratio will produce less net operating income than a high contribution margin ratio. True
A company with a degree of operating leverage of 4 would expect net operating income to increase by 200% if sales increased from $100,000 to $150,000. True
Sales forecasts are drawn up after the cash budget has been completed because only then are the funds available for marketing known. False
Mark Company currently sells a video recorder with a selling price of $300 per unit. The variable expense per unit is $175 & fixed expenses are $100,000. If the company reduces variable expenses by $20 per unit & increases the fixed expenses by $10,000, the breakeven point will increase. False
While fixed costs should not be affected by a change in the level of activity within the relevant range, they may change for other reasons. True
The activity variance for revenue is favorable if the actual level of activity for the period exceeds the planned level of activity. True