Assignment 2 - MAnagerial Accounting

Assignment #2

• This assignment is composed of 3 main questions on Unit 4.
• You are required to prepare and/or complete and then submit the appropriate financial statements and calculations. Please show the steps you used to compute the figures as partial marks can be assigned for proper formulations even if the calculated total is incorrect.
• Clearly identify on the page footer your name and student number.
• This paper will be marked out of 50 with your overall result counting towards 10% of your final grade. Please send me your assignment through the dropbox below.

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Q1. (15 marks) On March 31, Streuling Enterprises, a merchandising firm, had an inventory of 38,000 units, and it had accounts receivable totalling $85,000. Sales, in units, have been budgeted as follows for the next four months:

April	60,000
May	75,000
June	90,000
July	81,000

Streuling's board of directors has established a policy to commence in April that the inventory at the end of each month should contain 40% of the units required for the following month's budgeted sales.

The selling price is $2 per unit. One-third of sales are paid for by customers in the month of the sale; the balance is collected in the following month.

Required:

a) Prepare a merchandise purchases budget showing how many units should be purchased for each of the months April, May, and June. Remember there is a difference between units and $of the units - use the right figures in the right spots

b) Prepare a schedule of expected cash collections for each of the months April, May, and June. Remember the existing A/R balance

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Q2.

(15 marks) The Doley Company has planned the following sales for the next three months:

	January	February	March
Budgeted Sales	$40,000	$50,000	$70,000

Sales are made 20% for cash and 80% on account. From experience, the company has learned that a month's sales on account are collected according to the following pattern:

Month of sale	60%
First month following sale	30%
Second month following sale	8%
Uncollectible	2%

The company requires a minimum cash balance of $5,000 to start a month. The beginning cash balance in March is budgeted to be $6,000.

Required

a) Compute the budgeted cash receipts for March. Rember to think in terms of when actual cash is planned to be received. If you are not going to receive the cash it is not part of the budget. Also pay close attention to cash vs credit sales

b) The following additional information has been provided for March:

Inventory purchases (all paid in cash in March)	$28,000
Operating Expenses (all paid in cash in March)	$40,000
Depreciation expense for March	$5,000
Dividends paid in March	$4,000

Prepare a cash budget in good form for the month of March, using this information and the budgeted cash receipts you computed for part a) above. The company can borrow in any dollar amount and will not pay interest until April.

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Q3. (20 marks) Fougere Realtors, Inc. specializes in home re-sales. It earns revenue from selling fees. Fougere Realtors’ major costs are commissions for salespersons, listing agents, and listing companies. Its business has improved steadily over the last ten years. As usual, Chris Fougere, the managing partner of Fougere Realtors, Inc., received a report summarizing the performance for the most recent year.

Fougere Realtors, Inc.

Performance Report

For the year ended December 31, 2007

Budget Actual Variance

Number of home re-sales 180 202 22 F

Variable expenses

Sales commissions $1,102,950 $1,205,183 $102,233 U

Automobile 36,000 39,560 3,560 U

Advertising 171,000 192,690 21,690 U

General overhead 656,100 716,970 60,870 U

Total $1,966,050 $2,154,403 $188,353 U

Fixed expenses

General overhead 60,000 62,300 2,300 U

Total expenses $2,026,050 $2,216,703 $190,653 U

Required:

a) Explain the major weakness of this performance report and why all the variances for the variable expenses are unfavourable (U) (5 marks)

b) As a first step in helping Chris Fougere to evaluate cost / expense control in the organization, complete the following for the year ended December 31, 2007, assuming the only cost driver is the number of home re-sales. (Note: Indicate any variance as either favourable (F) or unfavourable (U).) (15 marks)

Budget Actual Variance

Number of home re-sales 202 202 0

Variable expenses

Sales commissions $ $ 1,205,183 _________

Automobile $ _________ 39,560 _________

Advertising $ _________ 192,690 _________

General overhead $ _________ 716,970 _________

Total $ _________ $2,154,403 _________

Fixed expenses

General overhead $ _________ 62,300 _________

Total expenses $ $2,216,703