acct221 week 7 homework latest 2015

Storm Tools has formed a new business unit to produce battery-powered drills. The business unit was formed by the transfer of selected assets and obligations from the parent company. The unit's initial balance sheet on January 1 contained cash ($500,000), plant and equipment ($2,500,000), notes payable to the parent ($1,000,000), and residual equity ($2,000,000).

The business unit is expected to repay the note at $50,000 per month, plus all accrued interest at 1/2% per month. Payments are made on the last day of each month.

The unit is scheduled to produce 25,000 drills during January, with an increase of 2,500 units per month for the next three months. Each drill requires $40 of raw materials. Raw materials are purchased on account, and paid in the month following the month of purchase. The plant manager has established a goal to end each month with raw materials on hand, sufficient to meet 25% of the following month's planned production.

The unit expects to sell 20,000 drills in January; 25,000 in February, 25,000 in March, and 30,000 per month thereafter. The selling price is $100 per drill. Half of the drills will be sold for cash through a website. The others will be sold to retailers on account, who pay 40% in the month of purchase, and 60% in the following month. Uncollectible accounts are not material.

Each drill requires 20 minutes of direct labor to assemble. Labor rates are $24 per hour. Variable factory overhead is applied at $9 per direct labor hour. The fixed factory overhead is $25,000 per month; 60% of this amount is related to depreciation of plant and equipment. With the exception of depreciation, all overhead is funded as incurred.

Selling, general, and administrative costs are funded in cash as incurred, and consist of fixed components (salaries, $100,000; office, $40,000; and advertising, $75,000) and variable components (15% of sales).

Prepare a monthly comprehensive budget plan for Storm's new business unit for January through March. The plan should include the (a) sales and cash collections budget, (b) production budget, (c) direct materials purchases and payments budget, (d) direct labor budget, (e) factory overhead budget, (f) ending finished goods budget (assume total factory overhead is applied to production at the rate of $11.73 per direct labor hour), (g) SG&A budget, and (h) cash budget.

Jeff Miller owns Miller Auto Body Repair. During some months, he seems to have sufficient cash to meet all needs and maintain a comfortable cash reserve balance. During other months, he is frustrated because his operating cash supply is severely depleted. As a result, he is establishing a borrowing agreement with a local bank. His objective is to borrow (on the first day of the month) or repay (on the last day of the month) on the loan each month, in $2,500 increments. His planned borrowings/repayments will be based upon a cash budget, and tied to the assumption that the company will end each month with no less than $10,000 of available cash.

Evaluate the following facts relating to the period July 1 to September 30, and prepare a monthly cash budget. Whenever repayments are made on the loan, the repayment is to include all accrued interest from the time of the loan origination. Interest accrues at 1% per month. Miller Auto Body had $12,500 of cash on hand on July 1.

Sales for May and June were $250,000 and $300,000, respectively. Anticipated sales for July to September are as follows:

July $2,25,000

August 3,60,000

September 3,10,000

Because much of the repair work is done for insurance companies, the pattern of collection for all sales is typically delayed as follows: 20% in the month of sale, 60% in the next following month, and 15% in the second following month. The other 5% is not expected to be collected.

Total selling, general, and administrative costs consist of a monthly fixed component of $70,000, and variable costs that run 15% of sales. The fixed SG&A costs include noncash depreciation of $25,000; all other SG&A is fully funded in cash each month.

Repair parts are expected to equal 30% of sales, and are funded half in the month of sale and the other half in the next following month. Direct labor is expected to equal 20% of sales and is funded in the month incurred. Shop overhead is equal to 30% of direct labor. 40% of the total shop overhead is paid in cash within the month, and the other 60% relates to noncash depreciation.

Miller Auto Body is a sole proprietorship and does not pay income tax. However, the earnings must be included in Jeff's personal tax return. As a result, Miller Auto Body pays out $5,000 in cash each month to Jeff to cover his estimated tax obligation.

Jeff has been notified that he must install an environmental paint filter system. This $85,000 expenditure will be funded in August at the time of installation. Jeff also plans to sell a truck in September for $25,000, resulting in a loss of $3,000.

Jeff Miller owns Miller Auto Body Repair. During some months, he seems to have sufficient cash to meet all needs and maintain a comfortable cash reserve balance. During other months, he is frustrated because his operating cash supply is severely depleted. As a result, he is establishing a borrowing agreement with a local bank. His objective is to borrow (on the first day of the month) or repay (on the last day of the month) on the loan each month, in $2,500 increments. His planned borrowings/repayments will be based upon a cash budget, and tied to the assumption that the company will end each month with no less than $10,000 of available cash.

Evaluate the following facts relating to the period July 1 to September 30, and prepare a monthly cash budget. Whenever repayments are made on the loan, the repayment is to include all accrued interest from the time of the loan origination. Interest accrues at 1% per month. Miller Auto Body had $12,500 of cash on hand on July 1.

Sales for May and June were $250,000 and $300,000, respectively. Anticipated sales for July to September are as follows:

July $2,25,000

August 3,60,000

September 3,10,000

Because much of the repair work is done for insurance companies, the pattern of collection for all sales is typically delayed as follows: 20% in the month of sale, 60% in the next following month, and 15% in the second following month. The other 5% is not expected to be collected.

Total selling, general, and administrative costs consist of a monthly fixed component of $70,000, and variable costs that run 15% of sales. The fixed SG&A costs include noncash depreciation of $25,000; all other SG&A is fully funded in cash each month.

Repair parts are expected to equal 30% of sales, and are funded half in the month of sale and the other half in the next following month. Direct labor is expected to equal 20% of sales and is funded in the month incurred. Shop overhead is equal to 30% of direct labor. 40% of the total shop overhead is paid in cash within the month, and the other 60% relates to noncash depreciation.

Miller Auto Body is a sole proprietorship and does not pay income tax. However, the earnings must be included in Jeff's personal tax return. As a result, Miller Auto Body pays out $5,000 in cash each month to Jeff to cover his estimated tax obligation.

Jeff has been notified that he must install an environmental paint filter system. This $85,000 expenditure will be funded in August at the time of installation. Jeff also plans to sell a truck in September for $25,000, resulting in a loss of $3,000.

Storm Tools has formed a new business unit to produce battery-powered drills. The business unit was formed by the transfer of selected assets and obligations from the parent company. The unit's initial balance sheet on January 1 contained cash ($500,000), plant and equipment ($2,500,000), notes payable to the parent ($1,000,000), and residual equity ($2,000,000).

The business unit is expected to repay the note at $50,000 per month, plus all accrued interest at 1/2% per month. Payments are made on the last day of each month.

The unit is scheduled to produce 25,000 drills during January, with an increase of 2,500 units per month for the next three months. Each drill requires $40 of raw materials. Raw materials are purchased on account, and paid in the month following the month of purchase. The plant manager has established a goal to end each month with raw materials on hand, sufficient to meet 25% of the following month's planned production.

The unit expects to sell 20,000 drills in January; 25,000 in February, 25,000 in March, and 30,000 per month thereafter. The selling price is $100 per drill. Half of the drills will be sold for cash through a website. The others will be sold to retailers on account, who pay 40% in the month of purchase, and 60% in the following month. Uncollectible accounts are not material.

Each drill requires 20 minutes of direct labor to assemble. Labor rates are $24 per hour. Variable factory overhead is applied at $9 per direct labor hour. The fixed factory overhead is $25,000 per month; 60% of this amount is related to depreciation of plant and equipment. With the exception of depreciation, all overhead is funded as incurred.

Selling, general, and administrative costs are funded in cash as incurred, and consist of fixed components (salaries, $100,000; office, $40,000; and advertising, $75,000) and variable components (15% of sales).

Prepare a monthly comprehensive budget plan for Storm's new business unit for January through March. The plan should include the (a) sales and cash collections budget, (b) production budget, (c) direct materials purchases and payments budget, (d) direct labor budget, (e) factory overhead budget, (f) ending finished goods budget (assume total factory overhead is applied to production at the rate of $11.73 per direct labor hour), (g) SG&A budget, and (h) cash budget.