PROBLEM 14:24 ACCOUNTING

ACCOUNTING: What the Numbers Mean 10e
Chapter 14 Problem 14.24 Name: Enter Name
Problem Description:
Freese Inc. is in the process of preparing the fourth quarter budget for 2013 and the following data have been assembled:
The company sells a single product at a selling price of $60 per unit. The estimated sales volume for the six months is as follows:
Units
September
October
November
December
January
February
13000
12000
14000
20000
9000
10000
All sales are on account. The company’s collection experience has been that 32% of a month’s sales are collected in the month of sale 64% in the month following the sale and 4% are uncollectible. According to the budget the net realizable value of accounts receivable (i.e. accounts receivable less allowance for uncollectible accounts) is expected to be $499200 on September 30 2013.
Management’s policy is to maintain ending finished goods inventory each month at a level equal to 40% of the next month’s budgeted sales. The finished goods inventory on September 30 2013 is expected to be 4800 units.
To make one unit of finished product 5 pounds of raw material are required. Management’s policy is to have enough materials on hand at the end of each month to equal 30% of the next month’s estimated usage. The raw materials inventory is expected to be 19200 pounds on September 30 2013.
The cost per pound of material is $4 and 70% of all purchases are paid for in the month of purchase; the remainder is paid in the following month. The accounts payable for raw material purchases is expected to be $75960 on September 30 2013.
Instructions:
Please proceed to the Analysis worksheet and complete the basic problem requirements. Complete the problem requirements by entering appropriate amounts or formulas in shaded worksheet cells:
a. Prepare a sales budget in units and dollars by month and in total for the fourth quarter (October November and December) of 2013.
b. Prepare a schedule of cash collections from sales by month and in total for the fourth quarter of 2013.
c. Prepare a production budget in units by month and in total for the fourth quarter of 2013.
d. Prepare a materials purchases budget in pounds by month and in total for the fourth quarter of 2013.
e. Prepare a schedule of cash payments for materials by month and in total for the fourth quarter of 2013.
After completing the Analysis worksheet please proceed to the What the Numbers Mean worksheet and respond to the additional requirements presented.
ACCOUNTING: What the Numbers Mean 10e
Chapter 14 Problem 14.24
Name: Enter Name
Complete the Modeling:
a. Sales Budget
September
Quarter Ended December 31 2013
January
Expected sales in units:
October
November
December
Total
Selling price per unit:
Total Sales:
b. Cash Collections from:
Quarter Ended December 31 2013
Sales
% Collected
October
November
December
Total
September sales:
$-
$-
October sales:
$-
–
October sales:
$-
–
November sales:
$-
–
November sales:
$-
–
December sales:
$-
–
Total cash collections:
$-
$-
$-
$-
c. Production Budget
Quarter Ended December 31 2013
Finished Goods
% Budgeted
October
November
December
Total
January
Beginning Inventory:
4800
Units to be produced:
(4800)
–
–
–
–
Goods available for sale:
–
–
–
–
–
Desired ending inventory:
Quantity of goods sold:
–
–
–
–
–
d. Materials Purchases Budget
October
November
December
Total
January
Units to be produced:
(4800)
–
–
–
–
Pounds required for each unit:
Total pounds used in production:
Raw Materials
% Budgeted
Quarter Ended December 31 2013
October
November
December
Total
Beginning Inventory:
19200
Purchases of materials:
(19200)
–
–
–
Materials available for use:
–
–
–
–
Desired ending inventory:
Total pounds used in production:
–
–
–
–
e. Cash Payments for:
October
November
December
Total
Purchases of materials:
(19200)
–
–
–
Cost per pound of raw material:
Total cost of raw material purchases:
Purchases
% Paid
Quarter Ended December 31 2013
October
November
December
Total
September Net A/P:
$75960
$75960
October purchases:
$-
–
October purchases:
$-
–
November purchases:
$-
–
November purchases:
$-
–
December purchases:
$-
–
Total cash payments:
$75960
$-
$-
$75960
February
ACCOUNTING: What the Numbers Mean 10e
Chapter 14 Problem 14.24 Name: Enter Name
What does it mean? Question 1:
Assume that Freese Inc. decided that because of strong economic conditions in general a 10% increase in the expected number of units to be sold each month was realistic. Explain the effect in general on each of the budgets presented of a 10% increase in the number of units sold.
What does it mean? Question 2:
Assuming that the number of units sold would not change explain the effect on the budgets presented of a 5% increase in the selling price of the product. How does this price change effect differ from the sales volume effect you described above?
What does it mean? Question 3:
The purchasing manager is evaluating an alternative supplier that would provide a slightly lower grade of raw material at a savings from the current price of $4 per pound. The new price would be at $3.50 per pound but the product would now require six pounds of the lower grade of raw material to produce the same number of good finished units as currently achieved. Would you recommend the change to the new supplier? What if the new price was to be $3.00? How about a price of $3.285307? Explain your answers.
ACCOUNTING: What the Numbers Mean 10e
Chapter 14 Problem 14.24 Name: Enter Name
Problem Description:
Freese Inc. is in the process of preparing the fourth quarter budget for 2013 and the following data have been assembled:
The company sells a single product at a selling price of $60 per unit. The estimated sales volume for the six months is as follows:
Units
September
October
November
December
January
February
13000
12000
14000
20000
9000
10000
All sales are on account. The company’s collection experience has been that 32% of a month’s sales are collected in the month of sale 64% in the month following the sale and 4% are uncollectible. According to the budget the net realizable value of accounts receivable (i.e. accounts receivable less allowance for uncollectible accounts) is expected to be $499200 on September 30 2013.
Management’s policy is to maintain ending finished goods inventory each month at a level equal to 40% of the next month’s budgeted sales. The finished goods inventory on September 30 2013 is expected to be 4800 units.
To make one unit of finished product 5 pounds of raw material are required. Management’s policy is to have enough materials on hand at the end of each month to equal 30% of the next month’s estimated usage. The raw materials inventory is expected to be 19200 pounds on September 30 2013.
The cost per pound of material is $4 and 70% of all purchases are paid for in the month of purchase; the remainder is paid in the following month. The accounts payable for raw material purchases is expected to be $75960 on September 30 2013.
Instructions:
Please proceed to the Analysis worksheet and complete the basic problem requirements. Complete the problem requirements by entering appropriate amounts or formulas in shaded worksheet cells:
a. Prepare a sales budget in units and dollars by month and in total for the fourth quarter (October November and December) of 2013.
b. Prepare a schedule of cash collections from sales by month and in total for the fourth quarter of 2013.
c. Prepare a production budget in units by month and in total for the fourth quarter of 2013.
d. Prepare a materials purchases budget in pounds by month and in total for the fourth quarter of 2013.
e. Prepare a schedule of cash payments for materials by month and in total for the fourth quarter of 2013.
After completing the Analysis worksheet please proceed to the What the Numbers Mean worksheet and respond to the additional requirements presented.
ACCOUNTING: What the Numbers Mean 10e
Chapter 14 Problem 14.24
Name: Enter Name
Complete the Modeling:
a. Sales Budget
September
Quarter Ended December 31 2013
January
Expected sales in units:
October
November
December
Total
Selling price per unit:
Total Sales:
b. Cash Collections from:
Quarter Ended December 31 2013
Sales
% Collected
October
November
December
Total
September sales:
$-
$-
October sales:
$-
–
October sales:
$-
–
November sales:
$-
–
November sales:
$-
–
December sales:
$-
–
Total cash collections:
$-
$-
$-
$-
c. Production Budget
Quarter Ended December 31 2013
Finished Goods
% Budgeted
October
November
December
Total
January
Beginning Inventory:
4800
Units to be produced:
(4800)
–
–
–
–
Goods available for sale:
–
–
–
–
–
Desired ending inventory:
Quantity of goods sold:
–
–
–
–
–
d. Materials Purchases Budget
October
November
December
Total
January
Units to be produced:
(4800)
–
–
–
–
Pounds required for each unit:
Total pounds used in production:
Raw Materials
% Budgeted
Quarter Ended December 31 2013
October
November
December
Total
Beginning Inventory:
19200
Purchases of materials:
(19200)
–
–
–
Materials available for use:
–
–
–
–
Desired ending inventory:
Total pounds used in production:
–
–
–
–
e. Cash Payments for:
October
November
December
Total
Purchases of materials:
(19200)
–
–
–
Cost per pound of raw material:
Total cost of raw material purchases:
Purchases
% Paid
Quarter Ended December 31 2013
October
November
December
Total
September Net A/P:
$75960
$75960
October purchases:
$-
–
October purchases:
$-
–
November purchases:
$-
–
November purchases:
$-
–
December purchases:
$-
–
Total cash payments:
$75960
$-
$-
$75960
February
ACCOUNTING: What the Numbers Mean 10e
Chapter 14 Problem 14.24 Name: Enter Name
What does it mean? Question 1:
Assume that Freese Inc. decided that because of strong economic conditions in general a 10% increase in the expected number of units to be sold each month was realistic. Explain the effect in general on each of the budgets presented of a 10% increase in the number of units sold.
What does it mean? Question 2:
Assuming that the number of units sold would not change explain the effect on the budgets presented of a 5% increase in the selling price of the product. How does this price change effect differ from the sales volume effect you described above?
What does it mean? Question 3:
The purchasing manager is evaluating an alternative supplier that would provide a slightly lower grade of raw material at a savings from the current price of $4 per pound. The new price would be at $3.50 per pound but the product would now require six pounds of the lower grade of raw material to produce the same number of good finished units as currently achieved. Would you recommend the change to the new supplier? What if the new price was to be $3.00? How about a price of $3.285307? Explain your answers.