1.
Tilson Company has projected sales and production in units for the second quarter of the
coming year as follows:
Cash-related production costs are budgeted at $7 per unit produced. Of these production costs,
40% are paid in the month in which they are incurred and the balance in the following month.
Selling and administrative expenses will amount to $110,000 per month, paid in cash. The
accounts payable balance on March 31 totals $193,000, which will be paid in April.
All units are sold on account for $16 each. Cash collections from sales are budgeted at 60% in
the month of sale, 30% in the month following the month of sale, and the remaining 10% in the
second month following the month of sale. Accounts receivable on April 1 totaled $520,000
($100,000 from February's sales and the remainder from March).
a. Prepare a schedule for each month showing budgeted cash disbursements for Tilson Company.
b. Prepare a schedule for each month showing budgeted cash receipts for Tilson Company.
2. Wrape Urban Diner is a charity supported by donations that provides free meals to the
homeless. The diner's budget for April was based on 2,100 meals. The diner's director has
provided the following cost data to use in the budget: groceries, $2.55 per meal; kitchen
operations, $4,700 per month plus $1.70 per meal; administrative expenses, $3,300 per month
plus $0.60 per meal; and fundraising expenses, $1,000 per month. The director has also provided
the diner's statement of actual expenses for the month:
Prepare a performance report showing both the activity variances and the spending variances for
each of the expenses and for total expenses for April. Label each variance as favorable (F) or
unfavorable (U).
3. Tefil Ltd has the following standard cost card for its budgeted 10,000 units of wooden toys for
the month of April 2023.
Unit cost
Direct materials: 0.5kg @ $60.00 per kg $30.00
Direct Manufacturing labour: 0.4hour @ $20.00 per hour $ 8.00
Fixed Manufacturing overhead: $20.00
The following are the summary of the actual results on the production of 9,500 units
Total Cost
Direct materials: 5,000 kg purchased $310,000
4,800 kg used
Direct Manufacturing labour: 3,900 hours $ 85,800
Fixed Manufacturing overhead $198,000
Assume that there were no beginning inventories of direct materials and finished goods.
a. Calculate the appropriate variances and
b. Comment on these variances.
4. Iacollia Company makes two products from a common input. Joint processing costs up to the
split-off point total $47,600 a year. The company allocates these costs to the joint products on the
basis of their total sales values at the split-off point. Each product may be sold at the split-off
point or processed further. Data concerning these products appear below:
What is the net monetary advantage (disadvantage) of processing Product X and Y beyond the
split-off point?
5. Part F77 is used in one of Wilcutt Corporation's products. The company's Accounting
Department reports the following costs of producing the 7,000 units of the part that are needed
every year.
An outside supplier has offered to make the part and sell it to the company for $28.30 each. If
this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor,
can be avoided. The special equipment used to make the part was purchased many years ago and
has no salvage value or other use. The allocated general overhead represents fixed costs of the
entire company. If the outside supplier's offer were accepted, only $9,000 of these allocated
general overhead costs would be avoided.
Which alternative should the company choose?
6. You have been observing the surge in health awareness in Australia for some time and realize
the time is right to start and run an aerobic fitness centre. Your family owns a warehouse which
will meet your needs, and is currently being rented out at $48,000 per annum. You estimate you
will need to spend $1,000,000 in total, made up of an initial cost of $500,000 to renovate the
premises, $450,000 for new equipment, and $50,000 to install the equipment. An investment of
$100,000 for Working Capital must be made at the beginning of the project, but it will be
returned at the end of the project.
You have done a market survey, which leads you to believe that you will get 500 members each
paying $500 per annum. You have also found two instructors you can hire at $30,000 each per
annum. For tax reasons you will depreciate the renovation costs and the equipment (including the
installation cost) over 15 years using the straight-line method. The fitness equipment will have a
salvage value of $25,000 at the end of 15 years. Assume the initial investment is made today and
all cash-flows are received or paid at the end of each year. Your discount rate is 15% and your
tax rate is 30%.
Should you invest in the project?
