We really need to get this new material-handling equipment in operation just after the newyear begins. I hope we can finance it largely with cash and marketable securities, but ifnecessary we can get a short-term loan down at MetroBank.” This statement by BethDavies-Lowry, president of Intercoastal Electronics Company, concluded a meeting shehad called with the firm’s top management. Intercoastal is a small, rapidly growingwholesaler of consumer electronic products. The firm’s main product lines are smallkitchen appliances and power tools 

[The following information applies to the questions displayed below.]  

  

“We really need to get this new material-handling equipment in operation just after the new year begins. I hope we can finance it largely with cash and marketable securities, but if necessary we can get a short-term loan down at MetroBank.” This statement by Beth Davies-Lowry, president of Intercoastal Electronics Company, concluded a meeting she had called with the firm’s top management. Intercoastal is a small, rapidly growing wholesaler of consumer electronic products. The firm’s main product lines are small kitchen appliances and power tools. Marcia Wilcox, Intercoastal’s General Manager of Marketing, has recently completed a sales forecast. She believes the company’s sales during the first quarter of 20x1 will increase by 10 percent each month over the previous month’s sales. Then Wilcox expects sales to remain constant for several months. Intercoastal’s projected balance sheet as of December 31, 20x0, is as follows:  

  

    

  Cash $ 40000   

  Accounts receivable 168000   

  Marketable securities 15000   

  Inventory 115500   

  Buildings and equipment (net of accumulated depreciation) 631000   

    

  Total assets $ 969500   

 

 

 

  

  Accounts payable $ 154350   

  Bond interest payable 15000   

  Property taxes payable 2400   

  Bonds payable (12%; due in 20x6) 300000   

  Common stock 450000   

  Retained earnings 47750   

    

  Total liabilities and stockholders’ equity $ 969500   

 

 

 

  

 

  

     Jack Hanson, the assistant controller, is now preparing a monthly budget for the first quarter of 20x1. In the process, the following information has been accumulated:  

  

1. Projected sales for December of 20x0 are $300000. Credit sales typically are 70 percent of total sales. Intercoastal’s credit experience indicates that 20 percent of the credit sales are collected during the month of sale, and the remainder are collected during the following month.   

2. Intercoastal’s cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account, and 30 percent of each month’s purchases are paid during the month of purchase. The remainder is paid during the following month. In order to have adequate stocks of inventory on hand, the firm attempts to have inventory at the end of each month equal to half of the next month’s projected cost of goods sold.   

3. Hanson has estimated that Intercoastal’s other monthly expenses will be as follows:  

  

    

  Sales salaries $ 18000   

  Advertising and promotion 10000   

  Administrative salaries 18000   

  Depreciation 20000   

  Interest on bonds 3000   

  Property taxes 600   

 

  

  In addition, sales commissions run at the rate of 2 percent of sales.  

  

4. Intercoastal’s president, Davies-Lowry, has indicated that the firm should invest $115000 in an automated inventory-handling system to control the movement of inventory in the firm’s warehouse just after the new year begins. These equipment purchases will be financed primarily from the firm’s cash and marketable securities. However, Davies-Lowry believes that Intercoastal needs to keep a minimum cash balance of $20000. If necessary, the remainder of the equipment purchases will be financed using short-term credit from a local bank. The minimum period for such a loan is three months. Hanson believes short-term interest rates will be 10 percent per year at the time of the equipment purchases. If a loan is necessary, Davies-Lowry has decided it should be paid off by the end of the first quarter if possible.   

5. Intercoastal’s board of directors has indicated an intention to declare and pay dividends of $20000 on the last day of each quarter.   

6. The interest on any short-term borrowing will be paid when the loan is repaid. Interest on Intercoastal’s bonds is paid semiannually on January 31 and July 31 for the preceding six-month period.   

7. Property taxes are paid semiannually on February 28 and August 31 for the preceding six-month period.  

 

 

 1.

value:

4 points

 

 

 

Required:   

Prepare Intercoastal Electronics Company’s master budget for the first quarter of 20x1 by completing the following schedules and statements.  

  

1. Sales budget (Round your answers to the nearest dollar amount.):  

  

  20x0 20x1   

    

  December January February March 1st Quarter   

  Total sales $     $     $     $     $       

  Cash sales                       

  Sales on account                       

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 2.

value:

4 points

 

 

 

2. Cash receipts budget:  

  

  20x1   

    

  January February March 1st Quarter   

  Cash sales $     $     $     $       

  Cash collections from credit sales

      made during current month                   

  Cash collections from credit sales

      made during preceding month                   

    

  Total cash receipts $     $     $     $       

 

 

 

 

  

 

 

 

 3.

value:

4 points

 

 

 

3. Purchases budget:  

  

  20x0 20x1   

    

  December January February March 1st Quarter   

  Budgeted cost of

      goods sold $     $     $     $     $       

  Add: Desired

      ending inventory                       

    

  Total goods needed $     $     $     $     $       

  Less: Expected

      beginning inventory                       

    

  Purchases $     $     $     $     $       

 

 

 

 

 

  

 

 

 

 

 

 

 4.value:

5 points

 

 

The following data are the actual results for Marvelous Marshmallow Company for October.  

  

 

    

  Actual output 9000 cases   

  Actual variable overhead $ 418000   

  Actual fixed overhead $ 124000   

  Actual machine time 39400 machine hours   

 

  

 

Standard cost and budget information for Marvelous Marshmallow Company follows:  

  

 

    

  Standard variable-overhead rate $ 10.00 per machine hour   

  Standard quantity of machine hours 4 hours per case of marshmallows   

  Budgeted fixed overhead $ 120000 per month   

  Budgeted output 10000 cases per month   

 

  

 

Required:   

Use the variance formulas to compute the following variances. Indicate whether each variance is favourable or unfavourable. (Select "None" for no effect (i.e., zero variance). Do not round your intermediate calculations. Input all amounts as positive values.)  

  

 

    

  Variable-overhead spending variance $         

  Variable-overhead efficiency variance $         

  Fixed-overhead budget variance $         

  Fixed-overhead volume variance $         

 

 

 

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