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Course Name: Introduction to Managerial Accounting [ACT202]

Section: 17

Submitted To:
Sheikh Mohammad Rabby [Rby]
Faculty Member
Department of Accounting & Finance
North South University

Submitted By:
SL. Name ID:
01 Syed Atabur Rahman Tuhin 1420296030
02 Nazia Ahmad 1230847030
03 Humayun Kabir 1411281030
04 Riasat Bin Mohsin 1330173030
05 Tanvir Jubair 1410483030
Submission Date: 16/08/2015.
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Table of Content
No. Titles: #Page Number:
01 Introduction #1

Problem No:-1 # [3-9]

02 Questionnaire # [3-4]

Solution # [5-9]

Problem No:-2 # [10-13]

Questionnaire # 10
03
Solution # [11-13]

04 Conclusion # 14
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PROBLEM No-1
CASE 831: Master Budget with Supporting Schedules
You have just been hired as a new management trainee by Earrings
Unlimited, a distributor of earrings to various retail outlets located in
shopping malls across the country. In the past, the company has done very
little in the way of budgeting and at certain times of the year has
experienced a shortage of cash.

Since you are well trained in budgeting, you have decided to prepare
comprehensive budgets for the upcoming second quarter in order to show
management the benefits that can be gained from an integrated budgeting
program. To this end, you have worked with accounting and other areas to
gather the information assembled below.

The company sells many styles of earrings, but all are sold for the same price
$10 per pair. Actual sales of earrings for the last three months and
budgeted sales for the next six months follow (in pairs of Earnings):

The concentration of sales before and during May is due to Mothers Day.
Sufficient inventory should be on hand at the end of each month to supply
40% of the earrings sold in the following month.

Suppliers are paid $4 for a pair of earrings. One-half of a months purchases

is paid for in the month of purchase; the other half is paid for in the following
month. All sales are on credit, with no discount, and payable within 15 days.
The company has found, however, that only 20% of a months sales are
collected in the month of sale. An additional 70% is collected in the following
month, and the remaining 10% is collected in the second month following
sale. Bad debts have been negligible. ** Monthly operating expenses for the
company are given below:
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Insurance is paid on an annual

basis, in November of each year.
The company plans to purchase $16,000 in new equipment during May
and $40,000 in new equipment during June; both purchases will be for cash.
The company declares dividends of $15,000 each quarter, payable in the
first month of the following quarter.
**A listing of the companys ledger accounts as of March 31 is given below:

The company maintains a minimum cash balance of $50,000. All borrowing

is done at the beginning of a month; any repayments are made at the end of
a month.
The company has an agreement with a bank that allows the company to
borrow in increments of$1,000 at the beginning of each month. The interest
rate on these loans is 1% per month and for simplicity we will assume that
interest is not compounded. At the end of the quarter, the company would
pay the bank all of the accumulated interest on the loan and as much of the
loan as possible (in increments of $1,000), while still retaining at least
$50,000 in cash.

Required:
Prepare a master budget for the three-month period ending June 30. Include
the following detailed budgets:
1. a) A sales budget, by month and in total.
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b) A schedule of expected cash collections from sales, by month and in

total.
c) A merchandise purchases budget in units and in dollars. Show the
budget by month and in
Total.
d) A schedule of expected cash disbursements for merchandise
purchases, by month and in
total.
2. A cash budget. Show the budget by month and in total. Determine any
borrowing that
would be needed to maintain the minimum cash balance of $50,000.
3. A budgeted income statement for the three-month period ending June
30. Use the
Contribution approach.
4. A budgeted balance sheet as of June 30.
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Solution Of Problem No:-1 [Case 8-31]

Requirement No:- 1(A)

# Sales Budgets:

Requirement No:- 1(B)

#Schedule Of Expected Cash Collection:

Requirement No:- 1(C)

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Merchandising Purchase Budget:

Requirement No:- 1(D)

#Expected Cash Disbursement For Merchandise Purchase:

Requirement No:- 2:
#Cash Budgets:
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Earrings Unlimited
Cash Budgets
For the Quarter Ending in June 30

Requirement No:- 3:

#Budgeted Income Statement [Contribution Approach]

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Earrings Unlimited
Budgeted Income Statement [Contribution Approach]
For the Quarter Ending in June 30
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Requirement No:-4:

#Budgeted Balance Sheet:

Earrings Unlimited
Budgeted Balance Sheet
for the Quarter Ending in June 30

Adjustments:
#1-Accounts Receivables at June 30

#2- Retained Earnings at June 30:

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PROBLEM No-2
Exercise 109: Comprehensive Variance Analysis
Marvel Parts, Inc. manufactures auto accessories. One of the companys
products is a set of seat covers that can be adjusted to fit nearly any small
car. The company has a standard cost system in use for all of its products.
According to the standards that have been set for the seat covers, the
factory should work 2,850 hours each month to produce 1,900 sets of covers.
The

standard costs associated with this level of production are:

During August, the factory worked only 2,800 direct labor-hours and
produced 2,000 sets of covers. The following actual costs were recorded

during the month:

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At standard, each set of covers should require 5.6 yards of material. All of the
materials purchased during the month were used in production.

Required:
** Compute the following variances for August:

1. The direct materials price and quantity variances.

2. The direct labor rate and efficiency variances.

3. The variable overhead rate and efficiency variances.

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Solution of Problem No:-1 [Exercise 10-9]

Requirement No:-1:

#computing materials price and Quantity variance:

Actual Quantity of Actual Quantity of Standard Quantity

Input at Actual Price Input at Standard for Output at
Price Standard Price
[AQAP] [AQSP] [SQSP]
12,000 12,000 11,200
$3.8 $4 $4
$45,600 $48,000 $44,800

Price Variance Quantity

$2,400 Variance
[Favorable] $3,200

Total Variance
Here,
$800
AQ= Actual Quantity
AP= Actual Price [Unfavorable]
SP= Standard Price
SQ= Standard Quantity

#Calculation:
1) AP= 45,600 12,000
= $3.8
2) SP= $22.40 5.6 Yards
= $4 Per Yard
3) SQ= 2,000 sets 5.6 yards
= 11,200 Yards
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Requirement No:-2:

#computing Labor Rate and Efficiency Variance:

Actual Hours of Input Actual Hours of Input Standard Hours for

at Actual Rate at Standard Rate Output at Standard
Rate
[AHAR] [AHSR] [SHSR]
2,800 2,800 3,000
$6.5 $6 $6
$18,200 $16,800 $18,000

Rate Variance Efficiency

$1,400 Variance
[Unfavorable] $1,200

Total Variance
Here,
$200
AH= Actual Hour
AR= Actual Rate [Unfavorable]
SR= Standard Rate
SH= Standard Hour

#Calculation:
1) AR= 18,200 2,800
= $6.5 Per Hour
2)SH Per Set= [2,850 SH 1,900 Set]
= 1.5 SH per Set
3) SR= $9 1.5
= $6 Per Hour
4) SH= 2,000 sets 1.5 SH Per Set
= 3,000 Hours
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Requirement No:-3:

#computing Variable Overhead Rate and Efficiency

Variance:

Actual Hours of Input Actual Hours of Input Standard Hours for

at Actual Rate at Standard Rate Output at Standard
Rate
[AHAR] [AHSR] [SHSR]
2,800 2,800 3,000
$2.5 $2.4 $2.4
$7,000 $6,720 $7,200

Rate Variance Efficiency

$280 Variance
[Unfavorable] $480

Total Variance
Here,
$200
AH= Actual Hour
AR= Actual Rate [Favorable]
SR= Standard Rate
SH= Standard Hour

#Calculation:
1) AR= 7,000 2,800
= $2.5 Per Hour
2)SH Per Set= [2,850 SH 1,900 Set]
= 1.5 SH per Set
3) SR= $3.60 1.5
= $2.4 Per Hour
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4) SH= 2,000 sets 1.5 SH Per Set

= 3,000 Hours

Appendix:

1. Managerial Accounting [15th Edition]

By Garrison, Noreen, Brewer