Problem 21-4A

Colter Company prepares monthly cash budgets. Relevant data from operating budgets for 2014
are:

January

February
Sales

$360,000

$400,000
Direct materials purchases

120,000

125,000
Direct labor

90,000

100,000
Manufacturing overhead

70,000

75,000
Selling and administrative expenses

79,000

85,000

All sales are on account. Collections are expected to be 50% in the month of sale, 30% in the
first month following the sale, and 20% in the second month following the sale. Sixty percent
(60%) of direct materials purchases are paid in cash in the month of purchase, and the balance
due is paid in the month following the purchase. All other items above are paid in the month
incurred except for selling and administrative expenses that include $1,000 of depreciation per
month.

Other data:
1.

Credit sales: November 2013, $250,000; December 2013, $320,000.
2.

Purchases of direct materials: December 2013, $100,000.
3.

Other receipts: JanuaryCollection of December 31, 2013, notes receivable $15,000;

FebruaryProceeds from sale of securities $6,000.
4.

Other disbursements: FebruaryPayment of $6,000 cash dividend.

The companys cash balance on January 1, 2014, is expected to be $60,000. The company
wants to maintain a minimum cash balance of $50,000.



Prepare schedules for (1) expected collections from customers and (2) expected payments for
direct materials purchases for January and February.
Expected Collections from Customers

January

February
November

$

$
December

January

February

Total collections
$

$

Expected Payments for Direct Materials

January

February
December

$

$
January

February

Total payments
$

$



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Prepare a cash budget for January and February in columnar form.
COLTER COMPANY
Cash Budget
For the Two Months Ending February 28, 2014

January

February

$

$

:







:










:

:


$

$



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Exercise 18-8
All That Blooms provides environmentally friendly lawn services for homeowners. Its operating costs
are as follows.
Depreciation

$1,400 per month
Advertising

$200 per month
Insurance

$2,000 per month
Weed and feed materials

$12 per lawn
Direct labor

$10 per lawn
Fuel

$2 per lawn

All That Blooms charges $60 per treatment for the average single-family lawn.

Determine the companys break-even point in (a) number of lawns serviced per month and (b) dollars.
(a) Break-even point

lawns
(b) Break-even point
$


Exercise 18-10
In the month of March, Style Salon services 560 clients at an average price of $120. During the
month, fixed costs were $21,024 and variable costs were 60% of sales.

(a) Determine the contribution margin in dollars, per unit, and as a ratio.
Contribution margin

$

Contribution margin per unit
$

Contribution margin ratio

%

(b) Using the contribution margin technique, compute the break-even point in dollars and in units.
Break-even sales
$

Break-even sales

units

Exercise 19-2
In the month of June, Jose Heberts Beauty Salon gave 4,000 haircuts, shampoos, and
permanents at an average price of $30. During the month, fixed costs were $16,800 and variable
costs were 75% of sales.



Determine the contribution margin in dollars, per unit and as a ratio. (Round contribution
margin per unit and contribution margin ratio to 2 decimal places, e.g. $5.25 &
10.50%.)
Contribution margin

$

Contribution margin per unit
$
Contribution margin ratio

%


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Using the contribution margin technique, compute the break-even point in dollars and in
units. (Round answers to 0 decimal places, e.g. 1,225.)
Break-even point
$

Break-even point

units


Exercise 19-3
Norton Company reports the following operating results for the month of August: sales
$310,000 (units 5,000); variable costs $210,000; and fixed costs $75,000.

Management is considering the following independent courses of action to increase net income.

Compute the net income to be earned under each alternative.

1. Increase selling price by 10% with no change in total variable costs or sales volume.
Net income
$

2. Reduce variable costs to 58% of sales.
Net income
$

3. Reduce fixed costs by $20,000.
Net income
$

Which course of action will produce the highest net income?


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Exercise 19-9
Palmer Golf Accessories sells golf shoes, gloves, and a laser-guided range-finder that measures
distance. Shown below are unit cost and sales data.

Pairs of
Shoes
Pairs of
Gloves
Range-
Finder
Unit sales price

$100

$30

$260

Unit variable costs

60

10

200
Unit contribution margin

$40

$20

$60
Sales mix

30 %

60 %

10 %

Fixed costs are $630,000.






Calculate weighted-average unit contribution margin. (Round answer to 2 decimal places
e.g. 10.25.)
Weighted-average unit contribution margin
$


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Compute the break-even point in units for the company.
Break-even point
units


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Determine the number of units to be sold at the break-even point for each product line.
Shoes

Gloves

Range Finders



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Brief Exercise 20-3
At Jaymes Company, it costs $30 per unit ($20 variable and $10 fixed) to make a product at full
capacity that normally sells for $45. A foreign wholesaler offers to buy 3,000 units at $25 each.
Jaymes will incur special shipping costs of $2 per unit. Assuming that Jaymes has excess operating
capacity, indicate the net income (loss) Jaymes would realize by accepting the special order. (Enter
negative amounts using either a negative sign preceding the number e.g. -45 or
parentheses e.g. (45).)

Reject Order Accept Order
Net Income
Increase (Decrease)
Revenues
$

$

$

Costs

Variable manufacturing

Shipping

Net income (loss)
$

$

$


Should the special order be accepted or rejected?
The special order should be .

rief Exercise 20-4
Manson Industries incurs unit costs of $8.00 ($5 variable and $3 fixed) in making a subassembly part
for its finished product. A supplier offers to make 10,000 of the assembly part at $6 per unit. If the
offer is accepted, Manson will save all variable costs but no fixed costs. Prepare an analysis showing
the total cost saving, if any, Manson will realize by buying the part. (Enter negative amounts using
either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Make Buy
Net Income
Increase (Decrease)
Variable manufacturing costs

$

$

$

Fixed manufacturing costs

Purchase price

Total annual cost
$ $ $

Should Manson make or buy the part?
The decision should be to the part.

Brief Exercise 20-6 (Essay)
Each day, Adama Corporation processes 1 ton of a secret raw material into two resulting products,
AB1 and XY1. When it processes 1 ton of the raw material, the company incurs joint processing costs
of $60,000. It allocates $25,000 of these costs to AB1 and $35,000 of these costs to XY1. The
resulting AB1 can be sold for $100,000. Alternatively, it can be processed further to make AB2 at an
additional processing cost of $45,000, and sold for $150,000. Each days batch of XY1 can be sold for
$95,000. Alternatively, it can be processed further to create XY2, at an additional processing cost of
$50,000, and sold for $130,000. Discuss what products Adama Corporation should make.



Brief Exercise 20-7
Kobe Company has a factory machine with a book value of $90,000 and a remaining useful life of 5
years. It can be sold for $30,000. A new machine is available at a cost of $300,000. This machine will
have a 5-year useful life with no salvage value. The new machine will lower annual variable
manufacturing costs from $600,000 to $500,000.

Prepare an incremental analysis. (Enter negative amounts using either a negative sign
preceding the number e.g. -45 or parentheses e.g. (45).)
Retain
Equipment
Replace
Equipment

Net 5-Year
Income
Increase
(Decrease)

Variable manufacturing costs for 5
years
$

$

$

New machine cost

Sell old machine

Total

$

$

$


Determine whether the old machine should be retained or replaced.
The old machine should be .

Brief Exercise 20-8
Lisah, Inc., manufactures golf clubs in three models. For the year, the Big Bart line has a net loss
of $10,000 from sales $200,000, variable costs $180,000, and fixed costs $30,000. If the Big Bart
line is eliminated, $20,000 of fixed costs will remain.

Prepare an incremental analysis. (Enter negative amounts using either a negative sign
preceding the number e.g. -45 or parentheses e.g. (45).)

Continue Eliminate
Net Income
Increase (Decrease)
Sales

$

$

$

Variable costs

Contribution margin

Fixed costs

Net Income

$

$

$


Determine whether the Big Bart line should be eliminated or continued.
The Big Bart product line should be .