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# Part 1 Budgeting- Cash

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Randall Company is a merchandising company that sells a single product. The company's inventories, production, and sales in units for the next three months have been forecasted as follows:

Units are sold for !" each. #ne fourth of all sales are paid for in the month of sale and the balance is paid for in the following month. \$ccounts receivable at %eptember &' totaled ()','''. *erchandise is purchased for + per unit. ,alf of the purchases are paid for in the month of the purchase and the remainder are paid for in the month following purchase. %elling and administrative expenses are expected to total !"',''' each month. #ne half of these expenses will be paid in the month in which they are incurred and the balance will be paid in the following month. There is no depreciation. \$ccounts payable at %eptember &' totaled "-','''. Cash at %eptember &' totaled .','''. \$ payment of &'',''' for purchase of e/uipment is scheduled for 0ovember, and a dividend of "'',''' is to be paid in 1ecember. RequiredPrepare all the following calculations on your Excel support file: a. 2repare a schedule in good form of expected cash collections for each of the months of #ctober, 0ovember, and 1ecember. Oct Sales Account receivable Oct Sales Nov Sales Dec Sales Cas collections \$ 720,000 \$ 450,000 \$ 180,000 \$ 630,000 \$ 210,000 \$ 750,000 Nov \$ 840,000 \$ 540,000 Dec \$ 480,000 \$ 630,000 \$ 120,000 \$ 750,000

b. 2repare a schedule showing expected cash disbursements for merchandise purchases and selling and administrative expenses for each of the months #ctober, 0ovember, and 1ecember. Oct !erc an"ise #urc ases Sellin% an" a"&inistrative e'(enses )otal e'(enses incurre" Cas "isburse&ents last &ont Cas "isburse&ents current &ont )otal \$ 420,000 \$ 120,000 \$ 540,000 \$ 2\$0,000 \$ 270,000 \$ 560,000 Nov \$ 4\$0,000 \$ 120,000 \$ 610,000 \$ 270,000 \$ 305,000 \$ 575,000 Dec \$ 245,000 \$ 120,000 \$ 365,000 \$ 305,000 \$ 182,000 \$ 487,000

c. 2repare a cash budget for each of the months #ctober, 0ovember, and 1ecember. There is no minimum re/uired ending cash balance.

*e%innin% Cas *alance + Cas Collection , )otal Cas Account #a-able + #a-&ent .or e/ui(&ent + #a-&ent .or "ivi"en" , )otal 1n"in% Cas *alance

## Oct \$ 80,000 \$ 630,000 \$ 710,000 \$ 560,000 0 0 \$ 560,000 710,000 2 560,000 , \$ 150,000

Nov \$ 150,000 \$ 750,000 \$ \$00,000 \$ 575,000 \$ 300,000 0 \$ 875,000 \$00,000 2 875,000, \$ 25,000

Dec \$ 25,000 \$ 750,000 \$ 775,000 \$487,000 0 \$ 200,000 \$ 687,500 775,000 2 687,000 , \$ 87,500

Part 2

tandard Costing-!ariances

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%tarling *anufacturing has developed the following standards for one of its products. %T\$01\$R1 3\$R4\$567 C#%T C\$R1 #ne Unit of 2roduct *aterials: ) yards x 8 per yard 1irect labor: " hours x . per hour 3ariable manufacturing overhead: " hours x ) per hour Total standard variable cost per unit The company records materials price variances at the time of purchase. The following activity occurred during the month of 1ecember: *aterials purchased: *aterials used: Units produced: 1irect labor: ),"'' yards costing "-,-'' (,+)' yards !,''' units ",!'' hours costing !+,.)' &'.'' !8.'' !'.'' )8.''

Required: !9 Calculate the direct:material price and usage variances and the direct:labor rate and efficiency variances. #ndicate whether each \$ariance is fa\$ora%le or unfa\$ora%le& how '(( calculations of these \$ariances on your Excel support docu)ent for full credit& 2* +ransfer your answer to the space %elow and for each \$ariance pro\$ide one ,1* \$alid reason that could ha\$e caused this \$ariance
'& -irect .aterial Price !ariance

1irect *aterial favorable 2rice 3ariance !,&'' can be caused by an unexpected decrease n materials price.

## B& -irect .aterial /sage !ariance

1irect *aterial favorable Usage 3ariance !,)'' may be caused by efficient production run by production manager

## C& -irect (a%or Rate !ariance

1irect 6abor Rate unfavorable 3ariance ;!,')'9 can be caused an unexpected shortage of labor supply of labor thereby increase in labor rate.

## -& -irect (a%or Efficiency !ariance

1irect 6abor 7fficiency unfavorable 3ariance ;.''9 unfavorable can be caused by low /uality of production supervision.

## Part " R0#1Residual inco)e

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<asper Corporation is organi=ed in three separate divisions. The three divisional managers are evaluated at year:end, and bonuses are awarded based on R#4. 6ast year, the overall company produced a !"> return on its investment. *anagers of <asper's 4owa 1ivision recently studied an investment opportunity that would assist in the division's future growth. Relevant data follow.

Iowa
4ncome 4nvested capital 1ivision !",.'',''' .',''','''

## 0ew 4nvestment #pportunity ",!'',''' !),''','''

Required how all for)ulas and supporting calculations on your Excel upport file& : \$. Compute the current R#4 of the 4owa 1ivision and the division's R#4 if the investment opportunity is pursued. Current R#4 of the 4owa 1ivision?!8.''> 1ivision@s R#4 if the investment opportunity is pursued?!).8.> 5. Ahat is the liBely reaction of divisional management toward the ac/uisitionC AhyC 1ivisional management would not want to maBe the ac/uisition because its return is which would reduce her division@s R#4 from !8> to !).8.>. !(>,

C. Ahat is the liBely reaction of <asper's corporate management toward the investmentC AhyC <asper's corporate management would want to invest in this proDect because the return on the investment is !(> which exceeds the minimum re/uired rate of return !">. 1. \$ssume that <asper uses residual income to evaluate performance and desires an !!> minimum return on invested capital. Compute the current residual income of the 4owa 1ivision and the division's residual income if the investment is made. Aill divisional management liBely change its attitude toward the ac/uisitionC AhyC Current residual income of the 4owa 1ivision ? 4000000 1ivision@s residual income if the investment is made ? (()'''' Ees. 1ivisional management will want to maBe ac/uisition because that would generate additional net operating income of ()''''.

## Part 2 -ifferential 'nalysis.a3e or %uy

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. 2art 7(& is used in one of Ran Corporation's products. The company's \$ccounting 1epartment reports the following costs of producing the !",''' units of the part that are needed every year.

\$n outside supplier has offered to maBe the part and sell it to the company for !(.+' each. 4f this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special e/uipment used to maBe 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. 4f the outside supplier's offer were accepted, only ),''' of these allocated general overhead costs would be avoided.

Re/uired:

a. 2repare a report on your 7xcel %upport file that shows the effect on the company's total net operating income of buying part 7(& from the supplier rather than continuing to maBe it inside the company. Make their part Direct materials Direct labor Variable overhead !upervisor"s salary Depreciatio\$ o% special e&uipme\$t 'llocated (e\$eral overhead 'voided )urchase )art %rom other *ompa\$y +otal *ost b. Ahich alternative should the company chooseC 5 1678999 - 5 1218:99 ; 5"28799 +he co)pany should continue to )a3e their part %y the)sel\$es %ecause expecting the offer to %uy the parts fro) other co)pany will decline their net inco)e %y 5 "28799& \$141,,00.00 \$54,000.00 \$14,400.00 \$3 ,400.00 \$3#,000.00 \$0.00 \$5,000.00 \$176,400.00 \$1-#,400.00 Buy part