Tastee Fruit Company, Atlantico Inc, Old Alfred Road Minicase and River Beverages - Assignment Example

Problem List This paper is an answer to five problem questions based on four case studies about Tastee Fruit Company, Atlantico Inc, Old Alfred Road Minicase and River Beverages. The answers touch aspects of budget development, costing systems and other related calculations. Keywords: product, price, sales Problem List Problem 1: Tastee Fruit Company 1. Standard cost of direct materials, direct labor, and packaging for a ten gallon raspberry sherbet. Direct labor = $18.00, direct materials = $1.845, Packaging cost = $2.40 (calculations are in tables 1 – 3 in the appendix). 2. Company training document page Variances in most instances arise when the manufacturing costs of goods differs from the standard, expected or planned costs. This variance becomes unfavorable if the actual costs are greater than the standard costs, and it implies that the company’s actual profits will be less than the amount planned (Khan & Jain, 2007, p. 17). Unfavorable material price variance is majorly caused by the purchase of better quality and expensive raw materials than the budgeted ones, damage of materials after arrival requiring an urgent reorder on a rush basis. All these factors work to raise the price of raw materials causing an unfavorable price variance. The individuals who should be held responsible for unfavorable material price variance is the purchase manager since he is the one having control over price paid for goods and any other price variations. Unfavorable labor efficiency variance on the other hand is caused by poor quality of raw materials, poorly trained workers, faulty equipments, poor supervision of workers, and poorly motivated workers among others. The person responsible for labor efficiency variance is the production manager, production manager in case he orders the purchase of poor materials and the work center managers responsible for workers in the various departments. 3. Unethical nature of Adam’s behavior regarding cost information provided to Wakefield Ethical principles of confidentiality and integrity require that employees of the organization should act in the utmost benefit of the company’s interest. In addition the management accountants of any organization are required to maintain the highest standards of ethical conduct in their duties. In this respect they should not use any information about their company for their selfish gain, since confidentiality principle requires them not to disclose any confidential information they have acquired from the company in the course of their work with them. Being Tastee Fruit Company’s Accountant, Adams is exposed to some vital information about the company for example the prices in which it buys its raw materials. By the fact he disclosed this information to his friend; Adams has appeared to and has used the confidential information about the company for an unethical advantage of his friend, a third party to the organization. In addition, if he were to suggest a cheaper supply of raw materials, he should propose a person known for success rather than his friend whose berries have not been doing well on the market. Since he did not do this, Adams has failed to uphold the ethical principle of integrity, by failing to communicate this unfavorable information to Tastee Fruit Company’s executive management responsible for corporate decision making. In conclusion, Adam’s behavior was unethical given the fact that he contravened the principles of integrity and confidentiality that required of his profession as a management accountant. Problem 2: Atlantinco 1. Atlántico’s Master budget for the first quarter of 20x1 Atlántico Inc Sales Budget For the First Quarter ending on April 20x1 Year 20x0 20x1 20x1 20x1 20x1 Month Dec Jan Feb Mar Apr Projected sales 400,000 440,000 484,000 532,400 532,400 Projected credit sales (75% of total sales) 300,000 330,000 363,000 399,300 399,300 Total Sales budgeted 700,000 770,000 847,000 931,700 931,700 actual credit sales to be collected (10% of credit sales) 30,000 33,000 36,300 39,930 39,930 Remainders collected in the preceding months (90% of credit sales) 270,000 297,000 326,700 359,370 359,370 Actual credit sales to be collected each month 30,000 303,000 333,300 366,630 399,300 Atlántico Inc Cash Receipts Budget For the First Quarter Ending April 20x1 Year 20x0 20x1 20x1 20x1 20x1 Month Dec Jan Feb Mar Apr Beginning cash balance 29,000 19,000 19,000 19,000 19,000 add receipts (actual credit sales to be collected each month) 30,000 303,000 333,300 366,630 399,300 Collection from customers (Sales Budget) 700,000 770,000 847,000 931,700 931,700 Total cash available 759,000 1,092,000 1,199,300 1,317,330 1,350,000 Atlántico Inc Purchases Budget For the First Quarter Ending April 20x1 Year 20x0 20x1 20x1 20x1 20x1 Month Dec Jan Feb Mar Apr budgeted cost of goods sold (70% of total Sales) 490,000 539,000.00 592,900 652,190.00 652,190 add desired ending inventory 269,500 296,450.00 326,095 326,095.00 326,095 totals 759,500 835,450.00 918,995 978,285.00 978,285 total needs   215,600.00 237,160 260,876.00 260,876 less beginning inventory   154,000.00 61,600 175,560.00 85,316.00 Totals   61,600.00 175,560 85,316.00 175,560 required purchases 759,500 897,050.00 1,094,555 1,063,601 1,153,845 Analysis of financial needs   minimum cash balance company requires $19,000 cash deficiency $106,000 borrowing sufficient to cover cash deficiency in one quarter $106,000 management plans to spend on equipment purchase $125,000 approved divided 50000 each quarter cash balance at beginning of each quarter $19,000 borrowing loan at interest rate of 10% automated inventory handling system to be purchased costs $125,000 Atlantico Inc Cash Budget For the First Quarter Ending April 20x1 Year 20x0 20x1 20x1 20x1 20x1 Month Dec Jan Feb Mar Apr Beginning cash balance 29,000 19,000 19,000 19,000 add receipts (actual credit sales to be collected each month) 30,000 303,000 333,300 366,630 399,300 Collection from customers (Sales Budget) 700,000 770,000 847,000 931,700 931,700 Total cash available 730,000 1,102,000 1,199,300 1,317,330 1,350,000   1,460,000 2,175,000 2,379,600 2,615,660 2,681,000 Less disbursements           Direct labor 21,000 21,000 21,000 21,000 21,000 Equipment purchase   125,000       dividends 50,000 50,000 50,000 50,000 50,000 Advertising and promotion 16,000 16,000 16,000 16,000 16,000 Administrative salaries 21,000 21,000 21,000 21,000 21,000 Property taxes 900 900 900 900 900 Total Disbursements 87,900 233,900 108,900 108,900 108,900 Excess/Deficiency of cash available 1,372,100 1,941,100 2,270,700 2,506,760 2,572,100             financing           borrowing at beginning   106,000 106,000 106,000 106,000 payment at beginning   125,000 125,000 125,000 125,000 interest   7,950 7,950 7,950 7,950 total financing   238,950 238,950 238,950 238,950 ending cash balance           Atlántico Inc Budgeted Income Statement For the First Quarter Ending April 20x1 Year 20x0 20x1 20x1 20x1 20x1 Month Dec Jan Feb Mar Apr Less cost of goods sold (490,000) (490,000) (490,000) (490,000) (490,000) add Sales from sales budget 700,000 770,000 847,000 931,700 931,700 Gross margin 210,000 280,000 357,000 441,700 441,700 Less selling and administrative expenses (58,000) (58,000) (58,000) (58,000) (58,000) Net operating income 152,000 222,000 299,000 383,700 383,700 Less interest expense from cash budget (7,950) (7,950) (7,950) (7,950) (7,950) Net income 144,050 214,050 291,050 375,750 375,750 Atlantico Inc Budgeted Balance sheet As at March 31 20x1 current Assets     Cash 1,317,330   Accounts receivable 276,000   Marketable securities 15,000   Inventory 978,285   total current assets   2,586,615 plant and equipment     Building and Equipment 125,000   accumulated depreciation 626,000   plant and equipment net   751,000 total assets   3,337,615       current liabilities     accounts payable 176,400   Bond interest payable 12,500   Property taxes payable 3,600   Bonds payable (10%; due in 20x6) 300,000   total 492,500 stockholders equity     common stock 500,000   Retained earnings 107,500   total stockholders equity   607,500       loan   125,000 total liability and stock holders equity   1,225,000 Problem 3: Old Alfred Road Minicase Advice for Mr. Road Mr. Road can still postpone the plans of giving away his house and assets to his daughter. He can still keep them for the time being, and perhaps write a will in the name of his daughter. This will work to reduce expenses given the rise in inflation by four percent and thee fact that he relies on his investment portfolio which is paid at a fixed rate of interest. Spending All the Interest from Investment Portfolio He can safely spend all his interest from the investment portfolio if he does not give away his house and all its assets. Giving away the house will increase his consumption costs. In addition the value of his interest from the two portfolios is more than what he is spending. Amount of Withdrawal at Year-end from Portfolio     End of yr 1 value of investment 180,000 196200 savings account 12,000 12600 total value of investments 192,000 208,800 additional amount to withdraw to keep value intact   16,800 Spending per month incase Mr. Road lives for Twenty Years     After 20 yrs social security incomes at 4% inflation 12,000 240,000 interest of investment 9% 16,200 324,000 total monthly expenses (24,000) (480,000)   4,200 84,000 addition to monthly expense 28,200 564,000 expenditure per month could be 2,350 2,350 Problem 4: River Beverage’s Budgeting process References Khan, M. Y., & Jain, P. K. (2007). Cost accounting (7th ed.). New Delhi: McGraw-Hill. Appendix and Calculations Developing the standard cost of direct labor for the good-raspberry sherbet Actual raspberry sherbets manufactured 10 gallons Standard hours of direct labor per raspberry manufactured 0.20 hours Total standard hours of direct labor for actual raspberry sherbets manufactured 2.00 hours Standard cost per direct labor hour $9 per hour Standard cost of direct labor in raspberry sherbets produced $18.000 Table 1: Direct Labor standard cost Standard cost of direct material for raspberry sherbet   Total raspberries to be packed 10 gallon batches Standard hours of packaging per raspberry manufactured 0.45 hours per gallon Total standard hours of packaging for actual raspberry sherbets manufactured 4.5 hours Standard direct labor cost per packaging $0.410 Standard cost of direct material in raspberry sherbets produced $1.845 Table 2: Direct material standard cost Standard cost of packaging for raspberry sherbet   Total raspberries required for one gallon batch 6 quarts Standard hours of direct material per raspberry manufactured 0.5 hrs per quart Total standard hours of direct materials for actual raspberry sherbets manufactured 3 hours Standard direct labor cost per direct material $0.800 Standard cost of direct material in raspberry sherbets produced $2.400 Table 3: Direct material standard cost Read More