Page 163 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes Wages 10 per cent increase in wage rates
5 per cent increase in productivity
Additional plant One lathe ` 25,000
One drill ` 12,000
7. “Budgetary control is a system which uses budgets as a means of planning and controlling
all aspects of producing and/or selling commodities and services.” Comment.
8. If the current year production is not equivalent to the current year sales, why does the
closing stock arise in the business?

9. What do you think are the causes behind an unfavorable fixed overhead budget variance?
10. Victoria Kite Company, a small Melbourne firm that sells kites on the web wants a master

budget for the next three months, beginning January 1, 2005. It desires an ending minimum
cash balance of $5,000 each month. Sales are forecasted at an average wholesale selling
price of $8 per kite. In January 1, Victoria Kite is beginning Just-In-Time (JIT) deliveries
from suppliers, which means that purchases equal expected sales.
On January 1, purchases will cease until inventory reaches $6,000, after which time
purchases will equal sales. Merchandise costs average $4 per kite. Purchases during any
given month are paid in full during the following month. All sales are on credit, payable
within 30 days, but experience has shown that 60% of current sales are collected in the
current month, 30% in the next month, and 10% in the month thereafter. Bad debts are
negligible.
Monthly operating expenses are as follows:
Wages and Salaries $15,000
Insurance Expired 125
Depreciation 250

Miscellaneous 2,500
Rent 250/Month + 10% of Quarterly
Sales over $10,000
Cash dividends of $1,500 are to be paid quarterly, beginning January 15, and are declared
on the fifteenth of the previous month. All operating expenses are paid as incurred, except

insurance, depreciation and rent. Rent of $250 is paid at the beginning of each month, and
the additional 10% of sales is paid quarterly on the tenth of the month following the end of
the quarter. The next settlement is due January 10. The company plans to buy some new
fixtures for $3,000 cash in March.

Money can be borrowed and repaid in multiples of $500 at an interest rate of 10% per annum.
Management wants to minimize borrowing and repay rapidly. Interest is computed and
paid when the principal is repai(d) Assume that borrowing occurs at the beginning, and
repayments at the end of he months in question. Money is never borrowed at the beginning
and repaid at the end of the same month. Compute the interest to the nearest dollar.
Assets as on Dec. 31, 2004; Liabilities as on Dec. 31, 2004
Cash $5,000; Accounts Payable (Merchandise) $35,550
Accounts Receivable 12,500; Dividends Payable 1,500
Inventory* 39,050; Rent Payable 7,800
Unexpired Insurance 1,500

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