Please use the following information for problems 6 and 7: The ABC Company has a
ID: 2520525 • Letter: P
Question
Please use the following information for problems 6 and 7:
The ABC Company has a division that has the following income statement:
Sales $5,000
Variable costs 3,000
_____
Contribution Margin 2,000
Fixed Costs 2,500
_____
Operating Income -500
What is the effect of operating this division on the operating income of the ABC Company if $800 of the fixed costs will not be avoided if the company shuts down the division? Should the ABC Company shut down the division in this case?
What is the effect of operating this division on the operating income of the ABC Company if $400 of the fixed costs will not be avoided if the company shuts down the division? Should the ABC Company shut down the division in this case?
A company expects to sell 500 tables in April, 700 in May, and 650 in June. The company sells these tables for $120 per unit. 30% of its sales are cash sales and 70% of its sales are credit sales. Please construct a sales budget for April, May, and June.
A company’s sales budget shows the following:
April May June
Cash Sales $5,000 $7,000 $8,000
Credit Sales $20,000 $28,000 $32,000
The company had credit sales of $10,000 in February and $15,000 in March. Please prepare a schedule of cash collections for April, May, and June, assuming that 24% of credit sales are collected in the month of the sale, 34% are collected in the month after the sale, and 42% are collected 2 months after the sale.
A company expects to sell 500 tables in April, 700 in May, 650 in June, and 800 in July. The company wants its inventory of tables at the end of each month to be equal to 15% of the following month’s unit sales, and its beginning inventory for April was 75 tables. Please construct a production budget for April, May, and June.
A company expects to produce 600 tables in April, 800 in May, 750 in June, 900 in July. Each table requires 30 pounds of wood, and the wood costs $16 per pound. The company wants its inventory of wood at the end of each month to be equal to 25% of the following month’s usage of wood, and its beginning inventory for April was 4,500 pounds of wood. Please construct a direct materials budget for April, May, and June.
Explanation / Answer
6 Operating Income of This Division -500 Unavoidable Fixed cost if Shut down 800 Effect of other oprating income of ABC Company -300 It's means if Shut down then additional cost of $ 300 then should Shut down 7 Operating Income of This Division -500 Unavoidable Fixed cost if Shut down 400 Effect of other oprating income of ABC Company 100 It's means if Shut down then saving of $ 100 then should not Shut down Sales Budget April May June Sale no. of tables (A) 500 700 650 Sale price per table (B) 120 120 120 Total Sales Budget (C=A*B) 60,000 84,000 78,000 Cash Sales (30%*C) 18,000 25,200 23,400 Credit Sale (70%*C) 42,000 58,800 54,600 Schedule of Cash Collection April May June Cash Sale $5,000 $7,000 $8,000 Collection from credit sale: From February Sale $4,200 From March Sale $5,100 $6,300 From April Sale $4,800 $6,800 $8,400 From May Sale $6,720 $9,520 From June Sale $7,680 Cash Collection $19,100 $26,820 $33,600 Production Budget April May June July Sale Units 500 700 650 800 Add: Inventory required for next Month Sale 105 98 120 - Less: Opening Stock 75 105 98 120 Total Production required 530 693 673 Direct material Budget April May June July Expected Production 600 800 750 900 Pounds of Wood required for each table 30 30 30 30 Total Wood require 18000 24000 22500 27000 Add: Inventory require for next month 6000 5625 6750 0 Less: Opening Inventory 4500 6000 5625 6750 Total Wood required in pounds 19500 23625 23625 Cost per Pound 16 16 16 Total Cost of Purchase 312,000 378,000 378,000