ACCOUNTINGAlden Co.’s monthly unit sales and total cost data for its operating activities of the past year follow. Management wants to use these data to predict future fixed and variable costs.
$$
\begin{matrix}
\text{Month } & \text{Units Sold } & \text{Total Cost}\\
\text{1}\ldots\ldots\ldots & \text{320,000} & \text{\$160,000}\\
\text{2} \ldots\ldots\ldots & \text{160,000} & \text{100,000}\\
\text{3} \ldots\ldots\ldots & \text{280,000} & \text{220,000}\\
\text{4} \ldots\ldots\ldots & \text{200,000} & \text{100,000}\\
\text{5}\ldots\ldots\ldots & \text{300,000} & \text{230,000}\\
\text{6}\ldots\ldots\ldots & \text{200,000} & \text{120,000}\\
\text{7}\ldots\ldots\ldots & \text{340,000} & \text{\$220,000}\\
\text{8}\ldots\ldots\ldots & \text{280,000} & \text{160,000}\\
\text{9} \ldots\ldots\ldots & \text{80,000} & \text{64,000}\\
\text{10}\ldots\ldots\ldots & \text{160,000} & \text{140,000}\\
\text{11}\ldots\ldots\ldots & \text{100,000} & \text{100,000}\\
\text{12}\ldots\ldots\ldots & \text{110,000} & \text{80,000}\\
\end{matrix}
$$
1. Prepare a scatter diagram for these data with sales volume (in units) plotted on the horizontal axis and total cost plotted on the vertical axis. 2. Estimate both the variable costs per unit and the total monthly fixed costs using the high-low method. Draw the total costs line on the scatter diagram in part 1. 3. Use the estimated line of cost behavior and results from part 2 to predict future total costs when sales volume is (a) 200,000 units and (b) 300,000 units. ACCOUNTINGConnick Company sells its product for $22 per unit. Its actual and budgeted sales follow.$
$$
\begin{matrix}
& \text{Units} & \text{Dollars}\\
\text{January (actual)}\ldots\ldots\ldots & \text{18,000} & \text{\$396,000}\\
\text{February (actual)}\ldots\ldots\ldots & \text{22,500} & \text{495,000}\\
\text{March (budgeted)}\ldots\ldots\ldots & \text{19,000} & \text{418,000}\\
\text{April (budgeted)}\ldots\ldots\ldots & \text{18,750} & \text{412,500}\\
\text{May (budgeted)}\ldots\ldots\ldots & \text{21,000} & \text{462,000}\\
\end{matrix}
$$
$All sales are on credit. Recent experience shows that 40% of credit sales is collected in the month of the sale, 35% in the month after the sale, 23% in the second month after the sale, and 2% proves to be uncollectible. The product’s purchase price is$12 per unit. Of purchases made in a month, 30% is paid in that month and the other 70% is paid in the next month. The company has a policy to maintain an ending monthly inventory of 20% of the next month’s unit sales plus a safety stock of 100 units. The January 31 and February 28 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,920,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance for month-end is$50,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $50,000, the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 12% interest rate. At February 28, the loan balance is$12,000, and the company’s cash balance is $50,000. 1. Prepare a schedule that shows the computation of cash collections of its credit sales (accounts receivable) in each of the months of March and April. 2. Prepare a schedule showing the computations of budgeted ending inventories (units) for January, February, March, and April. 3. Prepare the merchandise purchases budget for February, March, and April. Report calculations in units and then show the dollar amount of purchases for each month. 4. Prepare a schedule showing the computation of cash payments on product purchases for March and April. 5. Prepare a cash budget for March and April, including any loan activity and interest expense. Compute the loan balance at the end of each month. 6. Refer to your answer to part 5. The cash budget indicates whether the company must borrow additional funds at the end of March. Suggest some reasons that knowing the loan needs in advance would be helpful to management. ACCOUNTINGConsider each of the following independent situations for Tropical Hot Tubs. Tropical manufactures and sells hot tubs. The company also contracts to service both its own and other brands of hot tubs. Tropical has a manufacturing plant, a supply warehouse that supplies both the manufacturing plant and the service technicians (who often need parts to repair hot tubs), and 10 service vans. The service technicians drive to customer sites to service the hot tubs. Tropical owns the vans, pays for the gas, and supplies hot tub parts, but the technicians own their own tools. 1. In the manufacturing plant, the production manager is not happy with the motors that the purchasing manager has been purchasing. In May, the production manager stops requesting motors from the supply warehouse and starts purchasing them directly from a different motor manufacturer. Actual materials costs in May are higher than budgeted. 2. Overhead costs in the manufacturing plant for June are much higher than budgeted. Investigation reveals a utility rate hike in effect that was not figured into the budget. 3. Gasoline costs for each van are budgeted based on the service area of the van and the amount of driving expected for the month. The driver of van 3 routinely has monthly gasoline costs exceeding the budget for van 3. After investigating, the service manager finds that the driver has been driving the van for personal use. 4. Cascades Resort and Spa, one of Tropical’s hot tub service customers, calls the service people only for emergencies and not for routine maintenance. Thus, the materials and labor costs for these service calls exceeds the monthly budgeted costs for a contract customer. 5. Tropical’s service technicians are paid an hourly wage, with overtime pay if they exceed 40 hours per week, excluding driving time. Fred Friendly, one of the technicians, frequently exceeds 40 hours per week. Service customers are happy with Fred’s work, but the service manager talks to him constantly about working more quickly. Fred’s overtime causes the actual costs of service to exceed the budget almost every month. 6. The cost of gasoline has increased by 50% this year, which caused the actual gasoline costs to greatly exceed the budgeted costs for the service vans. For each situation described, determine where (that is, with whom) (a) responsibility and (b) controllability lie. Suggest ways to solve the problem or to improve the situation.