Reference no: EM133071871
Questions -
Q1. Jackson Fabrics has prepared a forecast for May 2021. Some of the projected information follows:
Income after tax $260,000
Accrued Income Tax Expense 62,000
Increase in Accounts Receivable for month 41,000
Decrease in Accounts Payable for month 18,300
Depreciation Expense 71,200
Estimated Bad Debts Expense 13,100
Dividends declared 20,000
Using the above information, what is the company's projected increase in cash for May 2021?
Q2. Wilderness Products makes outdoor shirts. Data relating to the coming year's planned operations are as follows.
Sales (230,000 shirts) P4,140,000
Cost of goods sold 2,760,000
Gross profit P1,380,000
Selling and administrative expenses 805,000
Income P575,000
The factory has capacity to make 250,000 shirts per year. Fixed costs included in cost of goods sold are P690,000. The only variable selling, general and administrative expenses are a 10% sales commission and a P1.50 per shirt licensing fee paid to the designer.
A chain store manager has approached the sales manager of Wilderness Products offering to buy 15,000 shirts at P15 per shirt. These shirts would be sold in areas where Wilderness' shirts are not now sold. The sales manager believes that accepting the offer would result in a loss because the average total cost of the shirt is P15.50 ([2,760,000 + P805,000]/230,000). He feels that even though sales commissions would not be paid on the order, a loss would still result.
Required -
1. Determine whether the company should accept the offer.
2. Suppose that the order was for 40,000 shirts instead of 15,000. What would the company's income be if it accepted the order?
3. Assuming the same facts as in requirement 1, what is the lowest price that the company could accept and still earn P575,000?
4. How many units of sales at the regular price could the company loss before it become unprofitable to accept the order in requirement 2?
Q3. Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 60,000 units per year is:
Direct materials P5.10
Direct labor 3.80
Variable manufacturing overhead 1.00
Fixed manufacturing overhead 4.20
Variable selling and adm expense 1.50
Fixed selling and adm expense 2.40
The normal selling price is P21 per unit. The company's capacity is 75,000 units per year. An order has been received from a mail-order house for 15,000 units at a special price of P14 per unit. This order would not affect regular sales. If the order is accepted, by how much will annual profits be increased or decreased?
Q4. Ken Clarke is a new production manager. After a great deal of effort, including considerable market research, he completes his budget and submits it to his boss, Diane Jackson. Without even looking at it, she asks him what his "fudge factor" was, and which items contained the most slack. Ken, very surprised, responds that he doesn't use any "fudge factor," and that all his figures are honest. Ms. Jackson counters by asking him how he would respond if he had to cut about 20% from his budget, as it is. She tells him that most budgets are trimmed in committee, and he had better be ready. She returns the budget to him, and tells him to come back with something reasonable.
Required:
1. Is it ethical to build slack into a budget? Explain.
2. Was it ethical for Ms. Jackson to refuse to accept a budget without slack? Briefly explain.