Reference no: EM132430584
Questions -
Q1. In September 2014 the management of the Yancey Group assembles the following data in preparation of budgets for the months of October and November 2014.
1. Expected Sales for 2014;
October $1,000,000
November 1,400,000
December 1,800,000
2. Purchases for August and September 2014 were $850,000 and $720,000 respectively.
3. Cost of Sales is expected to be 60% of sales.
4. Desired ending inventory is 25% of the next month's cost of goods sold.
5. The beginning inventory at 1 October 2014 will be the desired amount.
6. Yancey Group pays for 60% of its purchases in the month of purchase, 30% in the following month and 10% in the second following month.
Required -
a) Prepare the purchase budget for October and November of 2014.
b) Calculate the estimated cash payments in October and November for inventory purchased.
Q2. Big Foot Co. produces sport socks and sells it across different states in Australia. The company is considering expanding their product market internationally by next year. The CEO, Ray, believes that an aggressive campaign is needed next year to maintain the entity's present growth. The financial year begins in July and ends in June. The CFO has presented Ray with the following data for the current year, 2014, for use in preparing next year's advertising campaign.
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Cost Schedules
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Per Unit ($)
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Variable costs
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Direct labour per pair
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21.00
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Direct materials
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8.00
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Variable overhead
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9.00
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Variable cost per pair
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38.00
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Fixed costs
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Manufacturing
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$70,300
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Selling
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46,000
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Administrative
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28,600
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$144,900
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Selling price per pair
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$50.00
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Sales, 2014
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$700,000
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Ray has set the sales target for the year 2015 at a level of $800,000.
Required -
a) What is the contribution margin per unit and ratio for 2014?
b) What is the break-even point in units for 2014?
c) How many pair of socks would have to be sold in 2014 to earn a target profit of $171,600?
d) Ray believes that to attain the sales target in the year 2015 additional selling expenses of $34,000 for advertising will be required in 2015, with all other costs remaining constant. What will be the break-even point in dollar sales for 2015 if Big Foot Co. spends the additional $34,000 of the selling expenses?