Managerial Accounting
Review problems
Problem 1
Barwaaqo Milk Processing Company estimates that 70% of its monthly sales are on
credit, while the remaining are cash sales. The credit collection pattern is:
• 20% collected in the month of sale
• 55% collected in the month after
• 24% collected two months after
• 1% uncollectible
The company’s Projected sales for five months are as follows:
• November: $65,000
• December: $92,000
• January: $120,000
• February: $105,000
• March: $140,000
Requirements:
Prepare a Cash Collections Budget for first quarter (January to March) and total for the
quarter.
Problem 2
SomFresh Juices Ltd. is preparing a cash payments budget. The company follows these
policies:
• 60% of direct material (DM) purchases are paid in the month of purchase, the rest
next month.
• Last month's DM purchases: $48,000
• This month's DM purchases: $70,000
• Direct labor (DL): $55,000
• Manufacturing Overhead (MOH) is 85% of DL and includes $13,800 depreciation
• Operating expenses: $22,500, including $5,700 depreciation and $2,200 bad debts
• Anticipated taxes: 35% of direct costs (DL + DM)
• Interest expense: $9,200
Requirements:
Prepare the Cash Payments Budget for the current month.
Problem 3
Use the following to prepare Banadir Electronics Ltd.’s balance sheet at March 31:
• March 31 Inventory: $17,250
• March Inventory Payments: $4,700
• Accounts Payable & Accrued Liabilities Paid in March: $8,300
• March 31 Accounts Payable: $2,200
• Feb 28 Furniture: $29,400; Accum. Depreciation: $24,800
• Feb 28 Stockholders’ Equity: $25,600
• March Depreciation Expense: $1,100
• COGS = 60% of sales
• Other March expenses (cash): $5,600
• Feb 28 Cash Balance: $10,400
• March Sales: $14,000
• March 31 Accounts Receivable = ¼ of March sales
• March Cash Receipts: $15,000
Requirements:
Prepare a Budgeted Balance Sheet showing cash and equity computations.
Problem 4
Hodan Garments Ltd. had the following results for the past year:
• Operating Income: $8,300
• Total Assets: $15,000
• Sales: $30,000
• Target Return: 18%
Requirements:
Calculate the following:
1. Sales Margin
2. Capital Turnover
3. Return on Investment (ROI)
4. Residual Income (RI)
Problem 5
Nafaqo Snacks Co. sells snack cartons at an average price of $25 per box. The following
information relates to the company’s budgeted and actual data for this year (all figures
are annual totals unless otherwise noted):
Budgeted Actual
Sales units 6,800 7,100
Packaging cost $ 1 per unit $7,300
Shipping cost 2.5 per unit 17,500
Sales commission 5% of sales price 8,875
Salaries 6,400 6,700
Rent 3,000 3,000
Depreciation 2,500 2,500
Insurance 1,600 1,400
Supplies 900 1,300
Requirements:
Prepare a Flexible Budget Performance Report, and indicate whether the variances is
favorable (F) or unfavorable (U).
Problem 6
Durdur Woodworks Ltd. produces 180,000 wooden chairs annually. Details:
• 1,320,000 board feet of timber were purchased and used at $1.10 per board foot
• Production required 3,900 direct labor hours at $14.00 per hour
• The materials standard is 6.8 board feet of timber per chair at a standard cost of
$1.25 per board foot
• The labor standard is 0.025 direct labor hours per chair at a standard rate of
$13.50 per hour.
Requirements:
1. Calculate Direct Material Price & Quantity Variances
2. Calculate Direct Labor Rate & Efficiency Variances
Problem 7
Hargeisa Canning Company makes canned vegetables. Overhead is allocated using direct
labor hours (DLH):
• Budgeted Fixed MOH: $600,000
• Predetermined Fixed MOH Rate: $15.50 per DLH
• Standard Variable MOH Rate: $0.50 per DLH
• Each case requires 0.20 DLH
• Actual output: 150,000 cases
• Actual DLH: 38,000
• Total MOH: $640,000 (of which $610,000 is fixed)
Requirements:
1. Compute Variable MOH Rate & Efficiency Variances
2. Compute Fixed MOH Budget & Volume Variances
Problem 8
Sagal Enterprises wants to invest $87,500 in a production machine. The project’s details
is as follows:
• Useful life: 5 years
• Residual value: $10,000
• Annual cash inflows: $25,000
• Approval conditions:
o Max Payback Period: 4 years
o Min ARR: 10%
Requirements:
1. Calculate Payback Period
2. Calculate Accounting Rate of Return (ARR)
3. Based on the management’s requirements (approval condition). Would Sagal
Enterprises invest the project or not?
Good Luck!!!
