Norman
Concrete Company pours concrete slabs for single-family dwellings. Wayne
Construc- tion Company, which operates outside Norman’s normal sales territory,
asks Norman to pour 40 slabs for Wayne’s new development of homes. Norman has
the capacity to build 300 slabs and is presently working on 250 of them. Wayne
is willing to pay only $2,500 per slab. Norman esti- mates the cost of a
typical job to include unit-level materials, $1,000; unit-level labor, $600;
and an allocated portion of facility-level overhead, $700.
Required
Should
Norman accept or reject the special order to pour 40 slabs for $2,500 each?
Support your answer with appropriate computations.
Problem 14-22
Patel Company is
a retail company that specializes in selling outdoor camping equipment. The
company is considering opening a new store on October 1, 2006. The company
president formed a planning committee to prepare a master budget for the first
three months of operation. He assigned you, the budget coordinator, the
following tasks.
Required
a. October sales are estimated to be $120,000 of
which 40 percent will be cash and 60 percent will be credit. The company
expects sales to increase at the rate of 25 percent per month. Prepare a sales
budget.
b. The company expects to collect 100 percent of
the accounts receivable generated by credit sales in the month following the
sale. Prepare a schedule of cash receipts.
c. The cost of goods sold is 60 percent of
sales. The company desires to maintain a minimum ending inventory equal to 10
percent of the next month’s cost of goods sold. Ending inventory at December 31
is expected to be $12,000. Assume that all purchases are made on account.
Prepare an inventory purchases budget.
d. The company pays 70 percent of accounts
payable in the month of purchase and the remaining 30 percent in the following
month. Prepare a cash payments budget for inventory purchases.
e. Budgeted selling and administrative expenses
per month follow.
Salary expense (fixed) $18,000
Sales commissions 5 percent of Sales
Supplies expense 2 percent of Sales
Utilities (fixed) $1,400
Depreciation on store equipment (fixed)* $4,000
Rent (fixed) $4,800
Miscellaneous (fixed) $1,200
*The capital expenditures budget indicates that
Unici will spend
$164,000 on October 1 for store fixtures, which
are expected to have a
$20,000 salvage value and a three-year
(36-month) useful life.
f.Utilities and sales commissions are paid the
month after they are incurred; all other expenses are paid in the month in
which they are incurred. Prepare a cash payments budget for selling and
administrative expenses.