Retail outlets purchase winter coats from ZYX, Inc., throughout the year. Howeve
ID: 2455093 • Letter: R
Question
Retail outlets purchase winter coats from ZYX, Inc., throughout the year. However, in anticipating of late summer and early fall purchases, outlets ramp up inventories from May through August. Outlets are billed when coats are ordered. Invoices are payable within 60 days. From past experience, ZYX's accountant projects 28% of invoices will be paid in the month invoiced, 52% will be paid in the following month, 19% of invoices will be paid two months after the month of invoice. The average selling price per coat is $450.
To meet demand, ZYX increases production from April through July, because the coats are manufactured a month prior to their projected sale. Direct materials are purchased in the month of production and are paid for during the following month (terms are payment in full within 30 days of the invoice date). During this period there is no production for inventory, and no materials are purchased for inventory.
Direct manufacturing labor and manufacturing overhead are paid monthly. Variable manufacturing overhead is incurred at the rate of $8 per direct manufacturing labor-hour. Variable marketing costs are driven by the number of sales visits. However, there are no sales visits during the months studied. ZYX, Inc., also incurs fixed manufacturing overhead costs of $6,000 per month and fixed nonmanufacturing overhead costs of $4,000 per month.
Projected Sales 2015
May 80 units
August 100 units
November 80 units
June 120 units
September 70 units
December 50 units
July 200 units
October 70 units
Direct Materials and Direct Manufacturing Labor Utilization and Cost
Units per coat
Price per unit
Unit
Cashmere & wool
3
$23
pound
Silk lining
3
$8
yard
Buttons
5
$3
button
Direct manufacturing labor
5
$25
hour
ZYX's balance sheet as of May 1, 2015 is given below:
ZYX
Balance Sheet
May 1, 2015*
Assets
Cash
$36,705
Accounts receivable
15,660
Allowance for Doubtful Accounts
(4,050)
Inventory
28,170
Equipments
47,000
Accumulated depreciation
(4,700)
Total assets
$118,785
Liabilities and Stockholders' Equity
Accounts payable
$8,640
Note payable
35,000
Common stock
50,000
Retained earnings
25,145
Total liabilities and stockholders' equity
$118,785
ZYX' fiscal year ends on April 30.
On May 1, 2015, ZYX borrowed $35,000 on a 6% 6-months note with interest payable monthly. Using the information provided, you will need to determine whether ZYX will be in a position to 1) pay off this short-term debt on November 1, 2015;2) purchase $10,000 new equipment in November; 3) pay $5,000 cash dividends to its shareholders.
Required:
4. Based on the account balances, prepare the following budgeted financial statements for the second quarter on the OUTPUT worksheet. 1) Budgeted Income Statements using the absorption costing income statement format. 2) Budgeted balance sheet. 3) Budgeted Statement of Cash Flows.
5. Assume ZYX did not borrow $35,000 on May 1, 2015, and the following three situations for May 2015 sales revenues a) might be 5% less; b) 10% less, and that c) costs might be 8% higher (independently for each situation). Under each of those three scenarios show the total net cash for May and the amount ZYX would have to borrow if cash receipts are less than cash payments if ZYX is interested in maintaining cash balance of $10,000.
Projected Sales 2015
May 80 units
August 100 units
November 80 units
June 120 units
September 70 units
December 50 units
July 200 units
October 70 units
Explanation / Answer
Units per coat
Price per unit
total cost
Cashmere & wool
3
$23
$69
Silk lining
3
$8
Buttons
5
$3
Direct manufacturing labor
5
$25
Schedule showing manufacturing costsUnits per coat
Price per unit
total cost
Cashmere & wool
3
$23
$69
Silk lining
3
$8
$24Buttons
5
$3
$15Direct manufacturing labor
5
$25
$125 variable overhead 5 $8 $40 Total Manufacturing cost $273Related Questions
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