1- Cash budgets under two alternatives (Learning Objectives 2 & 3) Each autumn, as a hobby, Hannah Olson, Inc., weaves cotton placemats to sell at a local
craft shop. The mats sell for $30 per set of four mats. The shop charges a 20% commission and remits the net proceeds to Olson at the end of December.
Olson has woven and sold 26 sets in each of the last two years. She has enough cotton in inventory to make another 26 sets. She paid $8 per set for the
cotton. Olson uses a four-harness loom that she purchased for cash exactly two years ago. It is depreciated at the rate of $5 per month. The accounts
payable relate to the cotton inventory and are payable by September 30. Olson is considering buying an eight-harness loom so that she can weave more
intricate patterns in linen. The new loom costs $1,000; it would be depreciated at $20 per month. Her bank has agreed to lend her $1,000 at 18% interest, with
$200 principal plus accrued interest payable each December 31. Olson believes she can weave 16 linen placemat sets in time for the Christmas rush if she
does not weave any cotton mats. She predicts that each linen set will sell for $65. Linen costs $20 per set. Olson’s supplier will sell her linen on credit,
payable December 31.
2- P10-56B Prepare and interpret a performance report (Learning Objective 2) Refer to the Popping Bubbles’ data in P10-55B. The company sold 70,000
bubble kits during March and its actual operating income was as follows: Sales revenue………………………………………………………. Variable expenses: Cost of
goods sold ……………………………………….. Sales commissions ………………………………………… Utility expense …………………………………………….. Fixed expenses:
Salary expense……………………………………………… Depreciation expense ……………………………………. Rent expense……………………………………………….. Utility
expense …………………………………………….. Total expenses…………………………………………………….. Operating income………………………………………………… $211,000
$84,500 15,500 14,000 35,100 18,000 10,550 5,000 $182,650 $28,350 POPPING BUBBLES, INC. Master Budget Income Statement Month Ended October 31
Requirements 1. Prepare an income statement performance report for October. 2. What accounts for most of the difference between actual operating
income and master budget operating income? 3. What is Popping Bubbles’ master budget variance for operating income? Explain why the income statement
performance report provides Popping Bubbles’ managers with more useful information than the simple master budget variance. What insights can Popping
Bubbles’ managers draw from this performance report.
3- Budgeted income statement (Learning Objective 2) The budget committee of Hilton Fashions, an upscale women’s clothing retailer, has assembled the
following data. As the business manager, you must prepare the budgeted income statements for May and June. a. Sales in April were $50,000. You forecast
that monthly sales will increase 8% in May and an additional 4% in June. b. Hilton Fashions maintains inventory of $11,000 plus 20% of sales revenues
budgeted for the following month. Monthly purchases average 50% of sales revenues in that same month. Actual inventory on April 30 is $21,800. Sales
budgeted for July are $55,000. c. Monthly salaries amount to $3,000. Sales commissions equal 5% of sales for that month. Combine salaries and
commissions into a single figure. d. Other monthly expenses are as follows: Rent expense …………………………………………….. $3,200, paid as incurred
Depreciation expense ………………………………… $500 Insurance expense ……………………………………… $300, expiration of prepaid amount Income tax
………………………………………………… 20% of operating income Requirement Prepare Hilton Fashions’ budgeted income statements for May and June. Show
cost of goods sold computations