70.2K

Verified Solution

Link Copied!

Super Rich Business Person (SRBP) is opening a new merchandising company, COMPANY 2. SRBP owns several companies, but COMPANY 1 is very similar to COMPANY 2 (market size and characteristics, product types, expected demand/supply, etc.). Because the two companies are so similar, SRBP is going to use COMPANY 1 as a source of estimated prices and costs for COMPANY 2. COMPANY 1 has been in operation for seven years, and it's most recent Income Statement is presented below. Note that this income statement has been prepared especially for this purpose. SRBP's accountant prepared it to show both cost function AND cost behavior. COMPANY 1 Income Statement For the year ended 20X6 Total Units = 2,500) Sales, Gross Sales Discounts Sales Returns & Allowances Sales, Net Cost of Goods Sold (variable) Gross Profit Variable Selling Expenses Variable Administrative Expenses Fixed Selling & Administrative Expenses Net Income 275,000 (2,000) (5,500 (7,500) 267,500 (165,000) 102,500 (19,250) (13,750) (43,250) (76,250) 26,250 A total of 2,500 units were sold at COMPANY 1 during the year. All sales accounts are variable in nature (Sales, Gross; Sales Discount; Sales Returns & Allowances; and Sales, Net) Based on the information given above, answer the following Cost- Volume-Profit Analysis questions: 1. SRBP will be using COMPANY 1 as an estimate for all information in COMPANY 2. Please list all revenues and expenses of COMPANY 1 (i.e., Sales and Expenses) as constants, whether the per unit or total amount (i.e., if an amount is constant as a per unit amount, calculate it as a per unit amount, if constant at the total amount, list it as a total amount) 2. Based on these estimates, what is the expected Contribution Margin ner unit for COMPANY 2? 3. What is COMPANY 2'S expected Breakeven Point n untts! 4. If COMPANY 2 wants an expected yearly profit of S50,000, how many units would they need to sell? Based on the information given above, complete the following Master Budget requirements for COMPANY 2 (again, using the numbers for COMPANY 1 as estimates): 5. Assume COMPANY 2 sells 3,450 units in 20X7, prepare the Sales, Inventory Purchases, and Selling & Administration Expense budgets based on the following additional assumptions a. Prepare the Master Budget for 20X7 (i.e., only one unit amount, 3,450 units) b. Use the Sales, Net price for budgeting purposes, this allows us to ignore the impact of Sales Discounts and Sales Returns & Allowances in the Master Budget. c. Assume that 90% of all Sales, Net will be received in cash during the year, the remainder will be Accounts Receivable. d. For Inventory Purchases, assume a Desired Ending Inventory amount of 400 units for 2017. Ignore discounts and return for the Master Budget. e. Assume that 85% of all purchases will be paid in cash during the year, the remainder will be Accounts Payable. f. All Selling (Marketing) and Administrative amounts can go in the same Expenditure Budget. This will include the variable amounts related to selling and administrative, as well as the fixed amounts Now assume that COMPANY 2 has the following transactions in 20X7. Unless specified, assume all sales and purchases are on account (i.e., receivables and payables). 1. Issued common stock for 100,000 in buildings and equipment and 75,000 in cash. 2. Purchased inventory on account, 77,470. 3. Paid for freight in with cash (inventory shipping), 6,350 4. Paid a cash advance for business insurance for the year, 7,500 5. Purchased supplies for cash, 20,000. 6. Sold products that cost 49,500 to customers for 82,500. 7. Paid cash for shipping cost of sale, 5,775. 8. Received payment in cash from customer. Discount of 825, cash of 81.675 received 9. Paid cash of 77,470 for previous on account purchase. 10. Purchased inventory on account, 117,852. 11. Paid for freight in with cash (inventory shipping), 9,660. 12. Sold products that cost 79,200 to customers for 132,000 13. Paid cash for shipping cost of sale, 9,235 14. Purchased additional supplies for cash, 10,000 15. Customer returned products costing 924. The sales return amount is 1,540 16. Paid salaries in cash, 6,250 17. Received payment in cash from customer. Discount of 1,305, cash of 129,155 received. 18. Sold products that cost 52,800 to customers for 57,750. 19. Paid cash for shipping cost of sale, 6,163. 20. Paid cash of 117,852 for previous on account purchase 21. Products costing 1,320 were returned by customers, the sale price for the returned goods is 2,200. 22. Received payment in cash from customer. Discount of 578, cash of 57,172 received. 23. Products costing 1,386 were returned by customers, the sale price for the returned goods is 2,310. 24. Purchased inventory on account, 57,950. 25. Paid for freight in with cash (inventory shipping), 4,750. 26. Sold products that cost 46,200 to customers for 77,000. 27. Paid cash for shipping cost of sale, 5,390 28. Returned damaged inventory, $3,050 29. Received professional services on account (accounting and legal), 3,250 30. Paid cash for advertising costs for the year, 5,000. 31. Supplies of $26,250 were used during the year. 32. Customer returned products costing 792. The sales return amount is 1,320 33. Recognized salaries incurred at the end of the year, but not yet paid, 6,250. 34. Recognize insurance used for the year, 7,500. 35. Depreciation recognized for buildings and equipment, 15,000 Required: ) Journalize and post the above transactions 2) Prepare an Adjusted Trial Balance (adjusting entries are included in the list of transactions above.) 13. Paid cash for shipping cost of sale, 9,235. 14. Purchased additional supplies for cash, 10,000. 15. Customer returned products costing 924. The sales return amount is 1,540 16. Paid salaries in cash, 6,250 17. Received payment in cash from customer. Discount of 1,305, cash of 129,155 received. 18. Sold products that cost 52,800 to customers for 57,750. 19. Paid cash for shipping cost of sale, 6,163. 20. Paid cash of 117,852 for previous on account purchase. 21. Products costing 1,320 were returned by customers, the sale price for the returned goods is 2,200. 22. Received payment in cash from customer. Discount of 578, cash of 57,172 received 23. Products costing 1,386 were returned by customers, the sale price for the returned goods is 2,310. 24. Purchased inventory on account, 57,950. 25. Paid for freight in with cash (inventory shipping), 4,750. 26. Sold products that cost 46,200 to customers for 77,000. 27. Paid cash for shipping cost of sale, 5,390. 28. Returned damaged inventory, $3,050. 29. Received professional services on account (accounting and legal), 3,250 30. Paid cash for advertising costs for the year, 5,000. 31. Supplies of $26,250 were used during the year. 32. Customer returned products costing 792. The sales return amount is 1,320 33. Recognized salaries incurred at the end of the year, but not yet paid, 6,250 34. Recognize insurance used for the year, 7,500. 35. Depreciation recognized for buildings and equipment, 15,000 Required: 1) Journalize and post the above transactions. 2) Prepare an Adjusted Trial Balance (adjusting entries are included in the list of transactions above.) 3) Prepare an Income Statement, Statement of Retained Earnings, and Balance Sheet for COMPANY 2 4) Prepare closing entries

Answer & Explanation Solved by verified expert

See Answer