AC 315 (2 problems)

Problem 1:

Blue Lagoon Corporation is projecting a cash balance of $31,000 in its December 31, 2012, balance sheet. Blue Lagoon’s schedule of expected collections from customers for the first quarter of 2012 show total collections of $180,000. The schedule of expected payments for direct materials for the first quarter of 2012 shows total payments of $41,000. Other information gathered for the first quarter of 2012 is: sale equipment $3,500, direct labor $70,000, manufacturing overhead $35,000, selling and administrative expenses $45,000, and purchase of securities $12,000. Blue Lagoon wants to maintain a balance of at least $25,000 cash at the end of each quarter.


Prepare a cash budget for the first quarter.

Problem 2:

Russell Company uses flexible budgets to control its selling expenses. Monthly sales are expected to range from $170,000 to $200,000. Variable costs and their percentage relationship to sales are: Sales Commissions 5%, Advertising 4%, Traveling 3%, and Delivery 2%. Fixed selling expenses will consist of Sales Salaries $34,000, Depreciation on Delivery Equipment $7,000, and Insurance on Delivery Equipment $1,000.


Prepare a monthly flexible budget for each $10,000, increment of sales within the relevant range for the year ending December 31, 2012.