Retail outlets purchase winter coats from ZYX, Inc., throughout


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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: 1. Analyze the potential effects of the budgeted activities by preparing journal entries on the INPUT worksheet. 2. Set up T-accounts on the PROCESS worksheet, and create functions to post the journal entries made in requirement (1) automatically. 3. Prepare a cash budget for October 2015 and November 2015. Supply supporting schedules for collections of receivables and payments of payables, and other expenses. 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. 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 experienc…

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