REQUIRED: This project is worth 25 points. It is an opportunity to put together some of the things you have learned in different parts of this course. Read the case and answer the requirements below. To receive credit you must show your calculations and write full answers using one side of a page for each requirement (1-5). We must ask you to handwrite your answers. Hand your project in to the accounting lab 133MH during lab hours on or before Thursday November 15 at 6 PM. 1) YOUR NAME ________________________________________________ 2) YOUR PEOPLESOFT ID ____________________________________________ 3) YOUR INSTRUCTOR’S NAME _____________________________ 4) YOUR RECEIPT NUMBER _______________(lab assistants will give you this) CASE Manny Fold owns a factory that specializes in making titanium valves for high performance engines on a just in time basis. Thus, Manny produces what he sells in a particular month. There are no inventories of finished goods or work in process. However, Manny does require that an inventory of direct raw materials equal to 10% of next month’s production requirement be available at the end of each month. To build his business and gain new customers Manny has extended generous credit terms to his customers. While Manny is confident about the fundamentals of his business, he is concerned about the possible cash flow implications. Manny’s clients drive a hard bargain because they can easily switch suppliers. They all do pay eventually, but many of them take their time about doing so and Manny is reluctant to get tough with them for fear they will take their business elsewhere. He tells you that all his sales are on credit (no cash sales). He typically collects only 20% of sales in the month of the sale, 40% of sales in the month after the sale and 40% of sales two months later (for example 20% of August sales are collected in August, 40% in September and 40% in October). On the other hand he pays for 70% of his materials purchases in the month of the purchase and only 30% in the month after. Costs of labor and overhead other than depreciation property taxes and insurance are paid in the same month they are incurred. Property taxes for 3 months will be paid in October. Monthly fixed selling and administrative costs, other than interest, amount to $41,000, of which $10,000 is depreciation. These operating costs, excepting depreciation, are paid in cash in the month incurred. There are no variable selling or administrative costs. Manny has large tax loss carry forwards from a previous unsuccessful business venture. Therefore he does not expect to pay any income taxes this year. (In other words you may ignore income taxes). Sales revenues in August were $315,000 and in September are expected to be $325,500. Purchases in September total $92,480. The budgeted selling price of valves for October, November, and December is $21 per valve. Because of ma ...

1. REQUIRED: This project is worth 25 points. It is an
opportunity to put together some of the
things you have learned in different parts of this course. Read
the case and answer the
requirements below. To receive credit you must show your
calculations and write full answers
using one side of a page for each requirement (1-5). We must
ask you to handwrite your answers.
Hand your project in to the accounting lab 133MH during lab
hours on or before Thursday
November 15 at 6 PM.
1) YOUR NAME
________________________________________________
2) YOUR PEOPLESOFT ID
____________________________________________
3) YOUR INSTRUCTOR’S NAME
_____________________________
4) YOUR RECEIPT NUMBER _______________(lab assistants
will give you this)
CASE
Manny Fold owns a factory that specializes in making titanium

2. valves for high performance
engines on a just in time basis. Thus, Manny produces what he
sells in a particular month. There
are no inventories of finished goods or work in process.
However, Manny does require that an
inventory of direct raw materials equal to 10% of next month’s
production requirement be
available at the end of each month. To build his business and
gain new customers Manny has
extended generous credit terms to his customers. While Manny
is confident about the
fundamentals of his business, he is concerned about the possible
cash flow implications.
Manny’s clients drive a hard bargain because they can easily
switch suppliers. They all do pay
eventually, but many of them take their time about doing so and
Manny is reluctant to get tough
with them for fear they will take their business elsewhere. He
tells you that all his sales are on
credit (no cash sales). He typically collects only 20% of sales
in the month of the sale, 40% of
sales in the month after the sale and 40% of sales two months
later (for example 20% of August

3. sales are collected in August, 40% in September and 40% in
October). On the other hand he pays
for 70% of his materials purchases in the month of the purchase
and only 30% in the month after.
Costs of labor and overhead other than depreciation property
taxes and insurance are paid in the
same month they are incurred. Property taxes for 3 months will
be paid in October. Monthly
fixed selling and administrative costs, other than interest,
amount to $41,000, of which $10,000
is depreciation. These operating costs, excepting depreciation,
are paid in cash in the month
incurred. There are no variable selling or administrative costs.
Manny has large tax loss carry
forwards from a previous unsuccessful business venture.
Therefore he does not expect to pay any
income taxes this year. (In other words you may ignore income
taxes).
Sales revenues in August were $315,000 and in September are
expected to be $325,500.
Purchases in September total $92,480. The budgeted selling
price of valves for October,
November, and December is $21 per valve. Because of market
competition there is no flexibility

4. to adjust the price and the price is expected to be stable over the
3 month period (however,
Manny has given some small discounts to some customers in
recent months) Manny provides
the following information regarding his sales forecast in units
for the next 3 months: October
18,000 units, November 20,000 units and December 21,000
units. After that production and
sales in January are expected to decrease back to 18,000 units.
The variable costs of producing a valve are budgeted at $6 per
valve (3/4 pound of titanium alloy
costing $8 per pound for materials), $3 per valve for direct
labor, and $5 per valve for variable
manufacturing overhead. Fixed manufacturing overhead is
budgeted at $75,600 per month. The
detailed components of variable and fixed overhead are as listed
below.
For variable overhead, supplies are budgeted at $1 per unit,
electric power is budgeted at $2 per
unit, and indirect labor is budgeted at $2 per unit. For fixed
overhead depreciation is budgeted
at $18,000 per month, Supervision and other factory salaries is
budgeted at $27,000 per month,

5. property tax and insurance combined are budgeted at $8,000 per
month, maintenance is budgeted
at $6,500 per month, licensing fees and permits to use
proprietary technology are budgeted at
$6,000 per month, and other miscellaneous fixed expenses are
budgeted at $10,100 per month.
Assume Manny’s opening cash balance on October 1 will be
$10,000. Manny requires a
minimum cash balance of $10,000 at the end of each month. If
the budgeted month end cash
balance will fall below this level Manny plans to borrow enough
cash at the beginning of that
same month to keep his ending balance up to the minimum
level. Manny’s bank charges him
interest at the rate of 1 % per month on the balance outstanding
during that month. Manny pays
the interest at the beginning of the following month and plans to
repay as much as he can at the
beginning of that month without letting his budgeted cash
balance go below $10,000 at month
end. Manny’s bank requires that borrowing and repayments are
in $100 increments (for example,
if $4321 is needed to get to the 10,000 minimum balance Manny
would need to borrow $4,400).

6. Assume no borrowings were outstanding as of October 1.
Required (for requirements 1 to 4 pretend you are doing the
work in September instead of
November while for requirements 5 and 6 you are actually doing
them in November)
1) Construct Manny’s budget for raw materials purchases in
October, November,
and December and the total for the 4
th
quarter. Use Exhibit 9-7 on page 524 as a
guide. (4 points)
2) Construct Manny’s budgeted operating income statement for
the 3 months:
October, November, and December and the total for the 4th
quarter. Use the
template provided below. Show any necessary calculations. (5
points)
3) Construct Manny’s cash budget for the 3 months October,
November, and
December and the total for the 4th quarter. Use the templates
provided below.
Show any necessary calculations. Note: there are no capital
expenditures
budgeted for the 4
th

7. quarter and no dividends.(6 points)
4) Explain why Manny will be facing a cash flow problem in
October even though
his business is profitable. (2 points)
5) During October Manny actually produced and sold 18,500
valves. Actual sales
revenues were $386,950. Actual costs were as detailed in the
table below.
Complete the table by constructing a flexible budget and
performance report
including variances for October based on 18,500 valves. Your
performance
report should be similar to the performance report shown in
exhibit 10.13 of page
611 except your report includes more detailed production cost
line items. Use the
template provided below for your answer. (6 points)
6) Write a brief report explaining the most important reasons
why Manny’s profits
were different from the amount projected in the master budget.
(2 points)
Budgeted Income Statement (requirement 2)

8. October November December 4
th
Quarter
Raw Materials
Used
Direct Labor
Variable
Overhead
Fixed Overhead
Cost of Goods
Sold
October November December 4
th
Quarter
SALES

9. REVENUES
LESS COST OF GOODS
SOLD (see below)
GROSS PROFIT
LESS OPERATING
EXPENSES
OPERATING
INCOME
COMPUTATION OF COST OF GOODS SOLD
October November December 4
th
Quarter
Beginning
Balance of Cash
Cash Collections

10. (see below)
Total cash
available
Less: Cash
Payments (see
below)
Ending Cash
Balance Before
Financing:
Borrowings
Repayments
Interest
Payments

11. End Cash
Balance
COMPUTATION OF CASH COLLECTIONS
October November December 4
th
Quarter
Sales Made 2
Months Ago
Sales Made 1
Month Ago
Sales Made this
Month
Total Cash
Collections
COMBINED CASH BUDGET

12. COMPUTATION OF CASH PAYMENTS FOR OPERATIONS
October November December 4
th
Quarter
Payments for
purchases of
materials
Payments for
direct Labor
Payments for
Variable
Overhead
Payments for
Fixed Overhead
Payments for

13. Operating
Expenses
Total Cash
Payments
ANSWER SPACE FOR REQUIREMENT 4
Actual Costs and Template for Requirement #5
Use this page to answer this requirement.

14. Performance Report for October
Cost Item Actual results Flexible
Budget
Variance
Flexible
Budget for
18,500 units
Sales Volume
Variance
Static Master
Budget for
18,000 units
Sales Revenues $386,950
Direct Materials
used
$113,720
Direct Labor $61,600

15. Supplies $16,686
Electric Power $39,454
Indirect Labor $36,450
Salaries and
Supervision
$27,500
Maintenance $8,925
Insurance $8,000
Permits and
license fees
$6,000
Factory
depreciation
$18,000
Other Overhead
expenses
$8,650
Total Production

16. Expenses
Total Selling &
Administrative
Expenses
$39,867
Total Expenses
Operating
Income
Use the back of this page to answer requirement #6