The Following Information Relates to Mega Corporation

question 54

Essay

The following information relates to Mega Corporation:
* All sales are on account and are budgeted as follows: February, $350,000; March, $360,000; and April, $400,000. Mega collects 70% of its sales in the month of sale and 30% in the following month.
* Cost of goods sold averages 60% of sales. Purchases total 65% of the following month's sales and are paid in the month following acquisition.
* Cash operating expenses total $60,000 per month and are paid when incurred. Monthly depreciation amounts to $18,000.
* Selected amounts taken from the January 31 balance sheet were: accounts receivable, $115,000; plant and equipment (net), $107,000; and retained earnings, $85,000.
Required:
(NOTE: Ignore income taxes in answering these questions).

A. Prepare a budgeted income statement that summarizes activity for the two months ended March 31, 20x1.
B. Compute the amounts that would appear on the March 31 balance sheet for accounts receivable, plant and equipment (net), and retained earnings.

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Definitions:

Work in Process Account

An inventory account that tracks the costs of products in various stages of completion but not yet finished.

Manufacturing Overhead

The indirect costs associated with manufacturing, exclusive of direct materials and direct labor expenses, necessary to produce goods.

Allocation Base

A criterion or measure used for allocating costs to cost objects, based on factors such as time, output, or activity level.

Job-Order Costing

An accounting method that tracks costs individually for each job, suitable for manufacturing jobs that are distinct and not identical.