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Complete the following Accounting Management activities in good form. Use excel or word only.

29/09/2020 Client: sarah Deadline: 2 Day

 


complete the following activities in good form. Use excel or


word only.


1. Provide all supporting calculations to show how you arrived at


your numbers


Part A: Capital Budgeting Decisions


Matheson Electronics has just developed a new electronic device that it believes will have broad


market appeal. The company has performed marketing and cost studies that revealed the following


information:


a. New equipment would have to be acquired to produce the device. The equipment would cost


$138,000 and have a six-year useful life. After six years, it would have a salvage value of


about $24,000.


b. Sales in units over the next six years are projected to be as follows:


Year Sales in Units


1 7,000


2 12,000


3 14,000


4–6 16,000


c. Production and sales of the device would require working capital of $46,000 to finance


accounts receivable, inventories, and day-to-day cash needs. This working capital would be


released at the end of the project’s life.


d. The devices would sell for $55 each; variable costs for production, administration, and sales


would be $35 per unit.


e. Fixed costs for salaries, maintenance, property taxes, insurance, and straight-line


depreciation on the equipment would total $149,000 per year. (Depreciation is based on cost


less salvage value.)


f. To gain rapid entry into the market, the company would have to advertise heavily. The


advertising costs would be:


Year


Amount of Yearly


Advertising


1–2 $ 75,000


3 $ 55,000


4–6 $ 45,000


g. The company’s required rate of return is 13%.


Required:


1. Compute the net cash inflow (incremental contribution margin minus incremental fixed expenses)


anticipated from sale of the device for each year over the next six years.


2-a. Using the data computed in (1) above and other data provided in the problem, determine the net


present value of the proposed investment.


2-b. Would you recommend that Matheson accept the device as a new product?


B. Master Budget


You have just been hired as a new management trainee by Earrings Unlimited, a distributor of


earrings to various retail outlets located in shopping malls across the country. In the past, the


company has done very little in the way of budgeting and at certain times of the year has


experienced a shortage of cash. Since you are well trained in budgeting, you have decided to


prepare a master budget for the upcoming second quarter. To this end, you have worked with


accounting and other areas to gather the information assembled below.


The company sells many styles of earrings, but all are sold for the same price—$13 per pair. Actual


sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs


of earrings):


January (actual) 20,600 June (budget) 50,600


February (actual) 26,600 July (budget) 30,600


March (actual) 40,600 August (budget) 28,600


April (budget) 65,600 September (budget) 25,600


May (budget) 100,600


The concentration of sales before and during May is due to Mother’s Day. Sufficient inventory should


be on hand at the end of each month to supply 40% of the earrings sold in the following month.


Suppliers are paid $4.30 for a pair of earrings. One-half of a month’s purchases is paid for in the


month of purchase; the other half is paid for in the following month. All sales are on credit. Only 20%


of a month’s sales are collected in the month of sale. An additional 70% is collected in the following


month, and the remaining 10% is collected in the second month following sale. Bad debts have been


negligible.


Monthly operating expenses for the company are given below:


Variable:


Sales commissions 4 % of sales


Fixed:


Advertising $ 230,000


Rent $ 21,000


Salaries $ 112,000


Utilities $ 8,500


Insurance $ 3,300


Depreciation $ 17,000


Insurance is paid on an annual basis, in November of each year.


The company plans to purchase $17,500 in new equipment during May and $43,000 in new


equipment during June; both purchases will be for cash. The company declares dividends of


$17,250 each quarter, payable in the first month of the following quarter.


The company’s balance sheet as of March 31 is given below:


Assets


Cash $ 77,000


Accounts receivable ($34,580 February sales; $422,240 March sales) 456,820


Inventory 112,832


Prepaid insurance 22,500


Property and equipment (net) 980,000


Total assets $ 1,649,152


Liabilities and Stockholders’ Equity


Accounts payable $ 103,000


Dividends payable 17,250


Common stock 860,000


Retained earnings 668,902


Total liabilities and stockholders’ equity $ 1,649,152


The company maintains a minimum cash balance of $53,000. All borrowing is done at the beginning


of a month; any repayments are made at the end of a month.


The company has an agreement with a bank that allows the company to borrow in increments of


$1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for


simplicity we will assume that interest is not compounded. At the end of the quarter, the company


would pay the bank all of the accumulated interest on the loan and as much of the loan as possible


(in increments of $1,000), while still retaining at least $53,000 in cash.


Required:


Prepare a master budget for the three-month period ending June 30. Include the following detailed


schedules:


1. a. A sales budget, by month and in total.


b. A schedule of expected cash collections, by month and in total.


c. A merchandise purchases budget in units and in dollars. Show the budget by month and in


total.


d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.


2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be


needed to maintain the minimum cash balance of $53,000.


3. A budgeted income statement for the three-month period ending June 30. Use the contribution


approach.


4. A budgeted balance sheet as of June 30.


Part C: Variance Analysis for Decision Making


Marvel Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat


covers that can be adjusted to fit nearly any small car. The company has a standard cost system in


use for all of its products. According to the standards that have been set for the seat covers, the


factory should work 1,055 hours each month to produce 2,110 sets of covers. The standard costs


associated with this level of production are:


Total


Per Set


of Covers


Direct materials $ 51,273 $ 24.30


Direct labor $ 10,550 5.00


Variable manufacturing overhead (based on direct labor-hours) $ 4,853 2.30


$ 31.60


During August, the factory worked only 1,000 direct labor-hours and produced 2,100 sets of covers.


The following actual costs were recorded during the month:


Total


Per Set


of Covers


Direct materials (6,800 yards) $ 49,980 $ 23.80


Direct labor $ 10,920 5.20


Variable manufacturing overhead $ 5,460 2.60


$ 31.60


At standard, each set of covers should require 3.0 yards of material. All of the materials purchased


during the month were used in production.


Required:


1. Compute the materials price and quantity variances for August.


2. Compute the labor rate and efficiency variances for August.


3. Compute the variable overhead rate and efficiency variances for August.


D: Measures of Internal Business Process Performance


DataSpan, Inc., automated its plant at the start of the current year and installed a flexible


manufacturing system. The company is also evaluating its suppliers and moving toward Lean


Production. Many adjustment problems have been encountered, including problems relating to


performance measurement. After much study, the company has decided to use the performance


measures below, and it has gathered data relating to these measures for the first four months of


operations.


Month


1 2 3 4


Throughput time (days) ? ? ? ?


Delivery cycle time (days) ? ? ? ?


Manufacturing cycle efficiency (MCE) ? ? ? ?


Percentage of on-time deliveries 91 % 86 % 82 % 78 %


Total sales (units) 3460 3312 3143 3025


Management has asked for your help in computing throughput time, delivery cycle time, and MCE.


The following average times have been logged over the last four months:


Average per Month (in days)


1 2 3 4


Move time per unit 0.7 0.5 0.6 0.6


Process time per unit 2.8 2.7 2.6 2.5


Wait time per order before start of production 23.0 25.2 28.0 30.2


Queue time per unit 4.6 5.3 6.1 7.0


Inspection time per unit 0.5 0.6 0.6 0.5


Required:


1-a. Compute the throughput time for each month.


1-b. Compute the delivery cycle time for each month.


1-c. Compute the manufacturing cycle efficiency (MCE) for each month.


2. Evaluate the company’s performance over the last four months.


3-a. Refer to the move time, process time, and so forth, given for month 4. Assume that in month 5


the move time, process time, and so forth, are the same as in month 4, except that through the use


of Lean Production the company is able to completely eliminate the queue time during


production. Compute the new throughput time and MCE.


3-b. Refer to the move time, process time, and so forth, given for month 4. Assume in month 6 that


the move time, process time, and so forth, are again the same as in month 4, except that the


company is able to completely eliminate both the queue time during production and the inspection


time. Compute the new throughput time and MCE.


E. Preparing Statement of Cash Flows


Comparative financial statements for Weaver Company follow:


Weaver Company


Comparative Balance Sheet


at December 31


This Year Last Year


Assets


Cash $ 9 $ 21


Accounts receivable 610 380


Inventory 175 240


Prepaid expenses 10 8


Total current assets 804 649


Property, plant, and equipment 690 580


Less accumulated depreciation 80 70


Net property, plant, and equipment 610 510


Long-term investments 10 48


Total assets $ 1,424 $ 1,207


Liabilities and Stockholders' Equity


Accounts payable $ 400 $ 290


Accrued liabilities 50 60


Income taxes payable 85 78


Total current liabilities 535 428


Bonds payable 390 280


Total liabilities 925 708


Common stock 341 450


Retained earnings 158 49


Total stockholders’ equity 499 499


Total liabilities and stockholders' equity $ 1,424 $ 1,207


Weaver Company


Income Statement


For This Year Ended December 31


Sales $ 880


Cost of goods sold 490


Gross margin 390


Selling and administrative expenses 203


Net operating income 187


Nonoperating items:


Gain on sale of investments $ 12


Loss on sale of equipment (9 ) 3


Income before taxes 190


Income taxes 57


Net income $ 133


During this year, Weaver sold some equipment for $10 that had cost $49 and on which there was


accumulated depreciation of $30. In addition, the company sold long-term investments for $50 that


had cost $38 when purchased several years ago. Weaver paid a cash dividend this year and the


company repurchased $109 of its own stock. This year Weaver did not retire any bonds.


Required:


1. Using the direct method, adjust the company’s income statement for this year to a cash basis.


2. Using the information obtained in (1) above, along with an analysis of the remaining balance sheet


accounts, prepare a statement of cash flows for this year.

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