Cash Budget

The controller of Sonoma Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:

The company expects to sell about 10% of its merchandise for cash. Of sales on account, 60% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $8,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in September, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 85% are expected to be paid in the month in which they are incurred and the balance in the following month.

Current assets as of May 1 include cash of $45,000, marketable securities of $64,000, and accounts receivable of $140,600 ($103,000 from April sales and $37,600 from March sales). Sales on account for March and April were $94,000 and $103,000, respectively. Current liabilities as of May 1 include $11,000 of accounts payable incurred in April for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $18,000 will be made in June. Sonoma’s regular quarterly dividend of $8,000 is expected to be declared in June and paid in July. Management wants to maintain a minimum cash balance of $35,000.

Required:

1. Prepare a monthly cash budget and supporting schedules for May, June, and July. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign.

2. The budget indicates that the minimum cash balance   be maintained in July. This situation can be corrected by   and/or by the   of the marketable securities, if they are held for such purposes. At the end of May and June, the cash balance will   the minimum desired balance.

Joseph is considering a used car currently valued at $12,000. He can get an interest rate of 2.5% annually for a 5 year car loan. Joseph currently has $14,000 in a savings account and wants to use some of his savings for a down payment. If Joseph decided to put $3,000 down as a down payment, what are his monthly payments? If Joseph decided to put $5,000 down as a down payment, what are his monthly payments? How much does Joseph save in interest if he puts $5,000 down compared to $3,000? If Joseph decides to pay for the whole thing what could he potentially save in interest payments? If Joseph can invest $12,000 in an 8% annual investment. Alternatively he is considering just paying cash for the car leaving him no payment. Which would you recommend and why? Include the numbers!!

Critically evaluate the suggestion that with the recent emergence of Integrated Reporting we can readily recognise the vanguard role that managerial accounting will play in reshaping financial reporting.

The following information is available for Park Valley Spa for July Year 1:

The following is a list of checks and deposits recorded on the books of the Park Valley Spa for July Year 1:

Other Information

1. Check no. 2350 was outstanding from June.
2. The credit memo was for collection of notes receivable.
3. All checks were paid at the correct amount.
4. The debit memo was for printed checks.
5. The June 30 bank reconciliation showed a deposit in transit of $1,104.
6. The unadjusted Cash account balance at July 31 was $14,603.

Required
a. Prepare the bank reconciliation for Park Valley Spa at the end of July.
b. Record in general journal form any necessary entries to the Cash account to adjust it to the true cash balance.
  

A. record the collection of notes recievable

B. record cash paid for office supplies expenses

The Inventory at July 1st and the cost charged to work in process department B during July for the Parker Corporation are as follows:

32,000 units, 3/4 completed...................................1,312,000

From Department A 174,000 units.........................1,566,000

Direct Labor............................................................5,848,000

Factory Overhead...................................................1,292,000

During July, all direct materials are transferred from Department A, the units in process at July 1st were completed, and of the 174,000 units entering the Department, all were completed except 36,000 units which were 2/3 completed. Inventories are costed by the FIFO method.

Use the 5 Steps to prepare a cost of production report:

1. Units to be accounted for: Beginning WIP + Transferred In = Total

2.Units to be accounted for: Beginning WIP + Started and Completed + Ending WIP = Total

3. Equivalent Units of Production & Cost per EUP

4.Cost to be accounted for: Beg. WIP + Materials + Direct Labor + Overhead = Total Cost to be accounted for

5. Cost accounted for: Total cost of beginning WIP + Total cost for started and completed + Total Cost for ending WIP = Total cost accounted for

Cicchetti Corporation uses customers served as its measure of activity. The following report compares the planning budget to the actual operating results for the month of December: Cicchetti Corporation Comparison of Actual Results to Planning Budget For the Month Ended December 31 Actual Results Planning Budget Variances Customers served 34,000 29,500 Revenue ($4.8q) $ 164,000 $ 141,600 $ 22,400 F Expenses: Wages and salaries ($37,100 + $1.6q) 94,600 84,300 10,300 U Supplies ($0.6q) 20,000 17,700 2,300 U Insurance ($14,100) 14,350 14,100 250 U Miscellaneous expense ($7,100 + $0.4q) 22,450 18,900 3,550 U Total expense 151,400 135,000 16,400 U Net operating income $ 12,600 $ 6,600 $ 6,000 F

Prepare the company's flexible budget performance report for December. Select each variance as favorable (F), unfavorable (U) or "None".

Tough Steel, Inc. is a processor of carbon, aluminum, and stainless steel products. The firm is considering replacing an old stainless steel tube-making machine for a more cost-effective machine that can meet the firm’s quality standards. The old machine was acquired 2 years ago at an installed cost of $500,000. It has been depreciated under the MACRS’s 5-year recovery period, and has a remaining economic life of 5 years. It can be sold today for $350,000 before taxes, but if the firm decides to keep it, it can be sold for $100,000 before taxes at the end of year 5. The first option is Machine A, which can be purchased for $600,000, but will require $30,000 in installation costs. This machine would be depreciated under the MACRS’s 3-year recovery period. At the end of its economic life, the machine will have a salvage value of $350,000 before taxes. This machine would require an investment in net working capital of $100,000. The second option is Machine B, which can be purchased for $550,000, but requires $20,000 in installation costs. This machine would be depreciated under the MACRS’s 5-year recovery period. At the end of its economic life, the machine would have a salvage value of $330,000 before taxes. This machine requires no investment in net working capital. The firm has estimated the following EBIT for all three machines: The firm’s WACC is 14% and its tax rate is 40%. Determine which machine is more profitable for the company based on the payback period, discounted payback period, net present value, profitability index, internal rate of return, and modified internal rate of return. EBIT: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Old Machine $90,000 $90,000 $120,000 $150,000 $150,000 Machine A $90,000 $10,000 $150,000 $230,000 $270,000 Machine B $120,000 $20,000 $120,000 $200,000 $200,000

Bottom line refers to which line on the income statement?

• A. Operating income

• B. Retained earnings

• C. Net income, net profit, or net earnings

• D. Net worth

1. Piper Wells is single and received the items and amounts of income shown below during 2015, as shown below. Determine the marginal tax rate applicable to each item. Note that if the item is not taxable, the marginal rate is 0.

Salary $30,000

Dividends 800

Gift from mother 500

Child support from ex-husband 3,600

Interest on savings account 250

Rental property 900

Loan from bank 2,000

Interest on state government bonds 300

a.discuss the criteria for recognizing deferred tax assets and deferred tax liabilities under the provisions of fasb asc 740

b. compare and contrast the asset-liability method and the deferred method

Reflect on the past two week’s lecture, material from readings and discussions. In at least 150 words, describe the main points or ideas you learned and how your interactions with classmates and/or your instructor built upon your learning. Describe which main point you found most important and how you believe it can be related to your life/career. for accounting principles II

WCP.7  

WCP.7  

Phil Clark Jr., president of Waterways, was very pleased with how adopting a CVP approach to reporting operating income was helping management to make good business decisions with respect to planning, production, and sales for the coming year. He has a feeling that knowing how fixed and variable costs behave might also help them to find savings in the production department. Further, he is concerned that Waterways' production facility is working near full capacity right now, and he does not know if the company could generate enough new business to make adding another shift viable.

Phil decides to sit down with his brother Ben, vice-president of operations, and Ryan Smith, the plant manager, to see if they could “do more with less,” as he put it. Jordan Leigh, CFO, had recently presented them with a number of situations that required decisions that would impact operations in the plant. Phil thought that together the four of them could find some efficient solutions.

Part 1  

Waterways packages some of its products into sets for do-it-yourself (DIY) installations. The smaller set that sells for $159 has variable costs of $79, while the larger set sells for $249 with variable costs of $159. Fixed costs are assigned at a rate of $6 per machine hour.

It takes 32 minutes of machining time to produce and package the smaller set. The larger set is more complicated and requires 60 minutes of production time. The machines operate for two shifts of eight hours each day for 20 days per month. Maintenance and set-ups are handled outside of these times.

Analysis of the current market trends reveals that monthly demand for the smaller set would not exceed 500 units, while Waterways could sell as many of the larger ones as it can produce.

Instructions

Given the information above, determine the best use of these machines.

Part 2  

As we learned in Chapter 6, Waterways markets a simple water controller and timer that it mass-produces. During 2020, the company sold 350,000 units at an average selling price of $8.00 per unit. The variable expenses were $1,575,000, and the fixed expenses were $800,000.

Waterways has determined the full cost to manufacture its timers is $6.79 per unit. Recently it was discovered that a competitor was selling this unit for $6.58 per unit. Ryan immediately suggested that Waterways buy the timer from the other supplier, but Jordan was not convinced. He cautioned Ryan that $77,120 worth of fixed costs would not be eliminated by buying the unit. However, he also knew that, if Waterways bought the unit from the competitor, it would free up 120 machine hours that could be used to produce the large DIY installation kits described in (Part 1).

Instructions

a.  

Assuming Waterways requires 350,000 timers, evaluate whether it should continue to make the timer or if it should purchase it from the outside supplier.

b.  

What is the maximum price per unit Waterways should be willing to pay to purchase the timer from an outside supplier?

c.  

What non-financial factors might be considered in making this decision?

Part 1

The vice-president of sales and marketing, Madison Tremblay, is trying to plan for the coming year in terms of production needs to meet the forecasted sales. The board of directors is very supportive of any initiatives that will lead to increased profits for the company in the upcoming year.

Instructions

a.  Waterways markets a simple water controller and timer that it mass-produces. During 2020, the company sold 350,000 units at an average selling price of $8 per unit. The variable expenses were $1,575,000, and the fixed expenses were $800,000.

• 1.What is the product's contribution margin ratio?
• 2.What is the company's break-even point in units and in dollars for this product?
• 3.What is the margin of safety, both in dollars and as a ratio?
• 4.If management wanted to increase income from this product by 10%, how many additional units would the company have to sell to reach this income level?
• 5.If sales increase by 71,000 units and the cost behaviours do not change, how much will income increase on this product?

b.  Waterways is considering mass-producing one of its special-order screens. This would increase variable costs for all screens by an average of $0.71 per unit. The company also estimates that this change could increase the overall number of screens sold by 10%, and the average sales price would increase by $0.25 per unit. Waterways currently sells 491,740 screen units at an average selling price of $26.50. The manufacturing costs are $6,863,512 variable and $2,050,140 fixed. Selling and administrative costs are $2,661,352 variable and $794,950 fixed.

• 1.If Waterways begins mass-producing its special-order screens, how would this affect the company?
• 2.If the average sales price per screen did not increase when the company began mass-producing the screen, what would be the effect on the company?

SOLVE ALL PARTS WITH EXPLANATION

Revenues generated by a new fad product are forecast as follows:

Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $42,000 in plant and equipment.

a. What is the initial investment in the product? Remember working capital.

b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm’s tax rate is 20%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years. (Do not round intermediate calculations.)

c. If the opportunity cost of capital is 10%, what is the project's NPV? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

d. What is project IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)