Sales and Production Budgets

Sonic Inc. manufactures two models of speakers, Rumble and Thunder. Based on the following production and sales data for June, prepare (a) a sales budget and (b) a production budget:

a. Prepare a sales budget.

b. Prepare a production budget. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Determining Missing Items from Computations

Data for the North, South, East and West divisions of Free Bird Company are as follows:

a. Determine the missing items, identifying each by the letters (a) through (l). If required, round percents and investment turnover to one decimal place.

b. Determine the residual income for each division, assuming that the minimum acceptable rate of return established by management is 12%.

c. Which division is the most profitable in terms of (1) return on investment and (2) residual income?

Determining Missing Items from Computations

Data for the North, South, East and West divisions of Free Bird Company are as follows:

a. Determine the missing items, identifying each by the letters (a) through (l). If required, round percents and investment turnover to one decimal place.

b. Determine the residual income for each division, assuming that the minimum acceptable rate of return established by management is 12%.

c. Which division is the most profitable in terms of (1) return on investment and (2) residual income?

Fisherman Alex and John fish in the South China Sea. They can choose to fish for 8 months or 12 months. If they both fish for 8 months, they can catch 800 kilograms fish each. If they both fish for 12 months, they can catch 1200 kilograms fish each. If Alex fishes for 8 months but John fishes for 12 months, Alex can only catch 800 kilograms fish but John can catch 1200 kilograms fish. If John fishes for 8 months but Alex fishes for 12 months, John can only catch 800 kilograms fish but Alex can catch 1200 kilograms fish. Price of each kilogram of fish is $100.

a) Is the fishing area in South China Sea a public goods?

b) Draw a payoff matrix based on the information provided. What is the outcome of the game?

c) Suppose, the amount of fish caught is reduced by 50% due to overfishing. Will it change the outcome of the game?

d) Every May to August is the period of fishing moratorium (suspension of fishing) in South China Sea. Explain the rationale behind fishing moratorium.

Sonic Inc. manufactures two models of speakers, Rumble and Thunder. Based on the following production and sales data for June, prepare (a) a sales budget and (b) a production budget:

a. Prepare a sales budget.

b. Prepare a production budget. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Making Company manufactures one product that is sold for $55 per unit in two geographic regions—the South and North regions. The following information pertains to the company’s first year of operations in which it produced 20,000 units and sold 17,500 units.

Variable costs per unit:          

Manufacturing:        

    Direct materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             $12

    Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                $7

    Variable manufacturing overhead. . . . . . . . . . . . . . . . . . . .           $1

Variable selling and administrative. . . . . .. . . . . . . . . . . . . . .          $2

Fixed costs per year:

    Fixed manufacturing overhead. . . . . . . . . . . . . . . . . . . . . . .          $400,000

    Fixed selling and administrative expenses. . . . . . . . . . . . . . . .      $248,000

The company sold 12,500 units in the South region and 5,000 units in the North region. It determined that $125,000 of its fixed selling and administrative expenses is traceable to the North region, $75,000 is traceable to the South region, and the remaining $48,000 is a common fixed cost. The company will continue to incur the total amount of its fixed manufacturing overhead costs as long as it continues to produce any amount of its only product.

Required:

What is the company’s total contribution margin under variable costing?

What is the company’s net operating income under variable costing?

2. Theory of Comparative Advantage

Now, assume that we have a whole new world, (yet it is still a 2-country/ 2-product world).

South Africa and Nigeria produce copper and gold, respectively. Each country has 100 units of resources to make these goods, and each requires the following number of resources to be used in the production of one ton of product:

a) Which country has the absolute advantage in the production of copper? How do you know that?

b) Which country has the absolute advantage in the production of gold? How do you know that?

c) David Ricardo would say that South Africa should make its own copper and gold since it has the absolute advantage in the production of both goods. True? False?

d) What would global production be under a “No Trade” scenario? e) What would global production be if the countries specialized in the good for which each has a comparative advantage and they traded with each other?

1. There is variation in the migratory behavior of certain bird species. Some populations migrate while others do not. A study was run on Blue-Tailed Bee-Eaters. The south-east Asia population migrates south for the winter while the Australasia population does not. Using a capture technique called mist-netting, wing lengths were measured for each population. Is there a statistically significant difference between the two populations? What conclusion can you draw from this information?

Use your reading handout to calculate all the necessary parts of a t-test. Use an alpha=0.25 in the t-table to find your critical value.

Population A                                                                                             Population B

(South-East Asia, Migratory)                                                       (Australasia, Non-migratory)

Wing length (cm)                                                                         Wing length (cm)

      31                                                                                                        47

      50                                                                                                        41

      30                                                                                                        41

      31                                                                                                        37

      42                                                                                                        30

      37                                                                                                        34

      50                                                                                                        35

      45                                                                                                        31

      41                                                                                                        33

      50                                                                                                        31

      45                                                                                                        37

      31                                                                                                        47

      48                                                                                                        44

      39                                                                                                        33                                      47                                                                                                  35

      48                                                                                                        37

      50

47

46

39

42

46

A shop is selling stationery through two shops in town, and their website allows online orders. They receive online orders from two of their regular customers, each requiring glossy A3 printing paper. Customer X needs 40 boxes, whereas customer Y needs 60 boxes.

The shop in the north side of town has 85 boxes of glossy A3 paper in stock, whereas their south side shop has 55 boxes in stock. Delivery costs per box are as follows: $0.55 from the north shop to customer X, $0.65 from the north shop to customer Y, $0.45 from the south shop to customer X, and $0.60 from the south shop to customer Y.

Solve using simplex method and draw a clear graphical representation of the problem.

a) Develop the optimization problem to minimize the total delivery costs for this shop.

b) Identify how many boxes of glossy A3 paper need to be shipped from which shop to the two customers. Show your calculations in detail, along with a graphical interpretation of the problem and its solution.

Sonic Inc. manufactures two models of speakers, Rumble and Thunder. Based on the following production and sales data for June, prepare (a) a sales budget and (b) a production budget:

a. Prepare a sales budget.

b. Prepare a production budget. For those boxes in which you must enter subtracted or negative numbers use a minus sign.