What do you think will happen to the US market in the last quarter of 2020?

Case Study 2 Master Budgeting and Pro-Forma Financial Statements

You have just been assigned to a new manager who believes you have exceptional budgeting skills. Since you began your job last summer, you have been showing management your latest spreadsheets and how you use your new-found knowledge of Managerial Accounting to make sound business decisions. Your new manager is responsible for the nationwide distribution of designer handkerchief sets (HCS) and, through multiple franchise agreements, sales have grown very rapidly, and the timing is right for you to join her team and to show your skills. You have just been given responsibility for all planning and budgeting of the entire HCS division. Your first assignment is to prepare a master budget for the next three months, starting April 1, 2019. You accept this responsibility with enthusiasm and you are anxious to impress your new manager and the president of the company, who has a very high regard for you. To commence your new role, you have assembled the following pertinent information:

Note: The company desires a minimum ending cash balance each month on $10,000. The HCS’s are sold to retailers for $8 each and they are flying off the shelves. Recent forecasted sales in units are provided below:

The increased sales volume before and during June is due to Father’s Day with HCS being a favorite. Ending inventories are supposed to be equal to 90% of the next month’s sales in units. The cost of each HCS is $5.00.

Purchases are paid for in the following manner: 50% in the month of the purchase and the remaining 50% paid in the month following the purchase. All sales to the distributors are made on credit terms with no discount (for now), and payable within 15 days. The HCS division has determined that only 25% of a month’s sales are collected by the end of the month in which the sale occurred. An additional 50% is collected in the month following the sale, and the remaining 25% is collected in the second month following the sale. Bad debts have been negligible, supporting the credit terms as favorable.

Below is a display of the HCS division monthly selling and administrative expenses:

Selling and administrative expenses are all paid during the month, in cash, with the exception of depreciation (of course) and insurance is pre-paid for the duration of the policy. HCS will make a purchase of a parcel of land during the month of May for $25,000 cash. HCS contributes to the corporate dividend at a rate of $12,000 each quarter, payable in the first month of the following quarter. HCS’s balance sheet at the end of the first quarter is shown below:

An agreement with Bank of the West allows HCS to borrow in increments of $1,000 at the beginning of each month, up to a total loan amount of $150,000. The interest rate on these loans is 1% per month (pretty high but convenient nonetheless) but the interest is not compounded, meaning this is simple interest only. At quarter end, HCS would pay Bank of the West all of the accumulated interest on the loan and as much of the balance of the loan as possible (in $1,000 increments) while retaining the minimum $10,000 cash balance.

Required:

Prepare a master budget for the three- months ending June 30, 2019. Include the following budget schedules and financial statements:

5) Cash Budget. Show the cash budget by month and in total.

Answers to previous questions to help with answering question # 5

Part 2 –Schedule of expected cash collections from sales, by month and total.

Part 3 – Merchandise purchases budget in units and in dollars. Show the budget by month and total

Part 4 - Schedule of expected cash disbursements for merchandise purchases, by month and total

Consider the following project regarding the building of a large bridge between two major cities. The bridge will involve a ‘toll’ or monetary charge, where users of the bridge will pay an amount of money each time that they cross over the bridge.

The current date is 1 January 2019. The bridge is expected to take 2 years to build, and the first paid crossing of the bridge will occur in exactly 2 years from now.

The costs of the project are as follows:

Building costs

1 January 2019: $5 million

1 July 2019: $15 million

1 January 2020: $17.5 million

1 July 2020: $8 million

1 January 2021: $100,000

Maintenance and ongoing costs

Painting and repairs of $125,000 every quarter (ongoing), with the first cost incurred on 31 March 2021, and increasing by 1% every quarter thereafter

Road resealing: This occurs every 18 months with the first resealing occurring on 30 June 2022. The cost is $1.1m each time, increasing by 10% every 18 months.

Ongoing administration and staff costs: Assumed to be incurred monthly, of $75,000 per month with the first cost incurred on 1 February 2019, increasing by 2.5% (effective) every 12 months.

Income

The income from the monetary charges that apply to each bridge crossing is given by the following:

Cost per crossing: $2.80 per crossing over the bridge. This cost will apply throughout 2021. Every year thereafter, the cost increase by 5 cents per crossing.

Usage of the bridge

In 2021, it is anticipated that there will be 2 million crossings over the bridge over the year. This number of crossings is expected to increase by 7% per year, at the end of each year. Use of the bridge is not constant each month, but occurs in relation to the following breakdown per month:

It can also be assumed that the income for each month, is earned on average half way through each month.

1. Assuming a time horizon of 20 years for this project, determine the Internal Rate of Return.
2. Assuming a time horizon of 20 years for this project, determine the PV of costs at a risk discount rate of 10% per annum (effective)
3. Assuming a time horizon of 20 years for this project, determine the PV of income at a risk discount rate of 10% per annum (effective)
4. Hence, using your answers to (b) and (c), determine the NPV of this project at a risk discount rate of 10% per annum (effective)

1. What is the implied annual rate if you deposit $750 and receive $2,000 in 8 years, assuming interest is compounded quarterly?

2. How many months it will take to grow your money from $10,250 to $25,000 if you can earn an interest of 8% compounded monthly? How many years will it take?

4. The difference between an ordinary annuity and an annuity due is the:

a. timing of the annuity payments.

b. interest rate applied to the annuity payments.

c. number of annuity payments.

d. amount of each annuity payment.

5. Which one of the following is an annuity due?

a. $225 paid at the end of each monthly period for an infinite period of time

b. $100 paid at the end of each monthly period for one year

c. $225 paid forever

d. $600 paid at the beginning of every quarter for five years, starting today

6. What is the present value of $150 received at the beginning of each year for 16 years? The first payment is received today. Use a discount rate of 9%.

7. What is the present value of $250 received at the beginning of each year for 21 years? Assume that the first payment is received today. Use a discount rate of 12%

8. What is the future value of semi-annual payments of $6,500 for eight years at 12 percent?

9. You are considering an investment which would entail $5,000 payments each year for 20 years. The investment will pay 7 percent interest. How much will this investment be worth at the end of the 20 years?

10. Kelly starting setting aside funds six years ago to buy some new equipment for her firm. She has saved $2,000 each quarter and earned an average rate of return of 7.5 percent. How much money does she currently have saved for this purpose?

11. Today, you are purchasing a $85,000 20-year car loan at 6 percent. You will pay annually at the end of each year. What is the amount of each payment?

12. You just won a lottery that will pay you $2,500 a year for twenty years. You will receive your first payment today. If you can earn 8 percent on your money, what are your winnings worth to you today? (Note that since you will receive your first payment today, it is an annuity due problem).

Acquired $70,000 cash from the issue of common stock. Purchased $61,000 of inventory on account. Received goods purchased in Event 2 FOB shipping point; freight cost of $1,870 paid in cash. Sold inventory on account that cost $51,000 for $97,000. Freight cost on the goods sold in Event 4 was $1,020. The goods were shipped FOB destination. Cash was paid for the freight cost. Customer in Event 4 returned $4,540 worth of goods that had a cost of $2,320. Collected $79,540 cash from accounts receivable. Paid $56,200 cash on accounts payable. Paid $3,020 for advertising expense. Paid $4,050 cash for insurance expense. Required a. Which of these events affect period (selling and administrative) costs? Which result in product costs? If neither, label the transaction NA. b. Record each event in a horizontal statements model. The first event is recorded as an example. (In the Cash Flow column, use OA to designate operating activity, IA for investment activity, FA for financing activity, NC for net change in cash, and NA to indicate the element is not affected by the event. Enter any decreases to account balances and cash outflows with a minus sign.)

During the first month of operations ended July 31, YoSan Inc. manufactured 8,800 flat panel televisions, of which 8,300 were sold. Operating data for the month are summarized as follows:

Required:

1. Prepare an income statement based on the absorption costing concept.

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1. Sales - (cost of goods manufactured - ending inventory*) = Gross profit; gross profit - selling and administrative expenses = income from operations
*(Manufactured Units - Sold units) x (total manufacturing costs/manufactured units)

Learning Objective 1 and Learning Objective 2.

2. Prepare an income statement based on the variable costing concept.

Variable Costing Income Statement On July 31, the end of the first month of operations, Rhys Company prepared the following income statement, based on the absorption costing concept: Sales (24,000 units) $1,224,000 Cost of goods sold: Cost of goods manufactured $971,500 Less ending inventory (5,000 units) 167,500 Cost of goods sold 804,000 Gross profit $420,000 Selling and administrative expenses 136,000 Income from operations $284,000 a. Prepare a variable costing income statement, assuming that the fixed manufacturing costs were $87,000 and the variable selling and administrative expenses were $62,000. In your computations, round unit costs to two decimal places and round final answers to the nearest dollar. Rhys Company Income Statement-Variable Costing For the Month Ended July 31 $ Variable cost of goods sold: $ $ $ Fixed costs: $ Income from operations $ b. Reconcile the absorption costing income from operations of $284,000 with the variable costing income from operations determined in (a). Reconciliation of Absorption and Variable Costing Income Absorption costing income from operations $ Variable costing income from operations Difference $ Check My Work PreviousNext

Pensions Your pension plan is an annuity with a guaranteed return of 4% per year (compounded quarterly). You can afford to put $1,900 per quarter into the fund, and you will work for 40 years before retiring. After you retire, you will be paid a quarterly pension based on a 25-year payout. How much will you receive each quarter? (Round your answer to the nearest cent.) $ We can use the TMV solver

Question 1. James Company is preparing budgets for the Third quarter of 2019. All relevant information is presented below.

A. James Company expects sales as shown below:

The sales price is $32 per unit. The desired ending inventory of units is 15% higher than the beginning inventory of 1,000 units.

1. Prepare a sales budget for the third quarter, in total, October by month.

B. James Company is preparing a production budget for the third quarter. Ending inventory level must equal 15% of the next month’s sales.

2. Prepare a production budget for the third quarter, in total, October and November by month.