Chapter 21 & 24 Handout

Acct 5000Chapter 21 Handout
4. For 2018, a manufacturing company created the static budget shown below based on production of
5,000 products. The company expects that production may differ by an increase or decrease of 1,000
products. Prepare a flexible budget for the possible changes in production levels.
Variable cost:
Direct labor
Direct materials
Total variable cost
Fixed cost:
Utilities
Salaries
Depreciation
Total fixed cost
Total department costs
$20,000
35,000
$55,000
$7,500
9,000
3,100
$19,600
$74,600
10. In 2018, Cards by Shannon generated the sales shown. The company expects sales to increase by 2%
for each product in the following year if the prices remain the same. Determine the budgeted revenue
for 2019.
Product A
Product B
Product C
Units Sales
2,000
5,000
1,500
Selling Price per Unit
$10
12
8
11. Cards by Shannon’s production department (information in Exercise 10) produces enough finished
goods to cover each year’s sales, plus 5% of the upcoming year’s sales. If the company followed these
production guidelines in 2018 and 2019, determine the total units to be produced in 2019. The company
expects unit sales to increase by 10% in 2020. Round answers to the nearest whole unit.
12. Products A, B, and C of Cards by Shannon (information in Exercises 10 and 11) require one direct
material, card stock, which costs the company $0.10 per sheet. The amounts used per unit are shown
below. The purchasing manager of the company prefers to have 2,000 sheets of the direct materials on
hand in ending inventory, which is followed in 2018 and 2019. Prepare the direct material purchases
budget to determine the units of direct materials to purchase and the total dollar amount to be
purchased. Round units to the nearest whole unit and dollars to the nearest cent.
Product A
Product B
Product C
Direct Materials Used
per Unit
1.5 sheets
3.0 sheets
0.5 sheet
13. The products of Cards by Shannon (information in Exercises 10–12) are produced in two
departments, Production and Finishing. Use the information shown below, which gives the direct labor
hour per unit in each department, to prepare the direct labor cost budget, assuming that employees are
paid an hourly wage of $9. Round the number of hours to one decimal place and dollars to the nearest
cent.
Product A
Product B
Product C
Production
0.50
0.75
0.40
Finishing
0.25
0.25
0.20
14. Cards by Shannon (information in Exercises 10–13) also expects to incur the following costs for 2019:
indirect factory wages, $2,500; utilities, $8,000; depreciation, $7,500; and indirect materials, $500.
Prepare a factory overhead cost budget for the company.
15. Use the information determined in Exercises 10–14 to prepare the cost of goods sold budget for
Cards by Shannon for 2019. The company expects the beginning and ending inventories shown.
Beginning Inventory
Ending Inventory
Direct materials (card stock)
$ 200
$ 200
Work in process
8,850
20,000
Finished goods
10,200
25,200
16. Cards by Shannon (information in Exercises 10–15) also plans to incur the following expenses during
2019: advertising expense, $700; sales salaries expense, $2,000; office depreciation expense, $900; and
office supplies expense, $250. Prepare the selling and administrative expenses budget for the company.
17. Prepare a budgeted income statement for Cards by Shannon using the information determined in
Exercises 10–16 for the 2019 calendar year-end. Assume the company expects to earn rental revenue of
$4,000 for the year and a 30% tax rate. Round dollars to the nearest cent
Acct 5000
Chapter 24 Handout
8. Mike’s Camping Supply is considering the purchase of new equipment for $750,000. The equipment
will allow the company to generate additional cash revenues of $180,000 each year. The company will
incur total expenses of $64,000 from the machine each year, including $7,000 related to depreciation.
Calculate the cash payback period, rounding answer to two decimal places.
10. Use the table shown below to calculate the present value of $40,000 received five years from now.
Assume a 10% interest rate.
Present Value of $1 at Compound Interest
Year
1
2
3
4
5
6
7
8
9
10
10%
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
0.424
0.386
12%
0.893
0.797
0.721
0.636
0.567
0.507
0.452
0.404
0.361
0.322
15%
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
11. Use the table shown in Exercise 10 to calculate the present value of $22,000 received 10 years from
now, assuming an interest rate of 15%.
15. Mike’s Camping Supply is considering the purchase of a new piece of equipment, which will cost
$140,000. The equipment will generate additional cash revenues of $50,000 for the first two years,
$85,000 in the third year, and $80,000 in its last year. The equipment, which the company plans to sell
at the end of the fourth year, will also have a $10,000 salvage value. Use the present value table in
Exercise 10 to determine the net present value of the investment. Should the company invest in the new
piece of equipment if it requires a 15% rate of return?
17. Bass Corporation requires a 10% rate of return for all investments. Management is considering a
project that will initially cost $75,000. The company expects to generate $12,000 of revenue in the first
year, $25,000 in the second year, and $20,000 for the last two years of the project. Use the table in
Exercise 10 to calculate the net present value of the project and determine if the company should make
the investment.
18. Calculate the present value index of Project 1 (information in Exercise 17) for Bass Corporation,
rounding answer to two decimal places. If Project 2 has a present value index of 1.15, in which project
should the company invest?
23. Using the table in Exercise 10, calculate the net present value for each project shown below at the
end of six years and determine which would be the better decision for Mike’s Camping Supply. Assume
that Project 1 can be sold for $15,000 at the end of the sixth year.
Cost
Minimum desired rate of return
Expected useful life
Yearly cash flows to be received:
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Project 1
$160,000
12%
7 years
$ 40,000
44,000
41,000
42,000
45,000
63,000
Project
Cost
$150,000
Minimum desired rate of return
12%
Expected useful life
6 years
Yearly cash flows to be received:
Year 1
$ 40,000
Year 2
42,000
Year 3
46,000
Year 4
41,000
Year 5
45,000
Year 6
47,500