Accounting

ACCT 611 – Managerial Accounting Name _____________________________

Final Examination

 

 

 

 

1. DRC Incorporated is preparing its cash budget for December. The budgeted beginning cash balance is $23,000. Budgeted cash receipts total $114,000 and budgeted cash disbursements total $89,000. The desired ending cash balance is $65,000. The company can borrow up to $110,000 at any time from a local bank, with interest not due until the following month. (30 points)

 

Required:

Prepare the company’s cash budget for December in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance.

 

2. Arien Diner is a charity supported by donations that provide free meals to the homeless. The diner’s budget for February was based on 4,000 meals, but the diner served 3,400 meals. The diner’s director has provided the following cost formulas to use in budgets: (35 points)

 

  Fixed costs

per month

  Variable cost

per meal

Groceries $ 0     $ 2.20  
Kitchen operations $ 4,100     $ 1.90  
Administrative expenses $ 3,600     $ 0.60  
Fundraising expenses $ 1,100     $ 0.00  

 

 

 

Required:

 

Prepare the diner’s flexible budget for the actual number of meals served in February. The budget will only contain the costs listed above; no revenues will be on the budget.

 

3. Forrest Company reported the following results from last year’s operations: (35 points)

 

  Sales $7,200,000
  Variable expenses 5,210,000
  Contribution margin 1,990,000
  Fixed expenses 1,486,000
  Net operating income $504,000
  Average operating assets $4,000,000

 

 

At the beginning of this year, the company has a $1,200,000 investment opportunity with the following characteristics:

  Sales $1,560,000  
  Contribution margin ratio 30% of sales
  Fixed expenses $343,200  

 

The company’s minimum required rate of return is 14%.

 

 

Required:

 

a. What was last year’s margin? (Round to the nearest 0.1%.)

 

b. What was last year’s turnover? (Round to the nearest 0.01.)

 

c. What was last year’s return on investment (ROI)? (Round to the nearest 0.1%.)

 

d. What is the ROI related to this year’s investment opportunity? (Round to the nearest 0.1%.)

 

e. If Forrest’s chief executive officer earns a bonus only if the ROI for this year exceeds the ROI for last year, would the CEO pursue the investment opportunity?

 

f. Would the owners of the company want the CEO to pursue the investment opportunity?

 

4. HDT Corporation’s management keeps track of the time it takes to process orders. During the most recent month, the following average times (days) were recorded per order: (30 points)

 

Wait time 6.2

Inspection time 2.4

Process time 3.7

Move time 2.3

Queue time 3.7

 

 

Required:

 

a. Compute the throughput time.

 

b. Compute the manufacturing cycle efficiency (MCE).

 

c. What percentage of the production time is spent in non-value-added activities?

 

d. Compute the delivery cycle time.

 

5. Felicity Company currently buys 50,000 units of a part used to manufacture its product at $200 per unit. Recently the supplier informed Wildcat Company that a 20 percent increase will take effect next year. Wildcat has some additional space and could produce the units for the following per-unit costs (based on 50,000 units): (35 points)

 

Direct materials $72
Direct labor 68
Variable overhead 60
Fixed overhead  52
Total $252

 

 

If the units are purchased from the supplier, Felicity would continue to incur $700,000 of fixed costs.

 

Required:

a. Should Felicity Company buy the parts externally or make them internally? Prepare differential analysis to support your decision.

 

b. Should Felicity Company buy the parts externally or make them internally, assuming that they can rent the plant for $350,000 per year to Alpha Corporation when the parts are purchased externally? Prepare differential analysis to support your decision.

 

6. Fatima Corporation has the following information about the purchase of a new piece of equipment: (35 points)

 

Cash revenues less cash expenses $40,000 per year

Cost of equipment $70,000

Salvage value at the end of the 6th year $7,000

Increase in working capital requirements $30,000

Tax rate 30 percent

Life 6 years

 

The cost of capital is 11 percent.

 

Required:

a. Calculate the following assuming straight-line depreciation:

 

i. Calculate the after-tax net income for each of the six years.

ii. Calculate the after-tax cash flows for each of the six years.

iii. Calculate the after-tax payback period.

iv. Calculate the accrual accounting rate of return on original investment for each of the six years.

v. Calculate the net present value (NPV).

vi. Calculate the internal rate of return (IRR).

 

b. Calculate the following assuming that depreciation expense is $18,000, $15,000, $12,000, $9,000, $6,000 and $3,000 for years 1 through 6, respectively:

i. Calculate the after-tax cash flows for each of the six years.

ii. Calculate the after-tax payback period.

iii. Calculate the net present value (NPV).

iv. Calculate the internal rate of return (IRR).

 

Bonus question (15 points)

Information from the records of the Freya Corporation for the month of April 2019 is as follows:

 

Direct materials inventory, beginning $25,000

Direct materials inventory, ending 28,000

Direct labor 45,000

Direct material purchases 58,000

Factory wages 18,000

Finished goods inventory, beginning 25,000

Finished goods inventory, ending 22,000

Indirect materials 11,000

Rent on factory building 23,000

Sales 220,000

Selling and administrative expenses 21,000

Utilities in the factory 12,000

WIP inventory, beginning 7,000

WIP inventory, ending 15,000

 

Assume a tax rate of 30 percent.

 

Required:

a. Calculate direct materials used for April.

b. Calculate the cost of goods manufactured for April.

c. Calculate gross profit for April.

d. Calculate after-tax net income for April.

e. Calculate prime costs for April.

f Calculate conversion costs for April.

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