The budgeted unit sales of Haerve Company for the upcoming fiscal year

The budgeted unit sales of Haerve Company for the upcoming fiscal year are provided below:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted unit sales 12,000         14,000         11,000         10,000

The company’s variable selling and administrative expense per unit is $2.75.  Fixed selling and Administrative expenses include advertising expenses of $12,000 per quarter, executive salaries of $40,000 per quarter, and depreciation of $16,000 per quarter.  In addition, the company will make insurance payments of $6,000 in the 2nd Quarter and $6,000 in the 4th Quarter.  Finally, property taxes of $6,000 will be paid in the 3rd Quarter.

Required: 
Prepare the company’s selling and administrative expense budget for the upcoming fiscal year.   

Here’s the SOLUTION

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The Production Department of the Riverside Plant of Junnen Corporation has submitted

The Production Department of the Riverside Plant of Junnen Corporation has submitted the following forecast of units to be produced at the plant for each quarter of the upcoming fiscal year.  The plant produces high-end outdoor barbecue grills.

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units to be produced  5,000         4,400         4,500         4,900

Each unit requires 0.40 direct labor hours and direct labor workers are paid $11 per hour.

Required:       
1. Construct the company’s direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced.
2. Construct the company’s direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is not adjusted each quarter.  Instead assume that the company’s direct labor workforce consists of permanent employees who are guaranteed to be paid for at least 1,800 hours of work each quarter.  If the number of required direct labor hours is less than this number, the workers are paid for 1,800 hours anyway.  Any hours worked in excess of 1,800 hours in a quarter are paid at the rate of 1.5 times the normal hourly rate for DL.

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Micro Products, Inc. has developed a very powerful electronic calculator

Micro Products, Inc. has developed a very powerful electronic calculator.  Each calculator requires 3 small “chips” that cost $2 each and are purchased from an overseas supplier.  Micro Products has prepared a production budget for the calculator by quarters for Year 2 and for the first quarter of Year 3, as shown below:

1st Quarter Y2 2nd Quarter Y2 3rd Quarter Y2 4th Quarter Y2 1st Quarter Y3
Budgeted Production (Calculators)     60,000 90,000 150,000 100,000 80,000

The chip used in production of the calculator is sometimes hard to get, so it is necessary to carry large inventories as a precaution against stockout.  For this reason, the inventory of chips at the end of a quarter must be equal to 20% of the following quarter’s production needs.  Some 36,000 chips will be on hand to start the first quarter of Year 2.

Required:        

Prepare a direct materials budget for chips, by quarter and in total, for Year 2.  At the bottom of your budget,show the dollar amount of purchases for each quarter and for the year in totals. 

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Manager Chris Channing of Fabric Mills, Inc., has developed the forecast

Manager Chris Channing of Fabric Mills, Inc., has developed the forecast shown in the table for bolts of cloth. The figures are in hundreds of bolts. The department has a normal capacity of 275(00) bolts per month, except for the seventh month, when capacity will be 250(00) bolts. Normal output has a cost of $40 per hundred bolts. Workers can be assigned to other jobs if production is less than normal. The beginning inventory is zero bolts.

Month    1    2    3    4    5    6    7    Total
Forecast    250    300    250    300    280    275    270    1,925

a. Develop a chase plan that matches the forecast and compute the total cost of your plan. Overtime is $60 per hundred bolts. (Negative amounts should be indicated by a minus sign. Leave no cells blank – be certain to enter “0″ wherever required. Omit the “$” sign in your response.)

b. Would the total cost be less with regular production with no overtime, but using a subcontractor to  handle the excess above normal capacity at a cost of $50 per hundred bolts? Backlogs are not allowed. The inventory carrying cost is $2 per hundred bolts. (Round your Average values to 1 decimal place. Negative amounts should be indicated by a minus sign. Leave no cells blank – be certain to enter “0″ wherever required. Omit the “$” sign in your response.)

Here’s the SOLUTION

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Wormwood, Ltd., produces a variety of furniture products

Wormwood, Ltd., produces a variety of furniture products. The planning committee wants to prepare an aggregate plan for the next six months using the following information:

MONTH
1    2    3    4    5    6
Demand    160    150    160    180    170    140
Capacity
Regular    150    150    150    150    160    160
Overtime    10    10    0    10    10    10

Cost Per Unit
Regular   time    $50
Overtime    75
Subcontract    80
Inventory, per period    4  


Subcontracting can handle a maximum of 10 units per month. Beginning inventory is zero. Develop a plan that minimizes total cost. No back orders are allowed. (Negative amounts should be indicated by a minus sign. Leave no cells blank – be certain to enter “0″ wherever required. Omit the “$” sign in your response.)

Here’s the SOLUTION

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Manager T. C. Downs of Plum Engines, a producer of lawn mowers and leaf blowers

Manager T. C. Downs of Plum Engines, a producer of lawn mowers and leaf blowers, must develop an aggregate plan given the forecast for engine demand shown in the table. The department has a normal capacity of 130 engines per month. Normal output has a cost of $60 per engine. The beginning inventory is zero engines. Overtime has a cost of $90 per engine.

Month
1    2    3    4    5    6    7    8    Total
Forecast    120    135    140    120    125    125    140    135    1,040

a. Develop a chase plan that matches the forecast and compute the total cost of your plan. (Negative amounts should be indicated by a minus sign. Leave no cells blank – be certain to enter “0″ wherever required. Omit the “$” sign in your response.)

b. Compare the costs to a level plan that uses inventory to absorb fluctuations. Inventory carrying cost is
$2 per engine per month. Backlog cost is $90 per engine per month. (Negative amounts should be indicated by a minus sign. Leave no cells blank – be certain to enter “0″ wherever required. Omit the “$” sign in your response.)

Here’s the SOLUTION

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A fast-growing firm recently paid a dividend of $0.40 per share

Variable Growth

A fast-growing firm recently paid a dividend of $0.40 per share. The dividend is expected to increase at a 25 percent rate for the next four years.  Afterwards, a more stable 11 percent growth rate can be assumed. If a 12.5 percent discount rate is appropriate for this stock, what is its value? 

Here’s the SOLUTION

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A firm recently paid a $0.60 annual dividend

Value of Future Cash Flows

A firm recently paid a $0.60 annual dividend.  The dividend is expected to increase by 12 percent in each of the next four years.  In the fourth year, the stock price is expected to be $110. If the required return for this stock is 14.5 percent, what is its current value?

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New York Times Co. (NYT) recently earned a profit of $1.21 per share

P/E Ratio Model and Future Price

New York Times Co. (NYT) recently earned a profit of $1.21 per share and has a P/E ratio of 19.59.  The dividend has been growing at a 7.25 percent rate over the past six years. If this growth rate continues, what would be the stock price in five years if the P/E ratio remained unchanged?  What would the price be if the P/E ratio increased to 22 in five years? 

Here’s the SOLUTION

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BusServ.com Corporation provides business-to-business services

Effects of Changes in Sales, Expenses, and Assets on ROI
BusServ.com Corporation provides business-to-business services on the Internet. Data concerning the most recent year appear below:
Sales ………………………………………………….    $8,000,000
Net operating income ……………………….        $800,000
Average operating assets ………………….     $3,200,000

Required:
Consider each question below independently.  Carry out all computations to two decimal places.
Compute the company’s return on investment (ROI).
The entrepreneur who founded the company is convinced that sales will increase next year by 150% and that net operating income will increase by 400%, with no increase in average operating assets.  What would the company’s ROI?
The Chief Financial Officer of the company believes a more realistic scenario would be a $2 million increase in sales, requiring an $800,000 increase in average operating assets, with a resulting $250,000 increase in net operating income.  What would be the company’s ROI in this scenario?

Here’s the SOLUTION

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