ACCT 611 – Managerial Accounting Name _____________________________
Final Examination
Due Thursday, May 5, 2022
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.
