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2.(TCO G) – (Ignore income taxes in this problem.) Axillar Beauty Products Corporation is considering the production of a new conditioning shampoo that will require the purchase of new mixing machinery. The machinery will cost $375,000, is expected to have a useful life of 10 years, and is expected to have a salvage value of $50,000 at the end of 10 years. The machinery will also need a $35,000 overhaul at the end of Year 6. A $40,000 increase in working capital will be needed for this investment project. The working capital will be released at the end of the 10 years. The new shampoo is expected to generate net cash inflows of $85,000 per year for each of the 10 years. Axillar’s discount rate is 16%.

Required:
(a) What is the net present value of this investment opportunity?
(b) Based on your answer to (a) above, should Axillar go ahead with the new conditioning shampoo? (Points : 35)

1.(TCO C) Bella Lugosi Holdings, Inc. (BLH), has collected the following operating information below for its current month’s activity. Using this information, prepare a flexible budget analysis to determine how well BLH performed in terms of cost control.

Actual Costs Incurred

Static Budget

Activity level (in units)

5,250

5,178

Variable Costs:

Indirect materials

$24,182

$23,476

Utilities

$22,356

$22,674

Fixed Costs:

Administration

$63,450

$65,500

Rent

$65,317

$63,904

(Points : 30)

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COURSE PROJECT A INSTRUCTIONS

You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash.

Since you are well trained in budgeting, you have decided to prepare comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program. To this end, you have worked with accounting and other areas to gather the information assembled below.

The company sells many styles of earrings, but all are sold for the same price—$10 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings):

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The concentration of sales before and during May is due to Mother’s Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month.

Suppliers are paid $4 for a pair of earrings. One-half of a month’s purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a month’s sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

Monthly operating expenses for the company are given below:

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Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter.

A listing of the company’s ledger accounts as of March 31 is given below:

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The company maintains a minimum cash balance of $50,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.

The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $50,000 in cash.

Required:

Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:

·

1.

o

a. A sales budget, by month and in total.

o

b. A schedule of expected cash collections from sales, by month and in total.

o

c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.

o

d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.

·

2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.

·

3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.

·

4. A budgeted balance sheet as of June 30.

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Page 2

1.(TCO D) Seebach Corporation has two major business segments—Apparel and Accessories. Data concerning those segments for June appear below.

Sales revenues, Apparel

$700,000

Variable expenses, Apparel

$406,000

Traceable fixed expenses, Apparel

$98,000

Sales revenues, Accessories

$710,000

Variable expenses, Accessories

$312,000

Traceable fixed expenses, Accessories

$107,000

Common fixed expenses totaled $292,000 and were allocated as follows: $155,000 to the Apparel business segment and $137,000 to the Accessories business segment.

Required:

Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts.(Points : 15)