(TCO 7) The cash budget is one of the primary financial budgets. Discuss the importance of the cash budget. Identify the individual sections of the cash budget and the information included in each section. (Points : 20)

TCO 9) Understanding how costs behave can help managers plan operations and choose between various courses of action.

Part (a): Identify and describe the three types of cost behavior, including examples of each. Part (b): As a manager, which cost behavior would you prefer and why? (Points : 20)

(TCO 6) Savanna Company is considering two capital investment proposals. Relevant data on each project are as follows.

Project Red

Project Blue

Capital investment

$400,000

$560,000

Annual net income

$50,000

$80,000

Annual cash flows

$100,000

$150,000

Estimated useful life

8 years

8 years

Savanna requires an 8% rate of return on all new investments.

Part (a): Compute the payback period for each project. Part (b): Compute the net present value for each project. Part (c): Compute the accounting rate of return for each project. Part (d): Which project should Savanna select?

(Points : 30)

(TCO 7) Farris Co.’s projected sales are as follows.

August

$240,000

September

$270,000

October

$330,000

Farris estimates that it will collect 30% in the month of sale, 50% in the month after the sale, and 18% in the second month following the sale. Two percent of all sales are estimated to be bad debts. How much are Farris Co.’s budgeted cash receipts for October? (Points : 30)

. (TCO 8) Eastern Company’s budgeted and actual sales for 2009 were as follows.

Product

Budgeted Sales

Actual Sales

A

35,300 units at $2.00 per unit

32,700 units at $2.60 per unit

B

27,900 units at $5.00 per unit

29,200 units at $4.70 per unit

Part (a): Calculate the sales volume variance. Part (b): Calculate the sales price variance. Part (c): Calculate the total sales variance. (Points : 30)

(TCO 9) Herbart Company gathered the following information on power costs and factory machine usage for the last 6 months.

Power Cost

Factory Machine Hours

January

$24,400

13,900

February

30,300

17,600

March

29,000

16,800

April

22,340

13,200

May

19,900

11,600

June

14,900

6,600

Using the high-low method of analyzing costs, answer the following questions and show computations to support your answers.

Part (a): What is the estimated variable portion of power costs per factory machine hour? Part (b): What is the estimated fixed power cost each month? Part (c): If it is estimated that 10,000 factory machine hours will be run in July, what is the expected total power cost for July? (Points : 30)

(TCO 1) A common starting point in the budgeting process is _____. (Points : 5) expected future net income past performance to motivate the sales force a clean slate, with no expectations

Question 2.2. (TCO 2) Which of the following is not a quantitative forecasting method? (Points : 5) Moving average model Classical decomposition Delphi method Simple regression

Question 3.3. (TCO 3) Which of the following is not an example of a seasonal variation? (Points : 5) Increased restaurant sales on Fridays and Saturdays Increased retail sales in the fourth quarter Increased sales of jet skis in the summer Increased sales resulting from a special promotion

Question 4.4. (TCO 4) Which of the following statements regarding the risk associated with R & D activities is incorrect? (Points : 5) The amount of time between the R & D activity and the cash flows from the project does not affect risk. Greater risk is associated with creating new products than with improving existing products. Risk increases as the time between the R & D activity and the cash flows from the project increases. Assessing risk is a vital part of research and development.

Question 5.5. (TCO 5) Which of the following is not true of the decision packages used in zero-base budgeting? (Points : 5) Decision packages should include alternative methods of performing the activity. Decision packages may cross functional and organizational lines. Decision packages can be either mutually exclusive or incremental. Decision packages may cover either short-term or long-term periods.

Question 6.6. (TCO 6) The payback period technique _____. (Points : 5) should be used as a final screening tool can be the only basis for the capital budgeting decision is relatively easy to compute and understand considers the expected profitability of a project

Question 7.7. (TCO 6) The accounting rate of return method is based on _____. (Points : 5) income data the time value of money data market values cash flow data

Question 8.8. (TCO 6) A company projects annual cash inflows of $90,000 each year for the next 5 years if it invests $450,000 in new equipment. The equipment has a 5-year life and an estimated salvage value of $150,000. What is the accounting rate of return on this investment? (Points : 5) 6.7% 13.3% 20% 33.3%

Question 9.9. (TCO 6) Bradshaw Inc. is contemplating a capital investment of $85,000. The cash inflows over the project’s 4 years are as follows.

Year

Expected Cash Inflow

1

$18,000

2

$25,000

3

$35,000

4

$20,000

The payback period is _____. (Points : 5) 2.17 years 3.35 years 2.30 years 3.47 years

Question 10.10. (TCO 6) Hyde Inc. is comparing several alternative capital budgeting projects as shown below.

Projects

A

B

C

Initial Investment

$110,000

$90,000

$50,000

Present value of cash inflows

$100,000

$100,000

$60,000

Using the profitability index, rank the projects, starting with the most attractive. (Points : 5) A, C, B A, B, C C, A, B C, B, A

Question 11.11. (TCO 6) A company has a minimum required rate of return of 10%. It is considering investing in a project that costs $210,000 and is expected to generate cash inflows of $85,000 at the end of each year for 4 years. The approximate net present value of this project is _____. (Points : 5) $59,442 $1,387 $65,375 $5,161

Question 12.12. (TCO 7) Which one of the following is not needed in preparing a production budget? (Points : 5) Budgeted unit sales Budgeted raw materials Beginning finished goods units Ending finished goods units

Question 13.13. (TCO 7) If the required materials to be purchased are 18,000 pounds, the production needs are three times the direct materials purchases, and the beginning direct materials are three and a half times the direct materials purchases, what are the desired ending direct materials in pounds? (Points : 5) 45,000 9,000 27,000 18,000

Question 14.14. (TCO 8) A variance that results from expected economic conditions that do not materialize is called what? (Points : 5) Sales variance Planning variance Economic variance Material variance

Question 15.15. (TCO 9) A static budget is appropriate in evaluating a manager’s performance if _____. (Points : 5) actual activity closely approximates the master budget activity actual activity is less than the master budget activity the company prepares reports on an annual basis the company is a not-for-profit organization

Question 16.16. (TCO 9) If the activity level increases 10%, total variable costs will _____. (Points : 5) remain the same increase by more than 10% decrease by less than 10% increase 10%

Question 17.17. (TCO 9) Using the high-low method, what is the fixed cost for the following information?

Month

Miles

Total Cost

January

80,000

$96,000

February

50,000

$80,000

March

70,000

$94,000

April

90,000

$130,000

(Points : 5) $17,500 $36,000 $14,000 $50,000

Question 18.18. (TCO 10) What do you call a budget report that is prepared to report on unusual events that require immediate attention? (Points : 5) Advance report Special report Unique report Progress report