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Prepare a flexible budget gator divers
Course:- Science
Reference No.:- EM13264




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EXERCISE: Prepare a Flexible Budget Gator Divers is a company that provides diving services such as underwater ship repairs to clients in the Tampa Bay area. The company's planning budget for March appears below:

Gator Divers Planning Budget For the Month Ended March 31 Budgeted diving-hours ( q ) . . . . . . . . . . . . . . . . . . . . .   200

Revenue ($380.00 q ). . . . . . . . . . . . . . . . . . . . . . . . . . $76,000

Expenses: Wages and salaries ($12,000  +  $130.00 q )  . . . . . . 38,000

Supplies ($5.00 q )  . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000

Equipment rental ($2,500  +  $26.00 q ) . . . . . . . . . . 7,700

Insurance ($4,200)  . . . . . . . . . . . . . . . . . . . . . . . . .   4,200

Miscellaneous ($540  +  $1.50 q )  . . . . . . . . . . . . . . .  840

Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  51,740

Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . $24,260

Required:  During March, the company's activity was actually 190 diving-hours. Prepare a flexible budget for that level of activity.

EXERCISE: Prepare a Report Showing Activity Variances Air Meals is a company that prepares in-flight meals for airlines in its kitchen located next to the local airport. The company's planning budget for December appears below:

Air Meals Planning Budget For the Month Ended December 31 Budgeted meals ( q ). . . . . . . . . . . . . . . . . . . . . . . . . 20,000

Revenue ($3.80 q ). . . . . . . . . . . . . . . . . . . . . . . . . . . . $76,000

Expenses: Raw materials ($2.30 q ) . . . . . . . . . . . . . . . . . . . . . . 46,000

Wages and salaries ($6,400  +  $0.25 q ). . . . . . . . . . 11,400

Utilities ($2,100  +  $0.05 q ). . . . . . . . . . . . . . . . . . . .   3,100

Facility rent ($3,800) . . . . . . . . . . . . . . . . . . . . . . . . 3,800

Insurance ($2,600). . . . . . . . . . . . . . . . . . . . . . . . . . 2,600

Miscellaneous ($700  +  $0.10 q ). . . . . . . . . . . . . . . . 2,700

Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,600

Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . $   6,400

In December, 21,000 meals were actually served. The company's flexible budget for this level of activity is as follows:

Air Meals Flexible Budget For the Month Ended December 31 Budgeted meals ( q )  . . . . . . . . . . . . . . . . . . . . . . 21,000

Revenue ($3.80 q ) . . . . . . . . . . . . . . . . . . . . . . . $79,800

Expenses: Raw materials ($2.30 q ). . . . . . . . . . . . . . . . . 48,300

Wages and salaries ($6,400  +  $0.25 q ) . . . . 11,650

Utilities ($2,100  +  $0.05 q ) . . . . . . . . . . . . . .  3,150

Facility rent ($3,800) . . . . . . . . . . . . . . . . . . .  3,800

Insurance ($2,600)  . . . . . . . . . . . . . . . . . . . .  2,600

Miscellaneous ($700  +  $0.10 q )  . . . . . . . . . .  2,800

Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . 72,300

Net operating income . . . . . . . . . . . . . . . . . . . . $ 7,500

Required:

1. Prepare a report showing the company's activity variances for December.    

2. Which of the activity variances should be of concern to management? Explain.      

EXERCISE: Prepare a Report Showing Revenue and Spending Variances Olympia Bivalve farms and sells oysters in the Pacific Northwest. The company harvested and sold 7,000 pounds of oysters in July. The company's flexible budget for July appears below:

Olympia Bivalve Flexible Budget For the Month Ended July 31 Actual pounds ( q ). . . . . . . . . . . . . . . . . . . . . . . 7,000

Revenue ($4.20 q ). . . . . . . . . . . . . . . . . . . . . . . $29,400

Expenses: Packing supplies ($0.40 q ) . . . . . . . . . . . . . . .  2,800

Oyster bed maintenance ($3,600)  . . . . . . . . .  3,600

Wages and salaries ($2,540  +  $0.50 q )  . . . .  6,040

Shipping ($0.75 q ) . . . . . . . . . . . . . . . . . . . . .  5,250

Utilities ($1,260)  . . . . . . . . . . . . . . . . . . . . . . 1,260

Other ($510  +  $0.05 q )  . . . . . . . . . . . . . . . . .       860

Total expense . . . . . . . . . . . . . . . . . . . . . . . . . .   19,810

Net operating income . . . . . . . . . . . . . . . . . . . . $  9,590

The actual results for July appear below:

Olympia Bivalve Income Statement For the Month Ended July 31 Actual pounds . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,600

Expenses: Packing supplies. . . . . . . . . . . . . . . . . . . . . . 2,970

Oyster bed maintenance. . . . . . . . . . . . . . . . 3,460

Wages and salaries. . . . . . . . . . . . . . . . . . . . 6,450

Shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,980

Utilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,070

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,480

Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . 20,410 Net operating income . . . . . . . . . . . . . . . . . . . . $ 8,190

Required:  Prepare a report showing the company's revenue and spending variances for July.    

EXERCISE: Prepare a Flexible Budget Performance Report Mt. Hood Air offers scenic overflights of Mt. Hood and the Columbia River gorge. Data concerning the company's operations in August appear below:

Mt. Hood Air Operating Data For the Month Ended August 31 Planning Budget Flexible Budget Actual Results Flights ( q ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    50   52   52

Revenue ($360.00 q ). . . . . . . . . . . . . . . . . . . . . . . $18,000 $18,720 $16,980

Expenses: Wages and salaries ($3,800  +  $92.00 q )  . . . . .   8,400  8,584  8,540

Fuel ($34.00 q ) . . . . . . . . . . . . . . . . . . . . . . . . . .  1,700  1,768  1,930

Airport fees ($870  +  $35.00 q ) . . . . . . . . . . . . .  2,620  2,690  2,690

Aircraft depreciation ($11.00 q ) . . . . . . . . . . . . . .       550  572  572

Office expenses ($230  +  $1.00 q ) . . . . . . . . . . .       280       282  450

Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13,550  13,896  14,182

Net operating income . . . . . . . . . . . . . . . . . . . . . .   $  4,450   $  4,824      $ 2,79

The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount.  

Required:    

1. Prepare a flexible budget performance report for August.    

2. Which of the variances should be of concern to management? Explain.

EXERCISE: Payback Method The management of Weimar, Inc., a civil engineering design company, is considering an investment in a high-quality blueprint printer with the following cash flows:

Year  Investment Cash Inflow

1  . . . . . . . $38,000 $2,000

2  . . . . . . . $6,000 $4,000

3  . . . . . . .  $8,000

4  . . . . . . .  $9,000

5  . . . . . . .  $12,000

6  . . . . . . .  $10,000

7  . . . . . . .  $8,000

8  . . . . . . .  $6,000

9  . . . . . . .  $5,000

10  . . . . . . .  $5,000

Required:    

1. Determine the payback period of the investment.    

2. Would the payback period be affected if the cash inflow in the last year were several times larger?

EXERCISE: Comparison of Projects Using Net Present Value Sharp Company has $15,000 to invest.

The company is trying to decide between two alternative uses of the funds as follows: 

Invest in Invest in  Project A Project B Investment required . . . . . . . . . . . . . . . . . . . . $15,000  $15,000

Annual cash inflows . . . . . . . . . . . . . . . . . . . . $4,000 $0

Single cash inflow at the end of 10 y ears  . . . .  $60,000

Life of the project  . . . . . . . . . . . . . . . . . . . . . . 10 years 10 years Sharp Company uses a 16% discount rate.  

Required:  (Ignore income taxes.) Which investment would you recommend that the company accept? Show all computations using net present value. Prepare separate computations for each investment.

EXERCISE: Net Present Value Analysis of Two Alternatives Wriston Company has $300,000 to invest. The company is trying to decide between two alternative uses of the funds.

The alternatives are as follows: 

A B Cost of equipment required  . . . . . . . . . . . .  $300,000 $0

Working capital investment required  . . . . .  $0 $300,000

Annual cash inflows . . . . . . . . . . . . . . . . . .  $80,000 $60,000

Salvage value of equipment in seven years  $20,000 $0

Life of the project  . . . . . . . . . . . . . . . . . . . .  7 years 7 years

The working capital needed for project B will be released for investment elsewhere at the end of seven years. Wriston Company uses a 20% discount rate.

Required: (Ignore income taxes.) Which investment alternative (if either) would you recommend that the company accept? Show all computations using the net present value format. Prepare separate computations for each project.

EXERCISE: Prepare a Statement of Cash Flows; Free Cash Flow Comparative financial statement data for Holly Company are given below:

December31 This Year Last Year Assets Cash  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 4 $ 7

Accounts receivable  . . . . . . . . . . . . . . . . . . . . . . .  36 29

Inventory  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      75 61

Total current assets  . . . . . . . . . . . . . . . . . . . . . . . .    115 97

Property, plant, and equipment  . . . . . . . . . . . . . . .  210 180 

Less accumulated depreciation  . . . . . . . . . . . . .      40 30

Net property, plant, and equipment  . . . . . . . . . . . .    170 150

Total assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $285 $247

Liabilities and Stockholders' Equity Accounts payable  . . . . . . . . . . . . . . . . . . . . . . . . .  $  45 $  39

Common stock  . . . . . . . . . . . . . . . . . . . . . . . . . . .  90 70

Retained earnings  . . . . . . . . . . . . . . . . . . . . . . . . .    150   138

Total liabilities and stockholders' equity . . . . . . . . .  $285 $247

For this year, the company reported net income as follows:

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cost of goods sold . . . . . . . . . . . . . . . . . . . . .

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . .

Selling and administrative expenses . . . . . . .

Net income  . . . . . . . . . . . . . . . . . . . . . . . . . . .

This year Holly declared and paid a cash dividend. There were no sales of plant and equipment during this year. The company did not repurchase any of its own stock this year. Required: 1. 2. Using the indirect method, prepare a statement of cash flows for this year. Compute Holly's free cash flow for this year.

PROBLEM: Prepare a Statement of Cash Flows A comparative balance sheet and income statement for Eaton Company follow:

Eaton Company Comparative Balance Sheet December 31, 2011 and 2010 2011 2010

Assets Cash  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4 $ 11

Accounts receivable  . . . . . . . . . . . . . . . . . .  310 230

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . .  160 195

Prepaid expenses  . . . . . . . . . . . . . . . . . . . .        8       6

Total current assets  . . . . . . . . . . . . . . . . . . .    482   442

Property, plant, and equipment  . . . . . . . . . .  500 420 

Less accumulated depreciation  . . . . . . . .      85     70

Net property, plant, and equipment  . . . . . . .    415   350

Long-term investments  . . . . . . . . . . . . . . . .      31     38

Total assets . . . . . . . . . . . . . . . . . . . . . . . . .  $928 $830

Liabilities and Stockholders' Equity Accounts payable  . . . . . . . . . . . . . . . . . . . . $300 $225

Accrued liabilities  . . . . . . . . . . . . . . . . . . . .  70 80

Income taxes payable . . . . . . . . . . . . . . . . .      71     63

Total current liabilities  . . . . . . . . . . . . . . . . .  441 368

Bonds payable  . . . . . . . . . . . . . . . . . . . . . .    195   170

Total liabilities  . . . . . . . . . . . . . . . . . . . . . . .    636   538

Common stock  . . . . . . . . . . . . . . . . . . . . . .  160 200

Retained earnings . . . . . . . . . . . . . . . . . . . .    132     92

Total stockholders' equity  . . . . . . . . . . . . . .    292   292

Total liabilities and stockholders' equity  . . . . $928 $830

During 2011, Eaton sold some equipment for $18 that had cost $30 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $12 that had cost $7 when purchased several years ago. A cash dividend was paid during 2011 and the company, repurchased $40 of its own stock. Eaton did not retire any bonds during 2011.

Required: 1.Using the indirect method, determine the net cash provided by operating activities for 2011. 2.Using the information in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for 2011.

PROBLEM: Common-Size Statements and Financial Ratios for Creditors Modern Building Supply sells various building materials to retail outlets. The company has just approached Linden State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing short-term obligations. The company's financial statements for the most recent two years follow:

Modern Building Supply Comparative Balance Sheet This Year Last Year Assets Current assets: 

Cash  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $     90,000 $   200,000 

Marketable securities  . . . . . . . . . . . . . . . . 0 50,000 

Accounts receivable, net  . . . . . . . . . . . . . . 650,000 400,000 

Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . 1,300,000 800,000 

Prepaid expenses . . . . . . . . . . . . . . . . . . .        20,000        20,000

Total current assets  . . . . . . . . . . . . . . . . . . . 2,060,000 1,470,000

Plant and equipment, net  . . . . . . . . . . . . . . .   1,940,000   1,830,000

Total assets  . . . . . . . . . . . . . . . . . . . . . . . . . $4,000,000 $3,300,000

Liabilities and Stockholders' Equity Liabilities: 

Current liabilities . . . . . . . . . . . . . . . . . . . . $1,100,000 $   600,000 

Bonds payable, 12% . . . . . . . . . . . . . . . . .      750,000      750,000

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . .   1,850,000   1,350,000

Stockholders' equity:  Preferred stock, $50 par, 8% . . . . . . . . . . . 200,000 200,000 

Common stock, $10 par  . . . . . . . . . . . . . . 500,000 500,000 

Retained earnings. . . . . . . . . . . . . . . . . . .   1,450,000   1,250,000

Total stockholders' equity  . . . . . . . . . . . . . . .   2,150,000   1,950,000

Total liabilities and stockholder's equity  . . . . $4,000,000 $3,300,000

Modern Building Supply Comparative Income Statement and Reconciliation

This Year Last Year Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,000,000 $6,000,000

Cost of goods sold . . . . . . . . . . . . . . . . . . . .   5,400,000   4,800,000

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . 1,600,000 1,200,000

Selling and administrative expenses . . . . . .      970,000      710,000

Net operating income  . . . . . . . . . . . . . . . . . . 630,000 490,000

Interest expense  . . . . . . . . . . . . . . . . . . . . . .        90,000        90,000

Net income before taxes . . . . . . . . . . . . . . . . 540,000 400,000

Income taxes (40%) . . . . . . . . . . . . . . . . . . .      216,000      160,000

Net income  . . . . . . . . . . . . . . . . . . . . . . . . . .      324,000      240,000

Dividends paid: Preferred dividends  . . . . . . . . . . . . . . . . . . 16,000 16,000

Common dividends  . . . . . . . . . . . . . . . . . .      108,000        60,000

Total dividends paid . . . . . . . . . . . . . . . . . . .      124,000        76,000

Net income retained  . . . . . . . . . . . . . . . . . . . 200,000 164,000

Retained earnings, beginning of year  . . . . . .   1,250,000   1,086,000

Retained earnings, end of year  . . . . . . . . . . $1,450,000 $1,250,000

During the past year, the company has expanded the number of lines that it carries in order to stimulate sales and increase profits. It has also moved aggressively to acquire new customers. Sales terms are 2/10, n/30. All sales are on account. Assume that the following ratios are typical of companies in the building supply industry: Current ratio . . . . . . . . . . . . . . . . .  Acid-test ratio . . . . . . . . . . . . . . . .  Average collection period  . . . . . . .  Average sale period  . . . . . . . . . . .  Debt-to-equity ratio . . . . . . . . . . . .  2.5 1.2 18 days 50 days 0.75 Times interest earned . . . . . . . . . .  6. 0 Return on total assets  . . . . . . . . .  10% Price-earnings ratio  . . . . . . . . . . .  9

Required: Linden State Bank is uncertain whether the loan should be made. To assist it in making a decision, you have been asked to compute the following amounts and ratios for both this year and last year: a. Working capital.       b. Current ratio.      C. Acid-test ratio.  D. Average collection period. (The accounts receivable at the beginning of last year totaled $350,000.)     e. Average sale period. (The inventory at the beginning of last year totaled $720,000.)  f. Debt-to-equity ratio.  G. Times interest earned

PROBLEM: Financial Ratios for Common Stockholders Refer to the financial statements and other data in  Problem 15-11 . Assume that you have just inherited several hundred shares of Modern Building Supply stock. Not being acquainted with the company, you decide to do some analytical work before making a decision about whether to retain or sell the stock you have inherited.

Required: 1. You decide first to assess the well-being of the common stockholders. For both this year and last year, compute the following:     a .The earnings per share.B. The dividend yield ratio for common stock.The company's common stock is currently selling for $45 per share; last year it sold for $36 per share.  C. The dividend payout ratio for common stock.  D. The price-earnings ratio. How do investors regard Modern Building Supply as compared to other companies in the industry? Explain.  E. The book value per share of common stock. Does the difference between market value and book value suggest that the stock at its current price is too high? Explain

2.You decide next to assess the company's rate of return. Compute the following for both this year and last year: a. The return on total assets. (Total assets at the beginning of last year were $2,700,000.) 

b. The return on common stockholders' equity. (Stockholders' equity at the beginning of last year was $1,786,000.)




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