Reference no: EM131041259

Question 1:

Analyze the following common size balance sheets:

	2016	2015
Current Assets
Cash	3%	5%
Accounts receivable	20	18
Inventory	35	30
Total current assets	58	53
Property, plant and equipment	30	40
Other assets	12	7
Total assets	100%	100%
Current Liabilities
Accounts payable	25%	20%
Short-term debt	38	33
Total current liabilities	63	53
Long-term debt	22	17
Total liabilities	85	70
Stockholders' Equity
Common stock	14	20
Retained earnings	1	10
Total stockholders' equity	15	30
Total liabilities and stockholders' equity	100%	100%

Question 2:

Bob's Boots Ltd. manufactures three different products - boots, slippers, and runners. Considerable market demand exists for all models. The following per unit data apply:

Required:

If there is no excess labour capacity, which model(s) should the company produce to maximize profits?

		Boots	Slippers	Runners
Selling price		$150	$20	$85
Direct materials		$100	$8	$40
Direct labor ($20 per hour)		$20	$5	$10
Variable support costs ($4 per machine hour)		$10	$2	$12
Fixed costs		$8	$4	$20
Gross profit		$12	$1	$3

Question 3:

Whyte Trucks Inc. produces large, heavy duty trucks. It is attempting to reduce manufacturing costs. It polled customers with respect to product requirements and obtained the following information:

Category	Importance
Driver comfort	30
Fuel efficiency	50
Safety	20

Whyte identified the following target costs for various truck components:

Function	Target cost
group
Frame	$30,000
Engine	50,000
Body	40,000
Other	80,000

Whyte engineers produced the following quality function deployment matrix:

	Function group
Categories	Frame	Engine	Body	Other
Driver comfort	0.2		0.2	0.6
Fuel efficiency		0.6	0.3	0.1
Safety	0.3	0.1	0.2	0.4

Required:

Determine which function groups are candidates for cost reduction.

Question 4:

Athabasca Country Living Ltd. builds mobile homes. The company is hoping to improve the processing cycle efficiency of its operations by introducing a JIT manufacturing system. It has collected the following information:

Time Category		Traditional System		JIT System
Production		480 minutes		400 minutes
On-site storage		60 minutes		45 minutes
Inspection		30 minutes		15 minutes
Total		570		460	Total
					1030

Required:
a. Should Athabasca Country Living Ltd. introduce the JIT system? Show your calculations.

b. By how much must production time be reduced to make the introduction of the JIT system worthwhile, all other things being equal? Show your calculations.

Question 5:

AudioFile Products Ltd. is a retailer that sells sound systems. The company is planning its cash needs for the month of January, 2017. In the past, AudioFile has had to borrow money during the post-Christmas season to offset a significant decline in sales. The following information has been assembled to assist in preparing a cash flow forecast for January.

a. January 2017 forecasted income statement:

Sales			$200,000
Cost of goods sold			$150,000
Gross profit			$50,000
Variable selling expenses		$10,000
Fixed administrative expenses		$20,000	$30,000
Net income			$20,000

b. Sales are 10% for cash and 90% on credit.

c. Credit sales are collected over a three-month period with 40% collected in the month of sale, 30% in the following month, and 20% in the second month following sale. 10% of credit sales are never collected. November 2016 sales totaled $300,000 and December sales totaled $500,000.

d. 40% of a month's inventory purchases are paid for in the same month. The remaining 60% are paid in the following month. Accounts payable relate solely to inventory purchases. At December 31, accounts payable totaled $400,000.

e. The company maintains its ending inventory levels at 60% of the cost of the merchandise to be sold in the following month. The merchandise inventory at December 31, 2016 was $90,000. February 2017 sales are budgeted at $150,000. Gross profit percentage is expected to remain unchanged.

f. The company pays $10,000 monthly cash dividends to shareholders.

g. The cash balance at December 31, 2016 was $30,000; the company must maintain a cash balance of at least this amount at the end of each month.

h. The company can borrow on its operating loan in increments of $10,000 at the beginning of each month, up to a total loan balance of $500,000. The interest rate on this loan is 1% per month, payable on the first day of the next month. There is no operating loan at December 31, 2016.

Required: Prepare a cash flow forecast for AudioFile for the month of January 2017. Include appropriate supporting schedules.

Question 6:

Sametime Suppliers Ltd. has been using a traditional activity-based costing (ABC) system. It is switching to time-driven activity-based costing. The current system assigns $2,000,000 of committed resource costs in the accounting department. There are 4,000 hours of useful work time available (practical capacity). Based on interviews with accounting personnel, the following information was gathered:

	Time Percentage	Estimated Cost Driver Quantity	Unit Time in Hours
Activity
Processing sales orders	35%	5,000 sales orders	0.2
Processing purchase orders	60%	10,000 purchase orders	0.1
Processing payroll	5%	50 payroll periods	30
	100%

Required:
a. Compute the cost driver rates and the costs assigned to each activity using traditional ABC.
b. Compute the time-driven ABC cost driver rates and the costs assigned to each activity.
c. Draw conclusions from the analyses

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