Reference no: EM131671154

Assignment

You are required to post 1 thread of at least 500 words, and you must post 1 reply of at least 250 words. For each thread, you must support your assertions with at least 2 citations other than the textbook, and the Bible may be 1 of those sources. Everything must be in current APA format.Outside research for the replies is encouraged but not required. All research must include an in-text citation to give credit to the source of the information.

There are many reasons that the actual numbers at the end of a period may be different that the budgeted amounts. An organization will rarely have the same amount for the actual and budgeted costs. This is because the actual amount of activity will rarely be the same as the budgeted amounts. While you can still project the amount of activity to a certain extent through techniques such as calculating the projected cash flow for a seasonal business (Kearns 2017), if activity is more than that in the budget, the variable costs would be higher. In turn, if the activity is less than expected, the variable costs will be lower than the budget predicts they will be (Garrison, Noreen, & Brewer (2018), Page 414). There are also many unforeseeable events that happen in business both controllable and uncontrollable that can change the actual versus the budgeted.

The first of the variables that can change the actual versus budgeted amount is a change in level of activities. For example, a company budgets for a year and has higher cost results than budgeted at the beginning of the year. Higher level of activity such as more customers buying more product or using a service could be the reason of this, as fixed costs would not change (Garrison, Noreen, & Brewer (2018), Page 418). Another variable that would change the actual versus budgeted amount is a change in prices, such as a raise in the cost to produce units or the selling price of a unit. This would affect the numbers from the budgeted amount if it was not foreseen. Extreme situations that would be out of the company's control would be an event such as a natural disaster. If company property was damaged from a hurricane or tornado and needed to be replaced, this would affect the budget.

A business move decided towards the end of a period that could be controlled by the company could also affect the budget. An example of this is if a company purchases a product half way through the year from an individual who is the sole distributer of an area for that product In return, the company pays 25% of the gross profit they earn to the individual at the end of the year. The business move the company could make is to purchase a large sum of extra product at the end of the year. This would make it so the company would stock up on product for the next year. The money they spend on product would take away from the gross profit so they would not need to pay as much to the individual. This would put the company ahead of the curve next year but over the budget this year, but in turn benefiting the company. However, there is an ethical issue with this as it would be taking advantage of the individual who sold them the product in the first place. This would be wrong as the Bible says, "Unequal weights are an abomination to the Lord, and false scales are not good" (Proverbs 20:23, ESV).

References

Garrison, R. H., Noreen, E., & Brewer, P. C. (2018). Managerial Accounting Custom Package (16th ed.). New York: McGraw-Hill.

Kearns. Suzanne. (2017). How to Manage Cash Flow in a Seasonal Business. QuickBooks Resource Center.

Proverbs 20:23, ESV

For this collaborative discussion board, the instructor will place you into a group at the beginning of the course. You will create a thread in response to the provided prompt for each forum. Each thread must be at least 500 words and demonstrate course-related knowledge. You must support your assertions with at least 2 citations other than the textbooks; the Bible may be 1 of those sources. The composition must be attached as a word document within a new thread of the forum. Put the chapter and case in the subject line of your thread, as in "Chapter 1 Case 1-1." In addition to the thread, the student will reply to the thread of at least 1 classmate. The reply must be at least 250 words. Citations for the replies are not required, but are encouraged. Everything must be in current APA format.

Note: Due to constant updates and revisions, you must always consult the most current style guide in completing citations and formatting. The sample provided is the work of a student and must not be used as an official sample.

Judgment Case 6-5

This is a futile attempt to provide the required information on the judgment case. I can finally say, "That just may not happen."

Hughes Corporation is considering replacing a machine used in the manufacturing process with a new, more efficient model. The purchase price of the new machine is $150,000 and the old machine can be sold for $100,000. The output of two machines for the next five years are identical. However, the annual operating costs of the old machine are $18,000 compared to $10,000 for the new machine. In addition, the new machine has a salvage value of $25,000, but the old machine will be worthless at the end of the five year period.

Information is not given on whether the company wants to purchase the equipment in cash or on credit terms. In contrast, and 8% interest rate properly reflects the time value of money. It seems that more information is needed regarding the purchase method and on the financial stability of the corporation. Assuming that the corporation is not comfortable enough to consider purchasing the new machine in a single payment of cash, I will provide a time frame of five years with an ordinary annuity situation where 8% properly reflects the time value of money.

Given the prices of the new and old machines- the purchase price of $150,000 and the sale price of $100,000- and the operating costs for the new and old machine being $10,000 annually and $18,000 annually, I think it is reasonable to purchase the newer model machine because it would yield a financial benefit in the end of its useful life. In five years, total operating costs for the new machine would be $50,000 compared to the old machine which yields total operating costs of $90,000. That is a $40,000 difference in fixed operating cost. Additionally, the old machine would not have a salvage value, but the new machine would have a salvage value of $25,000. The salvage value of the newer machine immediately presents a $15,000 benefit from the gain on sale of equipment at the end of its useful life.

The $150,000 divided in annuity payments of $30,000 per year, what would be the dollar amount of interest earned? I think that the answer would be $30,218.70. That would make the present value of the new machine $119,781.30. I used the Present Value of an Ordinary Annuity (PVA) chart to attempt this question. The reason I chose this chart is because the purchase price of the newer machine is spread in across a five year period as annuities, and that the amounts were due at the end of the month. Annuities that are due at the end of the month are classified as ordinary annuities (Spiceland, 2017). Combining the information helped me to determine that the PVA chart was to be used.

References

Spiceland, J. D., Nelson, M., & Thomas, W. (2017). Intermediate accounting. Dubuque: McGraw-Hill Education.