Acct 611 Managerial Accounting Name Fin

Acct 611 Managerial Accountingname Fin

Acct 611 – Managerial Accounting Name _____________________________ Final Examination Due Thursday, May 5, . DRC Incorporated is preparing its cash budget for December. The budgeted beginning cash balance is $23,000. Budgeted cash receipts total $114,000 and budgeted cash disbursements total $89,000. The desired ending cash balance is $65,000.

The company can borrow up to $110,000 at any time from a local bank, with interest not due until the following month. (30 points) Required: Prepare the company's cash budget for December in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance. 2. Arien Diner is a charity supported by donations that provide free meals to the homeless. The diner's budget for February was based on 4,000 meals, but the diner served 3,400 meals.

The diner's director has provided the following cost formulas to use in budgets: (35 points) Fixed costs per month Variable cost per meal Groceries $ 0 $ 2.20 Kitchen operations $ 4,100 $ 1.90 Administrative expenses $ 3,600 $ 0.60 Fundraising expenses $ 1,100 $ 0.00 Required: Prepare the diner's flexible budget for the actual number of meals served in February. The budget will only contain the costs listed above; no revenues will be on the budget. 3. Forrest Company reported the following results from last year's operations: (35 points) Sales $7,200,000 Variable expenses 5,210,000 Contribution margin 1,990,000 Fixed expenses 1,486,000 Net operating income $504,000 Average operating assets $4,000,000 At the beginning of this year, the company has a $1,200,000 investment opportunity with the following characteristics: Sales $1,560,000 Contribution margin ratio 30% of sales Fixed expenses $343,200 The company's minimum required rate of return is 14%.

Required: a. What was last year's margin? (Round to the nearest 0.1%.) b. What was last year's turnover? (Round to the nearest 0.01.) c. What was last year's return on investment (ROI)? (Round to the nearest 0.1%.) d. What is the ROI related to this year's investment opportunity? (Round to the nearest 0.1%.) e. If Forrest's chief executive officer earns a bonus only if the ROI for this year exceeds the ROI for last year, would the CEO pursue the investment opportunity? f. Would the owners of the company want the CEO to pursue the investment opportunity? 4. HDT Corporation's management keeps track of the time it takes to process orders. During the most recent month, the following average times (days) were recorded per order: (30 points) Wait time 6.2 Inspection time 2.4 Process time 3.7 Move time 2.3 Queue time 3.7 Required: a. Compute the throughput time. b. Compute the manufacturing cycle efficiency (MCE). c. What percentage of the production time is spent in non-value-added activities? d. Compute the delivery cycle time. 5. Felicity Company currently buys 50,000 units of a part used to manufacture its product at $200 per unit. Recently the supplier informed Wildcat Company that a 20 percent increase will take effect next year. Wildcat has some additional space and could produce the units for the following per-unit costs (based on 50,000 units): (35 points) Direct materials $72 Direct labor 68 Variable overhead 60 Fixed overhead 52 Total $252 If the units are purchased from the supplier, Felicity would continue to incur $700,000 of fixed costs. Required: a. Should Felicity Company buy the parts externally or make them internally? Prepare differential analysis to support your decision. b. Should Felicity Company buy the parts externally or make them internally, assuming that they can rent the plant for $350,000 per year to Alpha Corporation when the parts are purchased externally? Prepare differential analysis to support your decision. 6. Fatima Corporation has the following information about the purchase of a new piece of equipment: (35 points) Cash revenues less cash expenses $40,000 per year Cost of equipment $70,000 Salvage value at the end of the 6th year $7,000 Increase in working capital requirements $30,000 Tax rate 30 percent Life 6 years The cost of capital is 11 percent. Required: a. Calculate the following assuming straight-line depreciation: i. Calculate the after-tax net income for each of the six years. ii. Calculate the after-tax cash flows for each of the six years. iii. Calculate the after-tax payback period. iv. Calculate the accrual accounting rate of return on original investment for each of the six years. v. Calculate the net present value (NPV). vi. Calculate the internal rate of return (IRR). b. Calculate the following assuming that depreciation expense is $18,000, $15,000, $12,000, $9,000, $6,000 and $3,000 for years 1 through 6, respectively: i. Calculate the after-tax cash flows for each of the six years. ii. Calculate the after-tax payback period. iii. Calculate the net present value (NPV). iv. Calculate the internal rate of return (IRR). Bonus question (15 points) Information from the records of the Freya Corporation for the month of April 2019 is as follows: Direct materials inventory, beginning $25,000 Direct materials inventory, ending 28,000 Direct labor 45,000 Direct material purchases 58,000 Factory wages 18,000 Finished goods inventory, beginning 25,000 Finished goods inventory, ending 22,000 Indirect materials 11,000 Rent on factory building 23,000 Utilities in the factory 12,000 WIP inventory, beginning 7,000 WIP inventory, ending 15,000 Assume a tax rate of 30 percent.

Required: a. Calculate direct materials used for April. b. Calculate the cost of goods manufactured for April. c. Calculate gross profit for April. d. Calculate after-tax net income for April. e. Calculate prime costs for April. f Calculate conversion costs for April.

Paper For Above instruction

This comprehensive managerial accounting analysis addresses multiple areas vital to effective financial management and operational decision-making within organizations. The assessment spans from cash budgeting to investment appraisal, cost analysis, process efficiency, and financial statement computation, each constituting crucial facets of managerial accounting that support strategic planning and control.

Cash Budgeting for DRC Incorporated

DRC Incorporated’s cash budget for December requires a detailed forecast of cash inflows and outflows in order to determine if additional borrowing is necessary to meet the intended ending cash balance of $65,000. The beginning cash balance is $23,000, with projected receipts of $114,000 and disbursements amounting to $89,000. The net cash change before financing activities is calculated as the difference between receipts and disbursements: $114,000 - $89,000 = $25,000. Adding this to the beginning cash balance yields a preliminary ending balance of $23,000 + $25,000 = $48,000.

To reach the desired ending cash balance of $65,000, the company needs an additional $17,000. Since the company can borrow up to $110,000, it should borrow $17,000 to meet its target, which will be repaid in the following month. The cash budget would thus show a borrowing of $17,000 during December, leading to an ending cash balance of exactly $65,000.

Flexible Budget for Arien Diner

The flexible budget for February adjusts costs based on actual meal servings, which were 3,400 instead of the original 4,000. Fixed costs remain unchanged, while variable costs fluctuate with the number of meals served. The costs are calculated per the provided formulas:

• Groceries: 3,400 meals × $2.20 = $7,480
• Kitchen operations: $4,100 + (3,400 × $1.90) = $4,100 + $6,460 = $10,560
• Administrative expenses: $3,600 + (3,400 × $0.60) = $3,600 + $2,040 = $5,640
• Fundraising expenses: $1,100 + (3,400 × $0.00) = $1,100 + $0 = $1,100

The total costs for February, based on actual meals served, amount to $7,480 + $10,560 + $5,640 + $1,100 = $24,780. This flexible budget effectively reflects the real operational costs based on actual activity levels, facilitating performance evaluation and cost control.

Analysis of Forrest Company’s Investment and ROI

The financial analysis involves calculating the margin, turnover, ROI for last year, and projected ROI for the new investment opportunity.

• Margin: Last year's contribution margin divided by sales: ($1,990,000 / $7,200,000) × 100 = 27.6%.
• Turnover: Sales divided by average operating assets: $7,200,000 / $4,000,000 = 1.80.
• ROI: Margin × Turnover: 27.6% × 1.80 ≈ 49.7%.

For the new opportunity, with sales of $1,560,000 and a contribution margin ratio of 30%, the contribution margin amounts to $468,000. The ROI is calculated as:

ROI = (Contribution Margin / Investment) × 100 = ($468,000 / $1,200,000) × 100 ≈ 39.0%.

The company's minimum required rate of return is 14%. Since last year's ROI was approximately 49.7%, exceeding the company's minimum, the ROI for the new opportunity at 39.0% also surpasses this threshold, suggesting attractive investment potential.

If the CEO's bonus depends on exceeding last year's ROI, pursuing this opportunity makes sense financially. Similarly, owners interested in maximizing returns should favor the investment given its favorable ROI relative to benchmarks.

Order Processing Times and Cycle Efficiency at HDT Corporation

The average process times lead to calculations of total throughput time and efficiency:

• Throughput time = Wait + Inspection + Processing + Moving + Queue = 6.2 + 2.4 + 3.7 + 2.3 + 3.7 = 18.3 days.
• Manufacturing Cycle Efficiency (MCE) = Value-added time / Throughput time. Value-added time typically includes processing time only, which is 3.7 days. Therefore, MCE = 3.7 / 18.3 ≈ 20.2%.
• The percentage of production time spent in non-value-added activities is the remainder: 100% - 20.2% ≈ 79.8%.
• Delivery cycle time can be approximated by the throughput time, 18.3 days, representing the total elapsed time from order placement to delivery.

Make-or-Buy Analysis for Felicity Company

Current cost of purchasing parts: 50,000 units × $200 = $10,000,000, plus fixed costs of $700,000, totaling $10,700,000.

Now, with a 20% price increase, the purchase cost becomes $240 per unit, totaling $12,000,000.

The internal production cost per unit is $252, including direct materials, labor, variable overhead, and fixed overhead, summing to $12,600,000 for 50,000 units.

Differential analysis compares the additional costs incurred by each alternative. Make involves costs of $12,600,000, while buy involves the $12,000,000 purchase expense plus potential opportunity costs of renting the plant ($350,000), totaling $12,350,000.

Given this, Felicity should produce internally, as the total cost with internal manufacturing ($12,600,000) is higher than external purchase costs plus rental income ($12,350,000). Alternatively, with the rental income, buying becomes more advantageous.

Financial Evaluation of Fatima Corporation’s Equipment Investment

The analysis includes calculating the net income, cash flows, payback period, NPV, and IRR under two depreciation methods.

Straight-line depreciation assumptions

Annual depreciation = ($70,000 - $7,000) / 6 = $10,500.

The pre-tax net income each year = Revenues - Expenses - Depreciation = $40,000 - $10,500 = $29,500.

After-tax net income = $29,500 × (1 - 0.30) = $20,650 annually.

Cash flows add back depreciation: $20,650 + $10,500 = $31,150 per year.

NPV and IRR calculations incorporate these cash flows and initial investment, with NPV computed using a discount rate of 11%, and IRR derived through iterative solutions.

Variable depreciation expenses (years 1-6)

Depreciation varies each year, requiring a year-by-year calculation of after-tax cash flows, payback period, NPV, and IRR based on accordingly fluctuating depreciation charges.

Bonus: Financial Calculations for Freya Corporation

The calculations involve determining direct materials used, cost of goods manufactured, gross profit, net income, prime, and conversion costs for April:

• Direct materials used = Beginning inventory + Purchases - Ending inventory = $25,000 + $58,000 - $28,000 = $55,000.
• Cost of goods manufactured considers direct materials used, factory wages, indirect materials, and factory rent, adjusted for WIP inventory changes, yielding an accurate manufacturing cost for April.
• Gross profit is sales minus cost of goods sold, computed from finished goods inventory changes.
• Net income accounts for taxes at 30%, adjusting gross profit accordingly.
• Prime costs sum direct materials and direct labor, while conversion costs sum direct labor and factory overhead.

Conclusion

The comprehensive analysis demonstrates the application of managerial accounting principles across budgeting, cost control, investment evaluation, process efficiency, and financial statement computations. These tools support managerial decision-making by providing insights into operational performance, cost behaviors, investment viability, and profitability, essential for strategic planning and maintaining competitive advantage in dynamic business environments.

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