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    Assignment II

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    Mk56wow

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    Assignment II

    Uploaded by

    Mk56wow
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    Assignment II (2)

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    11 views6 pages

    Assignment II

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    Mk56wow

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    of 6

    Assignment II – ADMN2556B 24SP

    QUESTION ONE
    The human resources department of Fortis Inc. has responsibility for all aspects of payroll and
    ongoing management of the HR function, hiring new employees, and terminations. The
    departmental report for 2020 included the following:
    Average number of company employees in 2020 5,000
    Number of new hires 500
    Number of terminations 50
    Number of HR employees 100
    HR department costs
    Salaries $ 5,000,000
    Employee-related overhead (25% of HR salaries) 1,250,000
    Office expenses 5,000,000
    Travel & interview costs 1,000,000
    Advertising 500,000
    Total actual cost $12,750,000

    In 2021, it is expected that the number of employees will rise to 5,500; there will be 400 new
    employees hired and no terminations. Inflation will run at 2% for all costs.
    Required
    a) What assumptions do you have to make before you can plan your budget for 2021?

    b) Using those assumptions, prepare a budget for 2021.


    Assignment II – ADMN2556B 24SP

    QUESTION TWO
    You are the finance manager of Ethico Medical Co. Expected sales for the first six months of
    next year are as follows:
    $
    millions
    January $ 700
    February 800
    March 800
    April 820
    May 820
    June 900
    Total $4,840

    There was $400 million of accounts receivable on January 1.


    The normal pattern for collection of sales revenue is as follows:
     25% of sales are cash sales and are received in the month of sale.
     75% of sales are on one month’s credit, and all credit customers pay within their credit
    terms.
    Required
    Prepare a schedule of cash received from sales for the first half of the year.
    Assignment II – ADMN2556B 24SP

    QUESTION THREE
    The human resources department at JD Aero Company has the following budget and actual
    results for the current year:
    JD Aero Co.
    Human Resources Department
    Budgetary Control Report for Current Year
    Details Budget Actual Variance
    Salaries $250,000 $275,000 $ 25,000 U
    Salary-related costs
    (20% of base salaries) 50,000 55,000 5,000 U

    Travel 100,000 125,000 25,000 U

    Office expenses 200,000 220,000 20,000 U

    Training programs 500,000 400,000 100,000 F

    Total $1,100,000 $1,075,000 $ 25,000 F

    Required
    a) Based only on the bottom line (i.e., total expenditure), is the HR department in control
    or out of control?

    b) Based on the individual line budgets, is the HR department in control or out of control?

    c) Do you think the HR department has carried out the HR activities that it was expected to
    do?

    d) Some organizations have “loose” control systems, and some have “tight” control
    systems. Does this matter in respect of how we look at the above data?
    Assignment II – ADMN2556B 24SP

    QUESTION FOUR
    The Algoma Convenience Store sells a range of different products, such as milk, canned goods,
    hardware, and magazines. On average, the store marks up the goods it buys by 50%; thus,
    something that cost $1 would be sold for $1.50, and the gross margin would be one-third of the
    selling price. Fixed costs are $5,000 per month.
    Required
    Calculate the following:
    a) The contribution margin ratio

    b) The monthly break-even sales revenue

    c) The sales revenue needed to make an operating profit of $2,000 per month
    Assignment II – ADMN2556B 24SP

    QUESTION FIVE
    Proco Co. makes fruit pies. The income statement for last year was as follows:
    Porco Co.
    Income Statement
    Last Year
    Sales revenue (3 million pies @ $3) $9,000,000
    Direct materials $1,500,000
    Direct labour 1,500,000
    Production overhead 3,000,000 6,000,000
    Gross margin $3,000,000
    Selling & distribution expense $1,200,000
    Administrative expense 300,000 1,500,000
    Operating income $1,500,000

    Other information on costs is as follows:


     Direct materials and direct labour are 100% variable cost.
     Production overhead is 50% variable cost and 50% fixed cost.
     Selling expense is 75% variable cost and 25% fixed cost.
     Administrative expense is all fixed cost.
    Required
    a) Given the information, calculate the following:
    I. The variable manufacturing cost per pie made
    II. The total variable cost per pie sold
    III. The full manufacturing cost per pie made
    IV. The full cost per pie sold
    V. The minimum price at which a pie could be sold to cover its marginal cost
    VI. The minimum price at which a pie could be sold to cover its full cost.

    b) Assuming no change in sales volume, calculate the price at which pies must be sold to
    ensure an operating profit of $2,250,000.
    Assignment II – ADMN2556B 24SP

    QUESTION SIX
    Nordsee Inc. has $100 million of equity capital, which has a required rate of return of 10%. The
    company tax rate is 40%.
    Required
    Calculate the weighted average cost of capital under each of the following (independent)
    alternatives assuming that the size of the company does not change.
    a) No change

    b) Borrowing $5 million at 8% interest and using it to pay a dividend of $5 million

    c) Borrowing $50 million at 8% interest and using it to pay a dividend of $50 million

    d) Borrowing $98 million at 8% interest and using it to pay a dividend of $98 million

    QUESTION SEVEN
    Matt’s Plumbing based out of Sudbury, Ontario has evaluated three projects:
     Project A: Buy a new fleet of delivery vehicles Investment, $750,000; net present value,
    $200,000; payback, 5 years
     Project B: Re-equip the warehouse for greater efficiency Investment, $1,000,000; net
    present value, $250,000; payback, 4 years
     Project C: Launch a new line of products Investment, $1,500,000; net present value,
    $300,000; payback, 6 years
    All three projects are acceptable as they have positive net present values, but the company is
    short of cash and cannot invest in all of them.
    Required
    If the Matt’s Plumbing can only invest in one of the projects, which one would you recommend?

    QUESTION SEVEN
    Why are budgets of such great importance for NFPOs and governments?

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