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Assignment

The document outlines a series of financial problems involving breakeven analysis, make-or-buy decisions, and budget preparation for three different companies. It includes specific numerical data for each scenario, requiring calculations for breakeven points, operating income, and various budgets such as sales, cash collections, and operating expenses. Additionally, it emphasizes the importance of considering fixed costs and cash flow management in financial decision-making.

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Betsy Seyoum
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11 views4 pages

Assignment

The document outlines a series of financial problems involving breakeven analysis, make-or-buy decisions, and budget preparation for three different companies. It includes specific numerical data for each scenario, requiring calculations for breakeven points, operating income, and various budgets such as sales, cash collections, and operating expenses. Additionally, it emphasizes the importance of considering fixed costs and cash flow management in financial decision-making.

Uploaded by

Betsy Seyoum
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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INSTRUCTION: For the questions given, write the answers on the space provided in the

answer sheet neatly. Show all the steps clearly.

1. Bella Paper Products Company sells tissue papers. The average selling price and variable
cost for Scented and Odorless tissue papers are as follows:(hints : multiple products)

Scented Odorless

Selling Price $28.80 Selling Price $24.00

Variable Cost $20.40 Variable Cost $16.80

Fixed costs are $38,400.

Required:

i. What is the breakeven point in units for each type of tissue papers, assuming the sales mix is 2:1
in favor of Scented tissue papers?

ii. What is the operating income, assuming the sales mix is 2:1 in favor of Scented tissue papers,
and sales total 9,000 tissue papers?

2. Marathon Motors needs 1,000 wind shields in its manufacture of automobiles. It can buy
the wind shields from Jinx Motors in China for $1,250 each. Marathon Motors' plant can
manufacture the wind shields for the following costs per unit:

Direct materials $ 500

Direct manufacturing labor 250

Variable manufacturing overhead 200

Fixed manufacturing overhead 350

Total $ 1,300

If Marathon Motors buys the wind shields from Jinx, 70% of the fixed manufacturing overhead
applied will not be avoided.

Required:

i. Should Marathon Motors make or buy the motors?

ii. What additional factors should Marathon Motors consider in deciding whether or NOT to
make or buy the motors?

3. Blue Nile Company’s newly hired accountant has persuaded management to prepare a
master budget to aid financial and operating decisions. The planning horizon is only three months,
January toMarch. Sales in December (2023) were Br. 40, 000. Monthly sales for the first four months
of the next year (2024) are forecasted as follows:

January Br. 50, 000


February 80, 000

March 60, 000

April 50, 000

Normally 60% of sales are on cash and the remainders are credit sales. All credit sales are collected in
themonth following the sales. Uncollectible accounts are negligible and are to be ignored.Because
deliveries from suppliers and customer demand are uncertain, at the end of any month Blue
Nilewants to have a basic inventory of Br. 20, 000 plus 80% of the expected cost of goods to be sold
in the following month. The cost of merchandise sold averages 70%of sales. The purchase terms
available to the company are net 30 days. Each month’s purchases are paid as follows:

50% during the month of purchase and,

50% during the month following the purchases.

Monthly expenses are:

Wages and commissions…………Br. 2, 500 + 15%of sales, paid as incurred.

Rent expense…………………….Br. 2, 000 paid as incurred.

Insurance expense……………….Br.200 expiration per month.

Depreciation including truck……Br.500 per month

Miscellaneous expense……………5% of sales, paid as incurred.

In January, a used truck will be purchased for Br. 3, 000 cash. The company wants a minimum cash
balance of Br. 10, 000 at the end of each month. Blue Nile can borrow cash or repay loans in
multiples of Br. 1, 000. Management plans to borrow cash more than necessary and to repay as
promptly as possible. Assume thatthe borrowing takes place at the beginning, and repayment at the
end of the months in question. Interest ispaid when the related loan is repaid. The interest rate is
18% per annum. The closing balance sheet for thefiscal year just ended at December 31, 2023, is:

Blue Nile Company

Balance Sheet
December 31, 2023

ASSETS

Current assets:

Cash Br. 10,000

Account receivable 16,000

Merchandise inventory 48,000

Unexpired insurance 1,800 . Br 75, 800

Plant assets:

Equipment, fixture and other Br.37, 000

Accumulated depreciation 12, 800 24, 200

Total assets Br.100,000

LIABILITIES AND OWNERS’ EQUITY

Liabilities:

Accounts payable Br.16, 800

Accrued wages and

commissions payable 4, 250 Br.21, 050

Capital:

Owners’ equity 78, 950

Total liabilities and owners’ equity Br.100,000

Required:

1. Using the data given above, prepare the following detailed schedules for the first quarter of the
year:

a. Sales budget

b. Cash collection budget

c. Purchase budget

d. Disbursement for purchases

e. Operating expenses budget

f. Disbursement for operating expenses


2. Using the budget data given above and the schedules you have prepared, construct the following
proforma financial statements

a. Income statement for the first quarter of the year.

b. Cash budget including receipts, payments, and effect of financing

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