1. 4-12Morris & Brown LtdIncome Statements For the Three Months Ended September 30 July August SeptemberSales in units 4000 4500 5000Sales revenue A$400000 A$450000 A$500000Cost of good sold 240000 270000 300000Gross margin 160000 180000 200000Selling and administrative expenses:Advertising expense 21000 21000 21000Shipping expense 34000 36000 38000Salaries& commission 78000 84000 90000Insurance expense 6000 6000 6000Depreciate expense 15000 15000 15000Total selling& admin expens 154000 162000 170000Net operation income A$ 6000 A$ 18000 A$30000(Note: Morrisey & Brown Ltd. Australian- formatted income statement has been recast in the format common in the United States. The Australian dollar is denoted here by A$.)Question:(1) Identify each of the company s expenses (including cost of good sold) as either variable fixed or mixed.(2) Using the high- low method separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense.(3) Redo the company s income statement at the 5000-unit level of activity using the contribution format.2) 5-12Menlo Company distributes a single product. The company s sales and expenses for last month follow: Total Per UnitSales$450000$30Variable expenses18000012Contribution margin27000018Fixed expenses216000
Net Operating income54000
1) What is the month break-even point in units sold and in sales dollars?2) Without resorting to computations what is the total contribution margin at the break-even point?3) How many units would have to be sold each month to earn a target profit of $90000? Use the formula method. Verify your answer by preparing contribution format income statement at the target sales level.3) 6-1Silver Company makes a product that is very popular as a Mother s Day gift. Thus peak sales occur in May of each year as shown in the company s sales budget for the second quarter given below:AprilMayJuneTotalBudget sales (all on account)$300000$500000$200000$1000000 From past experience the company has learned that 20% of a month s sales are collected in the month of sale another 70% are collected in the month following sale and the remaining 10% are collected in the second following sale. Bad debts are negligible and can be ignored. February sales totaled $230000 and March sales totaled $260000.1) Prepare a schedule of expected cash collections from sales by month and in total for the second quarter.2) Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of that date.4) 6-7Garden Depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budget cash flows:1st Quarter2nd Quarter3rd Quarter4th QuarterTotal cash receipts$180000$330000$210000$230000Total cash disbursements$260000$230000$220000$240000The company s beginning cash balance for the upcoming fiscal year will be $20000. The company requires a minimum cash balance of $10000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans or any part of its loans at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity assume that interest is not compounded.Prepare the company s cash budget for the upcoming fiscal year.5) 7-4Vulcan Flyovers offers scenic overflights of Mount St. Helens the volcano in Washington State that explosively erupted in 1982. Data concerning the company s operations in July appear below:Vulcan FlyoversOperating DataFor the Month Ended July 31Planning BudgetFlexible BudgetActual ResultsFlights (q)504848Revenue ($320.00q)$16000$15360$13650Expenses:

Wages and salaries ($4000 + $82.00q)810079368430 Fuel ($23.00q)115011041260 Airport fees ($650 + $38.00q)255024742350 Aircraft depreciation ($7.00q)350336336 Office expenses ($190 + $2.00q)290286460Total expense124401213612836Net operating income$3560$3224$814The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount.1) Prepare a flexible budget performance report for July2) Which of the variances should be of concern to management? Explain.6) 8-5Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow (in millions of yen denoted by =Y): DivisionOsaka YokohamaSales=Y3000000=Y9000000Net operating income=Y210000=Y720000Average operating assets=Y1000000=Y40000001) For each division compute the return on investment (ROI) in terms of margin and turnover. Where necessary carry computations to two decimal places.2) Assume that the company evaluates performances using residual income and that the minimum required rate of return for any division is 15%. Compute the residual income for each division.3) Is Yokohama s greater amount of residual income an indication that it is better managed?7) 8-15Wingate Company a wholesale distributer of videotapes has been experiencing losses for some time as shown by its most recent monthly contribution format income statement which follows:Sales$1000000Variable expenses390000Contribution margin610000Fixed expenses625000Net operating income (loss)$ (15000)In an effort to isolate the problem the president has asked for an income statement segmented by division. Accordingly the Accounting Department has developed the following information: DivisionEast Central WestSales$250000$400000$350000Variable expenses as a percentage of sales52%30%40%Traceable fixed expenses$160000$200000$1750001) Prepare a contribution format income statement segmented by divisions as desired by the president.2) As a result of a marketing study the president believes that sales in the West Division could be increased by 20% if monthly advertising in that division were increased by $15000. Would you recommend the increased advertising? Show computations to support your answer.8) 11-8Labeau Products Ltd. Of Perth Australia has $35000 to invest The company is trying to decide between two alternative uses for the funds as follows:Invest in Project XInvest in Project YInvestment required$35000$35000Annual cash inflows$9000Single cash inflow at the end of 10 years$150000Life of the project10 years10 yearsThe company s discount rate is 18%(ignore income taxes) Which alternative would you recommend that the company accept? Show all computations using the net present value approach. Prepare separate computations for each project.

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