Comprehensive Financial Statement Analysis Problems -
Q1. Bayfield Electronics sells desktops and notebook computers. The company has a special line of desktops configured for schools which sell for $1200 each. The company produces 8000 units annually but has the capacity to produce 11,000 units. An order for these from a large hotel chain that wants to use them for their employee training center has been received for 200 such computers at $900 each that would not disrupt current operations. Current costs for configuring the computers from normal stock are as follows:
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per unit
|
|
Direct materials
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$800.00
|
|
Direct labor
|
50.00
|
|
Variable overhead
|
20.00
|
|
Direct fixed overhead
|
40.00 (based on 8,000 units/year)
|
|
Total cost per computer
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910.00
|
In addition, the customer would like to add a business logo to each computer which would require an additional $4 per item in additional material costs. Bayfield would also have to purchase a piece of equipment to imprint the logo which would cost $2700. This equipment would not have any other uses, so they want to recoup the cost on this order.
a. What is the incremental profit (or loss) for this order? (show calculations by line item starting with Sales).
And should the special order be accepted?
b. What is the incremental profit (or loss) if they need to buy two of the special machines to meet the customer's rush delivery schedule? How much extra should they charge for the rush delivery (in total or per unit) to make the same profit amount as above?
Q2. The Bayfield operations manager wants to purchase a new machine for $600,000 (total cost including delivery, installationa and tax). The manager estimates it will save $110,000 a year for 7 years, with a residual value of $25,000 (can sell it for that end of year 7).
a. Using NPV analysis, with the company's required rate of return of 7%, should the purchase be approved? (ignore depreciation tax impact) Show NPV calculation in this table format by year or using annuity format.
b. Should it be approved if the required rate is raised to 10% due to increasing interest rates? (calculate NPV at 10%, show amounts and factors used).
Q3. The CFO at Bayfield Electronics thinks they need to evaluate the rate used for capital decisions and asked you for more information on Cost of Capital and a current industry average rate.
a. Research the definition of Weighted Average Cost of Capital. Explain what it is and provide the formula and data elements needed to calculate it (site your source).
b. Research and report the equity, debt and average cost of capital rates (%) for the Retail (Special Lines) industry. See top of page 340 in Ch 9 for a link (URL) to a Cost of Capital report from Stern School of New York University. (Remove the ~ in that link). Download the Excel file from the site if the on-line table shown is missing the column header titles.
Q4. Bayfield Electronics has implemented activity-based costing to allocate the costs of their shipping department using three cost pools. The first cost pool contains costs that are related to packaging and shipping. They decided that the number of boxes shipped is an appropriate cost driver for these costs. The second cost pool is made up of costs related to the final inspection of each item before it is shipped and the cost driver for this pool is the number of individual items that are inspected. The third cost pool is used for general operations of the department and the cost driver is the number of orders processed. Information about the department's activities is summarized below:
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Cost Pools
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Estimated Total Annual Costs
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Cost Driver
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Estimated Annual Activity
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Calculate rate per cost driver
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Packaging and shipping
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$67,200
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Number of boxes shipped
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16,000 boxes
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|
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Final inspection
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$200,000
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Number of items inspected
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100,000 items
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|
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General operations
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$85,000
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Number of orders
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10,000 orders
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|
a. An order is shipped to a retail customer who has ordered 6 individual items. This order will be shipped in 3 separate boxes. What is just the packing and shipping cost that will be allocated to the order? (Show calculation).
b. A customer orders two items that can be shipped in a single box. What is the total shipping department cost that will be allocated to this order? (Show calculation).
c. During the month of Jan., Desktop sales generated 240 orders for a total of 3,560 items which were shipped in 1,200 boxes. What amount of shipping department costs will be allocated to Desktop sales for the month? (Show calculation).
Q5. Bayfield Electronics sells desktops and notebook computers. The company has a special line of desktops configured for schools which sell for $1200 each. The company produces 8000 units annually but has the capacity to produce 11,000 units. Current costs for configuring the computers from normal stock are as follows:
| |
per unit
|
|
Direct materials
|
$800.00
|
|
Direct labor
|
50.00
|
|
Variable overhead
|
20.00
|
|
Direct fixed overhead
|
40.00 (based on 8,000 units/year)
|
|
Total cost per computer
|
910.00
|
a. What price should Bayfield charge to maximize profits based on the following sales (demand) estimate: (show calculations in this table, add column titles?)
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Units Demanded
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Unit Price
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Profit
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|
6,000
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$1,300
|
|
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7,000
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1,250
|
|
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8,000
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1,200
|
|
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9,000
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1,150
|
|
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10,000
|
1,100
|
|
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11,000
|
1,050
|
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b. If there is a tie for most profit for two prices, what factors should the company consider to choose the preferred selling price? (List two factors to consider and which price each favors, higher or lower price)
Q6. The parent company of Bayview is evaluating the acquisition of a new store. The company's budgeted operating income and total assets are shown below. The proposed investment would add $1,180,000 to annual net income (after tax) for 10 years (planning period for the evaluation) and would require an investment of $8,000,000. They will pay $3M cash and $5M loan for the investment.
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Income Statement
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2018
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Sales
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71,312,500
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C of GS
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55,050,000
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Gross profit
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16,262,500
|
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- Admin
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2,000,000
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Oper Earnings
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14,262,500
|
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Tax
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4,991,875
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Net Income
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9,270,625
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Selected Balance Sheet items
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Total Assets
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50,988,000
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noninterest-bearing current liabilities
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463,500 (NIBCL)
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Interest bearing debt
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none currently
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a. What is the payback period on the new store investment?
b. What is the company's overall return on Investment (ROI) before the new store investment?
c. What would the company's overall return on Investment (ROI) be this same year with the new store investment? (Revised Asset total below)
Q7. The CFO of Bayfield Electronics has asked for your help to prepare the annual budget. Identify the following statements related to budgeting as either TRUE or FALSE statements.
Enter True (T) or False (F) for each statement (a - g):
(a) A budget is a formal document that quantifies a company's plans for achieving its goals.
(b) Budgets are useful in the control process because they provide a basis for evaluating performance.
(c) The first step in the budget process is preparing the sales forecast.
(d) All of the dollar amounts in the cash receipts budget represent revenues earned in the current period.
(e) Budgeting often involves both monetary and nonmonetary measures of performance.
(f) The selling and administrative expense budget is based on the numbers in the production budget.
(g) A bottom-up approach to budgeting involves substantial input from lower-level managers.
Attachment:- Assignment File.rar