Comprehensive Financial Statement Analysis Questions -
Q1. Bayfield Electronics sells desktops and notebook computers. The president of the company is trying to decide whether the company should continue offering desktops or just concentrate on notebooks. Allocated common fixed costs are assigned based on ratio of square feet used in the store (Notebooks use almost 60% of the floor space).
| |
Notebooks
|
Desktops
|
Total
|
|
Sales
|
1,200,000
|
800,000
|
2,000,000
|
|
Less variable cost of goods sold
|
700,000
|
500,000
|
1,200,000
|
|
Contribution margin
|
500,000
|
300,000
|
800,000
|
|
Less direct fixed costs:
|
|
|
|
|
Salaries
|
175,000
|
175,000
|
350,000
|
|
Other
|
60,000
|
60,000
|
120,000
|
|
Less common allocated fixed costs:
|
|
|
|
|
Rent
|
14,118
|
9,882
|
24,000
|
|
Insurance
|
3,529
|
2,471
|
6,000
|
|
Cleaning
|
4,117
|
2,883
|
7,000
|
|
President's salary
|
76,470
|
53,530
|
130,000
|
|
Other
|
7,058
|
4,942
|
12,000
|
|
Total fixed costs
|
340,292
|
308,708
|
649,000
|
|
Net income (or loss)
|
159,708
|
(8,708)
|
151,000
|
Required -
a. Determine the break-even level for sales in total and by product line. Calculate the break-even point in total and by product including direct fixed and the allocated fixed costs. (Show calculations)
b. Determine the break-even point and the margin of safety for sales by product line using that product's direct fixed cost (not the allocated direct costs).
Q2. Bayfield Electronics sells desktops and notebook computers. The president of the company is trying to decide whether the company should continue offering desktops or just concentrate on notebooks.
| |
Notebooks
|
Desktops
|
Total
|
|
Sales
|
1,200,000
|
800,000
|
2,000,000
|
|
Less variable cost of goods sold
|
700,000
|
500,000
|
1,200,000
|
|
Contribution margin
|
500,000
|
300,000
|
800,000
|
|
Less direct fixed costs:
|
|
|
|
|
Salaries
|
175,000
|
175,000
|
350,000
|
|
Other
|
60,000
|
60,000
|
120,000
|
|
Less common allocated fixed costs:
|
|
|
|
|
Rent
|
14,118
|
9,882
|
24,000
|
|
Insurance
|
3,529
|
2,471
|
6,000
|
|
Cleaning
|
4,117
|
2,883
|
7,000
|
|
President's salary
|
76,470
|
53,530
|
130,000
|
|
Other
|
7,058
|
4,942
|
12,000
|
|
Total fixed costs
|
340,292
|
308,708
|
649,000
|
|
Net income (or loss)
|
159,708
|
(8,708)
|
151,000
|
Required -
a. Assume if the desktop product line is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of notebooks will increase by 10 percent due to having more display space. Determine the incremental effect on total net income of discontinuing the desktop computer line. (Show the calculation in good form that lists applicable elements)
b. Explain if this would be a good decision or not (based on the impact determined above).
Q3. Bayfield Electronics sells desktops and notebook computers. The president of the company is trying to decide whether the company should continue offering desktops or just concentrate on notebooks.
| |
Notebooks
|
Desktops
|
Total
|
|
Sales
|
1,200,000
|
800,000
|
2,000,000
|
|
Less variable cost of goods sold
|
700,000
|
500,000
|
1,200,000
|
|
Contribution margin
|
500,000
|
300,000
|
800,000
|
|
Less direct fixed costs:
|
|
|
|
|
Salaries
|
175,000
|
175,000
|
350,000
|
|
Other
|
60,000
|
60,000
|
120,000
|
|
Less common allocated fixed costs:
|
|
|
|
|
Rent
|
14,118
|
9,882
|
24,000
|
|
Insurance
|
3,529
|
2,471
|
6,000
|
|
Cleaning
|
4,117
|
2,883
|
7,000
|
|
President's salary
|
76,470
|
53,530
|
130,000
|
|
Other
|
7,058
|
4,942
|
12,000
|
|
Total fixed costs
|
340,292
|
308,708
|
649,000
|
|
Net income (or loss)
|
159,708
|
(8,708)
|
151,000
|
Required -
a. The president asks you to do an analysis to determine the impact of using a different method or base for allocating the common direct costs. Calculate the allocation amount by product line using (1) Sales $ as a base, and (2) using a 70%/30% split (he made that up) between the products. And show the impact on Total Costs and Net Income by product and in total.
b. Would you recommend using the 70/30 split instead of floor space or sales $ by product as an allocation base if it shows a net profit for Desktops?
Q4. Bayfield Electronics sells desktops and notebook computers. The president of the company asks you to compare the operating leverage for Notebooks with Tablets, another product line being considered. Answer the following questions to prepare for the review with the president..
Required -
a. Define Operating leverage (use text and one other source). Explain how it realtes to risk for an investor. (Reference sources below using proper APA format.)
b. Calculate the percentage change in profit for a 25% decrease in sales for each product line based on the following forecast.
|
Initial forecast:
|
Notebooks
|
Tablets
|
|
Sales
|
1,200,000
|
1,300,000
|
|
Less variable cost
|
700,000
|
500,000
|
|
Contribution margin
|
500,000
|
800,000
|
|
Less direct fixed costs:
|
235,000
|
500,000
|
|
Product gross profit
|
265,000
|
300,000
|
c. Which product has the higher operating leverage? And explain why that product is more or less risky.
Q5. Bayfield's CFO will be meeting with the bank to apply for a loan, so she had the following report (see below) prepared to meet the bank's request. Review the trends based on the data and answer the questions below to prepare for the bank meeting. (Explain which ratio used and analysis results)
Required -
a. Is it becoming easier for the company to pay its bills as they come due?
b. Are customers paying their credit accounts as well as they were earlier?
c. Is the level of inventory increasing, decreasing, or remaining constant?
d. Is there enough information provided to calculate Days' Sales in Inventory? If no, what data is needed, if yes, what is the amount for 2016?
Attachment:- Assignment File.rar