?PROBLEM 1
Vanhorn Company sells tennis racquets; variable costs for each are $75, and each is sold for $105. Vanhorn incurs $ 270,000 of fixed operating expenses annually.
1. Determine the sales volume in units and dollars required to attain a $ 120,000 profit. Verify your answer by preparing the income statement using the contribution margin format
2. Vanhorn is considering establishing a quality improvement process that will require a $ 10 increase in the variable cost per unit. To inform its customers of the quality improvements, the company plan to spend an additional $ 60,000 for advertising. Assuming that the improvement programme will increase sales to a level that is 5,000 above the amount computed in question 1, should Vanhorn proceeds with plans to improve product quality? Support your answer by preparing a budgeted income statement
3. Determine the new break-even point (units and $ sales) assuming Vanhorn adopts the quality improvement programme
4. At the end of the year, the actual results are :
a. Units sales are 15,000, with a selling price per unit of $ 104
b. The variable costs per unit are $ 72 and the fixed operating expenses amount to $ 270,000
Prepare the actual income statement and compare it to the one prepared in question 1. Compute the sales variance and its components, the profit variance and its components.
PROBLEM 2
|
INCOME STATEMENT
|
2002
|
|
2003
|
|
Sales
Cost of Goods Sold
|
500'000
350'000
|
|
550'000
410'000
|
|
Gross Margin
|
150'000
|
|
140'000
|
|
Selling expenses Administrative expenses Depreciation
|
60'000
30'000
15'000
|
|
61'000
32'000
15'000
|
|
Operating Income ( EBIT
|
45'000
|
|
32'000
|
|
Interest expense
|
13'000
|
|
11'000
|
|
Income before Tax
Tax
|
32'000
11'200
|
|
21'000
7'350
|
|
Net Income
|
20'800
|
|
13'650
|
|
BALANCE SHEET
|
2002
|
|
2003
|
|
Cash & Banks Account Receivable Inventory
|
5'000
100'000
80'000
|
|
13'000
106'000
89'000
|
|
Current assets
|
185'000
|
|
208'000
|
|
Building & Equipment Allowance for Depreciation
|
200'000
(120'000)
|
|
220'000
(135'000)
|
|
Fixed Assets
|
80'000
|
|
85'000
|
|
Total Assets
|
265'000
|
|
293'000
|
|
Accounts Payables Accruals
|
70'000
18'000
|
|
84'000
15'350
|
|
Current Liabilities
|
88'000
|
|
99'350
|
|
Long term Debt
|
80'000
|
|
78'000
|
|
Common Stock Retained earnings
|
50'000
47'000
|
|
60'000
55'650
|
|
Equity
|
97'000
|
|
115'650
|
|
Total Liabilities & Equity
|
265'000
|
|
293'000
|
1. Using the income statement analysis tools (common sized, variances), how do you evaluate the 2003 results versus 2002. Management has also indicated that price, on average, has deteriorated by 5% during 2003.
As a banker looking for granting a loan to the Company, how do you evaluate the situation of the company in 2003? Use financial ratios to justify your comments and decision
2. How would you comment the asset management performance in 2003 versus 2002? Justify your comments with all related ratios
3. Calculate the ROI and ROE for the 2 years
4. Prepare the Cash Flow statement (indirect method) with the following additional information:
a. the Company purchased equipment for $ 20,000, 50% of which were paid in exchange of shares issued
b. Dividends declared and paid in 2003 amounted to $ 5,000 What can you conclude from the Cash generated/used by activity?
Do the assignment. all numbers must be done. Slides FSA is to help you.