BUSI 320 Dev Shell: BUSI 320-SummerB01-Connect exam 2 solutions

Connect BUSI 320 1 Philip Morris is excited because sales for his clothing company are expected to double from $510,000 to $1,020,000 next year. Philip notes that net assets (Assets – Liabilities) will remain at 55 percent of Sales. His clothing firm will enjoy a 8 percent return on total sales. He will start the year with $110,000 in the bank and is already bragging about the two Mercedes he will buy and the European vacation he will take. (a) Compute his likely cash balance or deficit for the end of the year. Start with beginning cash and subtract the asset buildup (equal to 55 percent of the sales increase) and add in profit. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) Ending cash balance $ (b) Does his optimistic outlook for his cash position appear to be correct? No rev: 11_18_2012 Explanation: (a) PHILIP MORRIS Beginning cash $ 110,000 – Asset buildup (280,500 ) (55% × $510,000) Profit 81,600 (8% × $1,020,000) ________________________________________ ________________________________________ ________________________________________ Ending cash $ (88,900 ) Deficit ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ (b) No, he will actually end up with a negative cash balance. 2 Galehouse Gas Stations, Inc., expects sales to increase from $1,670,000 to $1,870,000 next year. Mr. Galehouse believes that net assets (Assets – Liabilities) will represent 55 percent of sales. His firm has a 9 percent return on sales and pays 25 percent of profits out as dividends. (a) What effect will this growth have on funds? (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) The cash balance will change by $ . (b) If the dividend payout is only 5 percent, what effect will this growth have on funds? (Omit the "$" sign in your response.) The cash balance will change by $ . rev: 09_27_2012 Explanation: (a) GALEHOUSE GAS STATIONS, INC. Asset buildup $ (110,000 ) (55% × $200,000) Profit 168,300 (9% × $1,870,000) Dividends (42,075 ) (25% × $168,300) ________________________________________ ________________________________________ ________________________________________ Change in cash $ 16,225 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ The cash balance will increase by $16,225. (b) Dividends would only be $8,415 (5% × $168,300). The change in cash would be a positive $49,885. GALEHOUSE GAS STATIONS, INC. Asset buildup $ (110,000) Profit 168,300 Dividends (8,415) ________________________________________ Change in cash $ 49,885 ________________________________________________________________________________ ________________________________________ The cash balance will increase by $49,885. 3 The Alliance Corp. expects to sell the following number of units of copper cables at the prices indicated, under three different scenarios in the economy. The probability of each outcome is indicated. Outcome Probability Units Price A .70 245 $ 24 B .20 410 39 C .10 590 49 ________________________________________ What is the expected value of the total sales projection? (Omit the "$" sign in your response.) Total expected value $ Explanation: ALLIANCE CORPORATION (1) (2) (3) (4) (5) (6) Outcome Probability Units Price Total value Expected value (2 × 5) A .70 245 $ 24 $ 5,880 $ 4,116 B .20 410 39 15,990 3,198 C .10 590 49 28,910 2,891 ________________________________________ ________________________________________ Total expected value $ 10,205 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ 4 Cyber Security Systems had sales of 4,000 units at $100 per unit last year. The marketing manager projects a 30 percent increase in unit volume sales this year with a 25 percent price increase. Returned merchandise will represent 7 percent of total sales. What is your net dollar sales projection for this year? (Omit the "$" sign in your response.) Net sales $ Explanation: CYBER SECURITY SYSTEMS Unit volume 4,000 × 1.30 5,200 Price $100 × 1.25 $ × 125 ________________________________________ ________________________________________ Total sales $ 650,000 Returns (7%) 45,500 ________________________________________ ________________________________________ Net sales $ 604,500 ________________________________________________________________________________ ________________________________________________________________________________ 5 Sales for Western Boot Stores are expected to be 43,000 units for October. The company likes to maintain 20 percent of unit sales for each month in ending inventory (i.e., the end of October). Beginning inventory for October is 10,000 units. How many units should Western Boot produce for the coming month? Units to be produced Explanation: WESTERN BOOT STORES + Projected sales 43,000 units + Desired ending inventory 8,600 (20% × 43,000) – Beginning inventory 10,000 ________________________________________ Units to be produced 41,600 ________________________________________________________________________________ 6 On December 31 of last year, Wolfson Corporation had in inventory 470 units of its product, which cost $19 per unit to produce. During January, the company produced 870 units at a cost of $22 per unit. Assuming that Wolfson Corporation sold 840 units in January, what was the cost of goods sold (assume FIFO inventory accounting)? (Omit the "$" sign in your response.) Cost of goods sold $ Explanation: Cost of goods sold on 840 units WOLFSON CORPORATION Old inventory: Quantity (Units) 470 Cost per unit $ 19 ________________________________________ ________________________________________ Total $ 8,930 ________________________________________________________________________________ ________________________________________________________________________________ New inventory: Quantity (Units) 370 Cost per unit $ 22 ________________________________________ ________________________________________ Total $ 8,140 ________________________________________ ________________________________________ Total cost of goods sold $ 17,070 ________________________________________________________________________________ ________________________________________________________________________________ 7 At the end of January, Mineral Labs had an inventory of 745 units, which cost $9 per unit to produce. During February the company produced 750 units at a cost of $13 per unit. (a) If the firm sold 1,200 units in February, what was the cost of goods sold? (Assume LIFO inventory accounting.) (Omit the "$" sign in your response.) Cost of goods sold $ (b) If the firm sold 1,200 units in February, what was the cost of goods sold? (Assume FIFO inventory accounting.) (Omit the "$" sign in your response.) Cost of goods sold $ Explanation: (a) Cost of goods sold on 1,200 units MINERAL LABS New inventory: Quantity (Units) 750 Cost per unit $ 13 ________________________________________ ________________________________________ Total $ 9,750 ________________________________________________________________________________ ________________________________________________________________________________ Old inventory: Quantity (Units) 450 Cost per unit $ 9 ________________________________________ ________________________________________ Total $ 4,050 ________________________________________ ________________________________________ Total cost of goods sold $ 13,800 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ (b) Cost of goods sold on 1,200 units MINERAL LABS New inventory: Quantity (Units) 745 Cost per unit $ 9 ________________________________________ ________________________________________ Total $ 6,705 ________________________________________________________________________________ ________________________________________________________________________________ Old inventory: Quantity (Units) 455 Cost per unit $ 13 ________________________________________ ________________________________________ Total $ 5,915 ________________________________________ ________________________________________ Total cost of goods sold $ 12,620 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ 8 The Bradley Corporation produces a product with the following costs as of July 1, 2011: Material $ 4 per unit Labor 4 per unit Overhead 2 per unit ________________________________________ Beginning inventory at these costs on July 1 was 4,250 units. From July 1 to December 1, 2011, Bradley produced 14,500 units. These units had a material cost of $2, labor of $4, and overhead of $2 per unit. Bradley uses FIFO inventory accounting. (a) Assuming that Bradley sold 15,500 units during the last six months of the year at $13 each, what would gross profit be? (Omit the "$" sign in your response.) Gross profit $ (b) What is the value of ending inventory? (Omit the "$" sign in your response.) Ending inventory $ Explanation: (a) BRADLEY CORPORATION Sales (15,500 @ $13) $ 201,500 Cost of goods sold: Old inventory: Quantity (units) 4,250 Cost per unit $ 10 ________________________________________ ________________________________________ Total $ 42,500 New inventory: Quantity (units) 11,250 Cost per unit $ 8 ________________________________________ ________________________________________ Total $ 90,000 ________________________________________ ________________________________________ Total cost of goods sold $ 132,500 ________________________________________ ________________________________________ Gross profit $ 69,000 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ (b) Value of ending inventory: BRADLEY CORPORATION Beginning inventory (4,250 × $10) $ 42,500 + Total production (14,500 × $8) 116,000 ________________________________________ ________________________________________ Total inventory available for sale 158,500 – Cost of good sold 132,500 ________________________________________ ________________________________________ Ending inventory $ 26,000 ________________________________________________________________________________ ________________________________________________________________________________ Or 3,250 units × $8 = $26,000 9 The Bradley Corporation produces a product with the following costs as of July 1, 2011: Mate...

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Connect BUSI 320 1 Philip Morris is excited because sales for his clothing company are expected to double from $510,000 to $1,020,000 next year. Philip notes that net assets (Assets – Liabilities) will remain at 55 percent of Sales. His clothing firm will enjoy a 8 percent return on total sales. He will start the year with $110,000 in the bank and is already bragging about the two Mercedes he will buy and the European vacation he will take. (a) Compute his likely cash balance or deficit for the end of the year. Start with beginning cash and subtract the asset buildup (equal to 55 percent of the sales increase) and add in profit. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) Ending cash balance $ (b) Does his optimistic outlook for his cash position appear to be correct? No rev: 11_18_2012 Explanation: (a) PHILIP MORRIS Beginning cash $ 110,000 – Asset buildup (280,500 ) (55% × $510,000) Profit 81,600 (8% × $1...

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