Question: B2B Co. is considering the purchase of

> Kelsey is preparing its master budget for the quarter ended September 30. Budgeted sales and cash payments for merchandise for the next three months follow: Sales are 20% cash and 80% on credit. All credit sales are collected in the month following the

> Castor, Inc. is preparing its master budget for the quarter ended June 30. Budgeted sales and cash payments for merchandise for the next three months follow: Sales are 50% cash and 50% on credit. All credit sales are collected in the month following th

> Assume that Polaris’s snowmobile division is charged with preparing a master budget. Identify the participants—for example, the sales manager for the sales budget—and describe the information each person provides in preparing the master budget.

> NSA Company produces baseball bats. Each bat requires 3 pounds of aluminum alloy. Management predicts that 8,000 bats and 15,000 pounds of aluminum alloy will be in inventory on March 31 of the current year and that 250,000 bats will be sold during this

> Does the manager of a Arctic Cat distribution center participate in long-term budgeting?Explain.

> Would a manager of an Apple retail store participate more in budgeting than a manager at the corporate offices? Explain.

> KTM regularly uses budgets. What is the difference between a production budget and a manufacturing budget?

> Piaggio prepares a cash budget. What is a cash budget? Why must operating budgets and thecapital expenditures budget be prepared before the cash budget?

> The Trailer department of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The trailers have a retail price of $200 each. Each trailer incurs $80 of variable manufacturing costs. The Trailer department has capa

> Access KTM’s income statement (in Appendix A) for the business year 2011. Required1. Is KTM’s infrastructure and administration expense budget likely to be an important budget in its master budgeting process? Explain. 2. Identify three types of expense

> To help understand the factors impacting a sales budget, you are to visit three businesses withthe same ownership or franchise membership. Record the selling prices of two identical products at each location, such as regular and premium gas sold at Chev

> Freshiisells fresh foods with a focus on healthy fare. Company founder Matthew Corrin stresses the importance of planning and budgeting for business success. Required1. How can budgeting help Matthew Corrin efficiently develop and operate his business?

> Your team is to prepare a budget report outlining the costs of attending college (full- time) forthe next two semesters (30 hours) or three quarters (45 hours). This budget’s focus is solely on attending college; do not include personal items in the tea

> Access information on e-budgets through The Manage Mentor: http://www.themanagementor.com/kuniverse/kmailers_universe/finance_kmailers/cfa/budgeting2.htmRead the information provided. Required1. Assume the role of a senior manager in a large, multidivi

> The sales budget is usually the first and most crucial of the component budgets in a masterbudget because all other budgets usually rely on it for planning purposes. RequiredAssume that your company’s sales staff provides information on expected sales

> Near the end of 2013, the management of Isle Corp., a merchandising company, prepared the following estimated balance sheet for December 31, 2013. To prepare a master budget for January, February, and March of 2014, management gathers the following inf

> Both the budget process and budgets themselves can impact management actions, both positively and negatively. For instance, a common practice among not-for-profit organizations and government agencies is for management to spend any amounts remaining in a

> One source of cash savings for a company is improved management of inventory. To illustrate, assume that Polaris and Arctic Catboth have $1,000,000 per month in sales of one model ofsnowmobiles in Canada, and both forecast this level of sales per month

> Financial statements often serve as a starting point in formulating budgets. Review Polaris’sfinancial statements to determine its cash paid for acquisitions of property and equipment in the current year and the budgeted cash needed for such acquisition

> Refer to information in Exercise 9-8. Compute profit margin and investment turnover for each department. Which department generates the most net income per dollar of sales? Which department is most efficient at generating sales from average invested asse

> Adria Lopez is considering the purchase of equipment for Success Systems that would allow thecompany to add a new product to its computer furniture line. The equipment is expected to cost $300,000 and to have a six-year life and no salvage value. It wil

> If Quail Company invests $50,000 today, it can expect to receive $10,000 at the end of each year for the next seven years, plus an extra $6,000 at the end of the seventh year. What is the net present value of this investment assuming a required 10% retur

> Park Company is considering two alternative investments. The payback period is 3.5 years for investment A and 4 years for investment B. (1) If management relies on the payback period, which investment is preferred? (2) Why might Park’s analysis of thes

> Heels, a shoe manufacturer, is evaluating the costs and benefits of new equipment that would custom fit each pair of athletic shoes. The customer would have his or her foot scanned by digital computer equipment; this information would be used to cut the

> Siemens AG invests €80 million to build a manufacturing plant to build wind turbines. The company predicts net cash flows of €16 million per year for the next 8 years. Assume the company requires an 8% rate of return from its investments. (1) What is th

> Tinto Company is planning to invest in a project at a cost of $135,000. This project has the following expected cash flows over its three-year life: Year 1, $45,000; Year 2, $52,000; and Year 3, $78,000. Management requires a 10% rate of return on its in

> A company is considering investing in a new machine that requires a cash payment of $47,946 today. The machine will generate annual cash flows of $21,000 for the next three years. What is the internal rate of return if the company buys this machine?

> Comp-Media buys its product for $60 and sells it for $130 per unit. The sales staff receives a 10% commission on the sale of each unit. Its June income statement follows. COMP- MEDIA COMPANY Income Statement For Month Ended June 30, 2013 Sales . . . . .

> Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $400,000 and has a net present value of cash flows of $1,100,000. Project 2 requires an initial investment of $3,500,000 and has a net present value of cas

> Peng Company is considering an investment expected to generate an average net income after taxes of $1,950 for three years. The investment costs $45,000 and has an estimated $6,000 salvage value. Compute the accounting rate of return for this investment;

> Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center). (1) Compute return on investment for each department. Using return on investment, which department is most effi

> Freeman Brothers Co. is considering an investment that requires immediate payment of $27,000 and provides expected cash inflows of $9,000 annually for four years. What is the investment’s payback period?

> Retsa Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $800,000 and will yield the following expected cash flows. Management requires investments to have a payback period of tw

> Aster Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $800,000 and yield the following expected cash flows. Management requires investments to have a payback period of two yea

> Archer Foods has a freezer that is in need of repair and is considering whether to replace the old freezer with a new freezer or have the old freezer extensively repaired. Information about the two alternatives follows. Management requires a 10% rate of

> Grossman Corporation is considering a new project requiring a $30,000 investment in an asset having no salvage value. The project would produce $12,000 of pretax income before depreciation at the end of each of the next six years. The companyâ&#128

> Aikman Company has an opportunity to invest in one of two projects. Project A requires a $240,000 investment for new machinery with a four-year life and no salvage value. Project B also requires a $240,000 investment for new machinery with a three-year l

> Cortino Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $300,000 cost with an expected four-year life and a $20,000 salvage value. All sales are for cash and all costs are out

> Lenitnes Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $250,000 and will yield the following expected cash flows. Management requires investments to have a payback period of

> Connick Company sells its product for $22 per unit. Its actual and projected sales follow. All sales are on credit. Recent experience shows that 40% of credit sales is collected in the month of the sale, 35% in the month after the sale, 23% in the seco

> Sentinel Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $250,000 and will yield the following expected cash flows. Management requires investments to have a payback period of

> Hector Company reports the following: Payments for purchases are made in the month after purchase. Selling expenses are 10% of sales, administrative expenses are 8% of sales, and both are paid in the month of sale. Rent expense of $7,400 is paid monthl

> Interstate Manufacturing is considering either replacing one of its old machines with a new machine or having the old machine overhauled. Information about the two alternatives follows. Management requires a 10% rate of return on its investments. Altern

> Manning Corporation is considering a new project requiring a $90,000 investment in test equipment with no salvage value. The project would produce $66,000 of pretax income before depreciation at the end of each of the next six years. The companyâ&#

> Most Company has an opportunity to invest in one of two new projects. Project Y requires a $350,000 investment for new machinery with a four-year life and no salvage value. Project Z requires a $350,000 investment for new machinery with a three-year life

> Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $480,000 cost with an expected four-year life and a $20,000 salvage value. All sales are for cash, and all costs are out

> Refer to the information in Exercise 11-8. Create an Excel spreadsheet to compute the internal rate of return for each of the projects. Round the percentage return to two decimals. In Exercise 11-8 Following is information on two alternative investments

> Following is information on two alternative investments being considered by Jolee Company. The company requires a 10% return from its investments. For each alternative project compute the (a) net present value, and (b) profitability index. If the compa

> Phoenix Company can invest in each of three cheese-making projects: C1, C2, and C3. Each project requires an initial investment of $228,000 and would yield the following annual cash flows. (1) Assuming that the company requires a 12% return from its in

> Compute the payback period for each of these two separate investments (round the payback period to two decimals): a. A new operating system for an existing machine is expected to cost $520,000 and have a useful life of six years. The system yields an inc

> During the last week of March, Sony Stereo’s owner approaches the bank for a $80,000 loan to be made on April 1 and repaid on June 30 with annual interest of 12%, for an interest cost of $2,400. The owner plans to increase the store&aci

> You must prepare a return on investment analysis for the regional manager of Fast & Great Burgers. This growing chain is trying to decide which outlet of two alternatives to open. The first location (A) requires a $1,000,000 investment and is expected to

> Identify three usual time horizons for short-term planning and budgets.

> A machine can be purchased for $150,000 and used for 5 years, yielding the following net incomes. In projecting net incomes, double-declining balance depreciation is applied, using a 5-year life and a zero salvage value. Compute the machineâ€&

> Beyer Company is considering the purchase of an asset for $180,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Compute the payback period for this investment (round years to two decimals).

> This chapter explained two methods to evaluate investments using recovery time, the payback period and break-even time (BET). Refer to QS 11-8 and (1) compute the recovery time for both the payback period and break-even time, (2) discuss the advantage(

> After evaluating the risk of the investment described in Exercise 11-5, B2B Co. concludes that it must earn at least a 8% return on this investment. Compute the net present value of this investment. (Round the net present value to the nearest dollar.) I

> A machine costs $700,000 and is expected to yield an after-tax net income of $52,000 each year.Management predicts this machine has a 10-year service life and a $100,000 salvage value, and it uses straight-line depreciation. Compute this machine’s accou

> Polaris managers must select depreciation methods. Why does the use of the accelerated depreciation method (instead of straight line) for income tax reporting increase an investment’s value?

> Why is the present value of $100 that you expect to receive one year from today worth less than $100 received today? What is the present value of $100 that you expect to receive one year from today, discounted at 12%?

> If the present value of the expected net cash flows from a machine, discounted at 10%, exceeds the amount to be invested, what can you say about the investment’s expected rate of return? What can you say about the expected rate of return if the present v

> Why is an investment more attractive to management if it has a shorter payback period?

> Jessica Porter works in both the jewelry department and the hosiery department of a retail store. Porter assists customers in both departments and arranges and stocks merchandise in both departments. The store allocates Porter’s $30,000

> The management of Piaggio is planning to invest in a new companywide computerized inventory tracking system. What makes this potential investment risky?

> H20 Sports Company is a merchandiser of three different products. The company’s March 31 inventories are water skis, 40,000 units; tow ropes, 90,000 units; and life jackets, 150,000 units. Management believes that excessive inventories

> KTM is considering expanding a store. Identify three methods management can use to evaluate whether to expand.

> The management of Arctic Catis planning to acquire new equipment to manufacture snowmobiles. What are some of the costs and benefits that would be included in Arctic Cat’s analysis?

> Why should managers set the required rate of return higher than the rate at which money can be borrowed when making a typical capital budgeting decision?

> What is the average amount invested in a machine during its predicted five-year life if it costs $200,000 and has a $20,000 salvage value? Assume that net income is received evenly throughout each year and straight-line depreciation is used.

> Identify two disadvantages of using the payback period for comparing investments.

> Identify four reasons that capital budgeting decisions by managers are risky.

> What is capital budgeting?

> Capital budgeting decisions require careful analysis because they are generally the ________ ________ and ________ decisions that management faces.

> The following is a partially completed lower section of a departmental expense allocation spreadsheet for Cozy Bookstore. It reports the total amounts of direct and indirect expenses allocated to its five departments. Complete the spreadsheet by allocati

> Visit or call a local auto dealership and inquire about leasing a car. Ask about the down payment and the required monthly payments. You will likely find the salesperson does not discuss the cost to purchase this car but focuses on the affordability of t

> Read the chapter opener about Keith Mullin and his company, Gamer Grub. Keith is considering building a new, larger warehousing center to make his business more efficient and reduce costs. He expects that an efficient warehouse could reduce his costs by

> The management of Zigby Manufacturing prepared the following estimated balance sheet for March, 2013: To prepare a master budget for April, May, and June of 2013, management gathers the followinginformation: a. Sales for March total 20,500 units. Forec

> Break into teams and identify four reasons that an international airline such as Southwest orDelta would invest in a project when its direct analysis using both payback period and net present value indicate it to be a poor investment. (Hint: Think about

> Capital budgeting is an important topic and there are Websites designed to helppeople understand the methods available. Access TeachMeFinance.com’s capital budgeting web page (teachmefinance.com/capitalbudgeting.html). This web page con

> Payback period, accounting rate of return, net present value, and internal rate of return arecommon methods to evaluate capital investment opportunities. Assume that your manager asks you to identify the type of measurement basis and unit that each meth

> A consultant commented that “too often the numbers look good but feel bad.” This commentoften stems from estimation error common to capital budgeting proposals that relate to future cash flows. Three reasons for this error often exist. First, reliably p

> Assume that Arctic Cat invests $2.42 million in capital expenditures, including $1.08 million related to manufacturing capacity. Assume that these projects have a seven-year life and that management requires a 15% internal rate of return on those project

> Piaggio’s annual report includes information about its debt and interest rates. One statement inits annual report reveals that Piaggio recently issued 10-year bonds with a market return of about 6.5%. RequiredExplain how Piaggio would use that 6.5% ra

> Adria Lopez has found that her line of computer desks and chairs has become very popular and she is finding it hard to keep up with demand. She knows that she cannot fill all of her orders for both items, so she decides she must determine the optimal sal

> Marathon Running Shop has two service departments (advertising and administration) and two operating departments (shoes and clothing). During 2013, the departments had the following direct expenses and occupied the following amount of floor space. The

> Holmes Company produces a product that can either be sold as is or processed further. Holmes has already spent $50,000 to produce 1,250 units that can be sold now for $67,500 to another manufacturer. Alternatively, Holmes can process the units further at

> Excel Memory Company can sell all units of computer memory X and Y that it can produce, but it has limited production capacity. It can produce two units of X per hour or three units of Y per hour, and it has 4,000 production hours available. Contribution

> Kando Company incurs a $9 per unit cost for Product A, which it currently manufactures and sells for $13.50 per unit. Instead of manufacturing and selling this product, the company can purchase Product B for $5 per unit and sell it for $12 per unit. If i

> Black Diamond Company produces snow skis. Each ski requires 2 pounds of carbon fiber. The company’s management predicts that 5,000 skis and 6,000 pounds of carbon fiber will be in inventory on June 30 of the current year and that 150,000 skis will be sol

> Refer to QS 10-1 and QS 10-2. What nonfinancial factors should Helix consider before accepting this order? Explain. In QS 10-1 Helix Company has been approached by a new customer to provide 2,000 units of its regular product at a special price of $6 per

> Refer to the data in QS 10-1. Based on financial considerations alone, should Helix accept this order at the special price? Explain. In QS 10-1 Helix Company has been approached by a new customer to provide 2,000 units of its regular product at a specia

> Helix Company has been approached by a new customer to provide 2,000 units of its regular product at a special price of $6 per unit. The regular selling price of the product is $8 per unit. Helix is operating at 75% of its capacity of 10,000 units. Ident

> Signal mistakenly produced 10,000 defective cell phones. The phones cost $60 each to produce. A salvage company will buy the defective phones as they are for $30 each. It would cost Signal $80 per phone to rework the phones. If the phones are reworked, S

> Rory Company has a machine with a book value of $75,000 and a remaining five-year useful life. A new machine is available at a cost of $112,500, and Rory can also receive $60,000 for trading in its old machine. The new machine will reduce variable manufa

> A guitar manufacturer is considering eliminating its electric guitar division because its $76,000 expenses are higher than its $72,000 sales. The company reports the following expenses for this division. Should the division be eliminated? Avoidable

> Below are departmental income statements for a guitar manufacturer. The manufacturer is considering dropping its electric guitar department since it has a net loss. The company classifies advertising, rent, and utilities expenses as indirect. (1) Prepar

> Radar Company sells bikes for $300 each. The company currently sells 3,750 bikes per year and could make as many as 5,000 bikes per year. The bikes cost $225 each to make; $150 in variable costs per bike and $75 of fixed costs per bike. Radar received an

> Label each of the following statements as either true (“T”) or false (“F”). 1. Relevant costs are also known as unavoidable costs. 2. Incremental costs are also known as differential costs. 3. An out-of-pocket cost requires a current and/or future outlay

> Garcia Company has 10,000 units of its product that were produced last year at a total cost of $150,000. The units were damaged in a rain storm because the warehouse where they were stored developed a leak in the roof. Garcia can sell the units as is for

> Esme Company’s management is trying to decide whether to eliminate Department Z, which has produced low profits or losses for several years. The company’s 2013 departmental income statement shows the following. In an