1. (TCO 7) The first step in creating the master budget is the sales budget. Describe this budget and the information it includes. Why is the accuracy of the sales budget important? (Points : 20)

 

2. (TCO 9) Understanding how costs behave can help managers plan operations and choose between various courses of action.

Part (a) Identify and describe the three types of cost behavior, including examples of each.

Part (b) As a manager, which cost behavior would you prefer and why? (Points : 20)

3. (TCO 6) Yappy Company is considering a capital investment of $320,000 in additional equipment. The new equipment is expected to have a useful life of 8 years with no salvage value. Depreciation is computed by the straight-line method. During the life of the investment, annual net income and cash inflows are expected to be $25,000 and $65,000, respectively. Yappy requires a 10% return on all new investments.

Part (a) Compute each of the following:
1: Payback period.

2: Net present value.

3: Profitability index.

4: Internal rate of return.

5: Accounting rate of return.

(b) Indicate whether the investment should be accepted or rejected. (Points : 30)

4. (TCO 7) Roswell Company has budgeted sales revenue as follows for the next 4 months as follows:

 

February

 

$150,000

 

March

 

$120,000

 

April

 

$105,000

 

May

 

$165,000

Past experience indicates that 80% of sales each month are on credit and that collection of credit sales occurs as follows: 60% in the month of sale, 35% in the month following the sale, and 3% in the second month following the sale. The other 2% is uncollectible.

Prepare a schedule which shows expected cash receipts from sales for the month of May. (Points : 30)

5. (TCO 8) Eastern Company’s budgeted and actual sales for 2009 were:

 

Product

 

Budgeted Sales

 

Actual Sales

 

A

 

35,300 units at $2.00 per unit

 

32,700 units at $2.60 per unit

 

       B

 

27,900 units at $5.00 per unit

 

29,200 units at $4.70 per unit

Part (a) Calculate the sales volume variance.

Part (b) Calculate the sales price variance.

(c) Calculate the total sales variance. (Points : 30)

6. (TCO 9) The Mays Clinic has the following monthly telephone records and costs:

Calls

 

Costs

 

2,000

 

$2,400

 

1,500

 

2,000

 

2,200

 

2,600

 

2,500

 

2,900

 

2,300

 

2,700

 

1,700

 

2,200

 


Identify the fixed and variable cost elements using the high-low method. (Points : 30)

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