1) You are the CFO for Tom & Jerry's, Inc. Together with Tom Fheelein and Jerry Rhodeint, the company's two shareholders, you are examining the following statement of cash flows which they prepared for Tom & Jerry's, Inc. for the year ended January 31, 2015.

TOM & JERRYS'S, INC.

Statement of Cash Flows

For the Year Ended January 31, 2015

Sources of cash

From sales of merchandise $380,000

From sale of capital stock 410,000

From sale of investment (purchased below) 80,000

From depreciation 55,000

From issuance of note for truck 20,000

From interest on investments 6,000

Total sources of cash 951,000

Uses of cash

For purchase of fixtures and equipment 320,000

For merchandise purchased for resale 258,000

For operating expenses (including depreciation) 160,000

For purchase of investment 75,000

For purchase of truck by issuance of note 20,000

For purchase of treasury stock 10,000

For interest on note payable 3,000

Total uses of cash 846,000

Net increase in cash $105,000

Tom claims that this statement of cash flows is an excellent portrayal of a superb first year with cash increasing $105,000. Jerry replies that it was not a superb first year. Rather, he says, the year was an operating failure as the statement is presented incorrectly and $105,000 is not the actual increase in cash. The cash balance at the beginning of the year was $140,000.

Instructions:

Using the data provided, develop a statement of cash flows using the indirect method. The only noncash item in the income statement is depreciation. The purchase/sale of the investment and any resulting gain/loss are investing (not operating) activities. Hint: You may need to figure out net income for the year.

Who is correct, Tom or Jerry? please explain why

2) Please describe the circumstances of the following case study and recommend a course of action. Explain your approach to the problem, perform relevant calculations and analysis, and formulate a recommendation. Ensure your work and recommendation are thoroughly supported.

Case Study:

A vacuum manufacturer has prepared the following cost data for manufacturing one of its engine components based on the annual production of 50,000 units.

Description Cost per Month

Direct Materials$75,000

Direct Labor $100,000

Total $175,000

In addition, variable factory overhead is applied at $7.50 per unit. Fixed factory overhead is applied at 150% of direct labor cost per unit. The vacuums sell for $150 each. A third party has offered to make the engines for $60 per unit. 75% of fixed factory overhead, which represents executive salaries, rent, depreciation, and taxes, continue regardless of the decision. Should the company make or buy the engines?

Propose other factors that should be considered when making this decision and elaborate on whether or not those factors do or do not support the decision.