ABCis a company in financial trouble and has stopped operation for three months due to cash problem.You are the financial expert to rescue this company. Your task is to analyze the minimum cash required for the initial injection to ensure the company have sufficient cash to operate in the coming TWO months during the restructuring process, allowing the business to pick up again gradually to its maximum capacity.Cash requirement will be revisitedafter the first 3 months. There was no inventory for any products.

The existing management ofABCprovides the following to you:

Products

Projected Sales (unit) by Months in 2017

Jan

Feb

Mar

A

1,500

5,000

6,000

B

1,000

3,000

4,000

C

3,000

9,000

10,000

Total

5,500

17,000

20,000

Products

Selling Price

Unit Cost

Cost structure (per unit)

Per unit

Materials

Labour

MOH

A

$300

$100

60

30

10

B

$800

$400

160

160

80

C

$150

$80

56

16

8

Due to cashflow problem, suppliers have taken back all materials inventory therefore there is no materials inventory in hand.

Cash collection trends from sales are as follows:

Cash Sales

Pay 1 month later

Pay 2 months later

A, B, & C

30%

50%

20%

ABCwill ensure that there will be buffer stock produced to meet 100% of the following month's forecasted sales.

Itsactualfixed sales and administration expense is estimated to be $ 500,000 a month whereas its variable selling and administrative expenses are on average $ 10 per unit sold.

All labor costs, selling and administration and overhead expenses are paid by cash at the end of each month,whereas the purchase of materials for production are normally paid 50% in the same month of purchase and 50% in the following month.

To restart the operation, suppliers have asked forcash ondelivery for the first batch of delivery.Subsequent delivery will then return to the normal payment practice.

All labor involvement in producing buffer inventory will be incurred and paid in the month of production without overtimecharge. Production staff will get time-off in the future instead of overtime payment.

a)What are the cash collections from salesin January and February?(6points)

ForJanuary:

For February:

b)What are thepayment requirements formaterialsin January and February?(6points)

ForJanuary:

For February:

c)What are thepayment requirements for other expenses (i.e. excludingmaterials)in January and February?(6points)

ForJanuary:

For February:

d)How much should be the minimum initial cash injection to avoid negative cash flow in the first two months?(2points)

2)ROI and Residual Income(10points)

Financial data for FFCompanyfor last year is presented below:

The company paid dividends of $2,100 last year. The "Land (undeveloped)" on the statement of financial positionis not usedfor the productive activities.

a.Compute the company's margin, turnover, and return on investment for last year.(5points)

b.The Board of Directors of Beaker Company has set a minimum required return of 20%. What was the company's residual income last year?(5points)

3)Standard cost and variances(12points)

The next tables summarize the operating results ofSU. SU company uses standard costing:

Budgeted

Actual

Sales (15,000 units)

$450,000

$450,000

Variable COGS

180,000

200,000

Variable SG&A

20,000

20,000

CM

$250,000

$230,000

Fixed OH

140,000

140,000

Fixed SG&A

84,000

84,000

NOI

$26,000

$6,000

Standard quantity or Hours

Standard price or rate

Standard cost

(per Unit)

Direct material

3 KG/Unit

$ 2 per KG

$6

Direct labor

1 labor hour/Unit

$ 3 per 1 labor hour

$3

Variable OH

0.5 Machine hour/Unit

$ 2 per 1 machine hour

$1

Fixed OH

0.5 Machine hour/Unit

$ 20 per 1 machine hour

$10

Total

$20

SU produces and sells 15,000 units of product in this year. The actual cost information is as follows.

Purchased 60,000 KGs of materials at a cost of $1.95 per KG

Used 49,200 KGs of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored)

Worked 14,000 direct labor hours at a cost of $4.00 per hour.

Incurred variable manufacturing overhead cost totaling $18,000 for the year. A total of 7,000 machine hours was recorded.

Incurred fixed manufacturing overhead cost totaling $140,000 for the year.

Budgeted machine hours are 7,400 hours.

a)Compute direct materials price and quantity variances.(4points)

b)Compute direct labor rate and efficiency variances.(4points)

c)Compute variable overhead rate and efficiency variances.(4points)