Answer questions in the attached spreadsheet
1) (10 Points) Brazen, Inc. produces sound amplifiers for electric guitars. The firm's income statement showed the following: An automated machine has been developed that can produce several components of the amplifiers. If the machine is purchased, fixed expenses will increase to $315,000 per year. The firm's production capacity will increase, which is expected to result in a 25 percent increase in sales volume. It is also estimated that the variable expense ratio will be reduced to half of what it is now. REQUIRED: (You must show all your work otherwise no credit will be given) (a.) Calculate the firm's current contribution margin per unit and break-even point in units. (2Points) (b.) Calculate the firm's contribution margin per unit and break-even point in terms of units if the new machine is purchased.(5 Points) (c.) Calculate the firm's operating income assuming that the new machine is purchased. (1 Points) (d.) Do you believe that management of Brazen, Inc. should purchase the new machine? Explain your answer. (2 points) Page 1 of 3 2) Complete the Income Statement and Balance Sheet for Garnet Corporation using financial ratios: Garnet Corporation Statement of Income Year Ended December 31, 2009 Sales Cost of Goods Sold Gross Profit Operating Expenses Income From Operations Interest Expense Income Before taxes Provision For Taxes (20%) Net Income $ ?? ?? ?? ?? ?? ?? ?? ?? $ ?? Garnet Corporation Balance Sheet December 31, 2009 Assets Current Assets: Cash Accounts receivable Inventory Total Current Assets Property and Equipment (net) Total Assets Liabilities and Owners Equity Liabilities Current Liabilities Bonds Payable (15%) Total Liabilities Owners Equity Common Stock, $2 par value Additional Paid-In Capital Retained Earnings Total Owners Equity Total Liabilities and Owners Equity $ ?? ?? ?? 171,000 ?? $ ?? $ ?? 70,000 ?? 10,000 15,000 ?? ?? $ ?? Page 2 of 3 Financial Ratios for the year are as follows: Current Ratio.................................. 1.9 to 1 Acid-Test Ratio................................1.3 to 1 Debt/Equity Ratio..............................2.0 to 1 Inventory Turnover............................4.0 times Accounts Receivable Turnover...............6.8 times Times Interest Earned..........................4.45 times Gross Profit Ratio...............................40% Return on Investment...........................12% Earnings per Share...............................$5.52 Additional Information: 1) All sales were made on account. Cash collections during the year exceeded sales by $14,000. No uncollectible accounts were written off. 2) The accounts receivable balance at January 1, 2009 was $57,000. 3) No common stock was issued during the year. 4) Cash dividends declared and paid during the year totaled $7,600 5) The balance of the inventory account as of January 1, 2009 was $48,000. 6) Interest expense on the income statement relates to the 15% bonds payable; $10,000 of these bonds were issued on May 1, 2009. The remaining amount of bonds payable were outstanding throughout the year. All bonds were issued at face value. REQUIRED: (You must show all your work or no credit will be given) Complete the balance sheet and income statement. Page 3 of 3
