Budgeting Part 3 (Q10 -12)

Required:

10) Complete the balance sheet for Andys Co. for the fiscal year 2020

11) An alternative plan for operation requires more investment in the equipment. If the company can invest $210,000 instead of $95,000 in the equipment at the beginning of the year 2020, the company can reduce direct labor hours required for each unit to 2 hours. The depreciation of the equipment will be $105,000 for the year 2020. Calculate the impacts of the additional investment on net income and operating cash flows for the year 2020. You can present an alternative income statement, cash budget, and balance sheet.

12) The executives of Andys Co. are debating over whether to invest $95,000 or $210,000. The market analysts suggest that the demand for the products will be at a similar level over the next few years. Based on the sales forecasts of the market analysts, provide advice to the executives. Support your advice quantitatively.

5. Budgeting Andy's Co. is a manufacturing firm of a computer hardware device. Its sales forecasts for the year 2020 is as follows: Quarter Sales in units Price Revenue Q1, 2020 500 $ 400 $ 200,000 Q2, 2020 1000 400 400,000 Q3, 2020 1000 400 400,000 Q4, 2020 1000 400 400,000 Q1, 2021 2000 400 800,000 Q2, 2021 1500 400 600,000 Q3, 2021 1000 $ 400 $ 400,000 The company will start its business this year with $30,000 of cash balance. As of Q4 of the fiscal year 2019, it does not have any material, work in progress, or finished goods inventories. The company currently has no debt and entirely owned by shareholders. The balance sheet of Andy's Co. as of the end of the year 2019 is as follows: Cash 30,000 Equity 30,000 Direct material costs per unit are $150. Each unit requires three direct labor hours to be completed. The hourly wage is $40. For the year 2020, the company expects the variable overhead to be $136,000. The company allocates variable overhead by direct labor hours. Fixed overhead is expected to be $204,000, including the depreciation of the equipment ($47,500). The company will evenly allocate the fixed overhead for each quarter. At the beginning of the year 2020, the company will invest in $95,000 for the equipment. The company supplies products with no material selling and administrative expenses. Their products are immediately picked up by other manufacturers in the complex for cash. Due to the highly efficient just- in-time inventory management system, the company does not hold materials inventories. All materials are purchased just enough to be used in production each quarter. The company also does not hold work in progress inventories. However, they keep 10% of next quarter's sales as ending inventories of finished goods. The company also engages in flexible cash management. They require a minimum balance of zero. Whenever they run short of cash, they can borrow from a partnered venture capital at the quarterly interest rate of 2%. They obtain the short-term loan at the beginning of the quarter, and they repay both principal and interest at the end of the quarter if they have enough cash. The company will incur 20% of taxable income (operating income less interest expenses) as tax expenses but will pay the income taxes in the year 2021. 5. Budgeting Andy's Co. is a manufacturing firm of a computer hardware device. Its sales forecasts for the year 2020 is as follows: Quarter Sales in units Price Revenue Q1, 2020 500 $ 400 $ 200,000 Q2, 2020 1000 400 400,000 Q3, 2020 1000 400 400,000 Q4, 2020 1000 400 400,000 Q1, 2021 2000 400 800,000 Q2, 2021 1500 400 600,000 Q3, 2021 1000 $ 400 $ 400,000 The company will start its business this year with $30,000 of cash balance. As of Q4 of the fiscal year 2019, it does not have any material, work in progress, or finished goods inventories. The company currently has no debt and entirely owned by shareholders. The balance sheet of Andy's Co. as of the end of the year 2019 is as follows: Cash 30,000 Equity 30,000 Direct material costs per unit are $150. Each unit requires three direct labor hours to be completed. The hourly wage is $40. For the year 2020, the company expects the variable overhead to be $136,000. The company allocates variable overhead by direct labor hours. Fixed overhead is expected to be $204,000, including the depreciation of the equipment ($47,500). The company will evenly allocate the fixed overhead for each quarter. At the beginning of the year 2020, the company will invest in $95,000 for the equipment. The company supplies products with no material selling and administrative expenses. Their products are immediately picked up by other manufacturers in the complex for cash. Due to the highly efficient just- in-time inventory management system, the company does not hold materials inventories. All materials are purchased just enough to be used in production each quarter. The company also does not hold work in progress inventories. However, they keep 10% of next quarter's sales as ending inventories of finished goods. The company also engages in flexible cash management. They require a minimum balance of zero. Whenever they run short of cash, they can borrow from a partnered venture capital at the quarterly interest rate of 2%. They obtain the short-term loan at the beginning of the quarter, and they repay both principal and interest at the end of the quarter if they have enough cash. The company will incur 20% of taxable income (operating income less interest expenses) as tax expenses but will pay the income taxes in the year 2021