Question 1: 12 Marks

When Midtown Corporation analyzed its payments from customers, it found that 30% of the invoiced amounts were paid in the same month as the work was done and the other 70% were paid in the following month. Revenue information for selected months is presented below:

Month Revenue

November 2015 $85,000

December 2015 90,000

January 2016 92,000

February 2016 87,000

March 2016 69,000

April 2016 83,000

Instructions:

1. Calculate the monthly cash receipts for January, February, and March of 2017.

(1 mark for each calculation & 1 mark for each total)

Question 2: 15 Marks

The personnel department at Dansford Company has $45,000 in budgeted costs for the coming period. Dansford is trying to determine whether to allocate these costs to the two production departments based on the number of employees or based on machine hours used in the department. Information about the production departments is given below:

Molding Engraving

Number of employees 15 35

Anticipated machine hours 600 400

Instructions:

1. Calculate the costs allocated to each of the production departments using each allocation base. (12 marks)
2. Which allocation base is preferable? (3 marks)

Question 3: 17 Marks

Hayden Garden Tools produces two types of rakes with lifetime warranties. The industrial rake requires 2.4 labor hours and the residential rake requires 1.1 labor hours. The company has only 800 available labor hours per week. The company can sell all it can produce of either product.

Industrial Residential

Selling price $360 $210

Variable costs 220 150

Contribution margin $140 $ 60

Instructions:

1. Which rake(s) should the company sell? Justify your answer. (12 marks)

2. What would be the incremental benefit of obtaining 200 additional labor hours? (5 marks)

Question 4: 14 Marks

A project will require an initial investment of $580,000 and is expected to generate the following cash flows:

Year 1 $ 60,000

Year 2 250,000

Year 3 250,000

Year 4 200,000

Year 5 100,000

Instructions:

1. What is the projects payback period? (4 marks)
2. If the required rate of return is 20% and taxes are ignored, what is the projects net present value? (10 marks)

Question 5: 10 Marks

Toms Tours provides tours of scenic locations in Wilberforce, Ontario. The company expects tours taken to increase dramatically compared with the prior year. For the past year, 2018, the numbers of tours given were as follows:

First quarter 8,000

Second quarter 7,000

Third quarter 11,000

Fourth quarter 9,000

Sales for each quarter in 2019 are expected to be 30 percent higher than they were in 2018. The price per tour is $70.

Instructions:

1. Prepare a sales budget. (10 marks)

Question 6: 10 marks

Resin Products has estimated that fixed costs per month are $79,200 and variable cost per dollar of sales is $0.52.

Instructions:

1. What is the break-even point per month in sales? (4 marks)
2. What level of sales is needed for a monthly profit of $24,000? (3 marks)
3. For the month of July, the company anticipates sales of $240,000. What is the expected level of profit? (3 marks)

Question 7: 10 marks

Tims Tools, Inc. produces tape dispensers. The selling price is $12 per dispenser. The variable cost of production is $4.80 per dispenser and the fixed cost per month is $20,448. For November, the company expects to sell 3,100 tape dispensers.

Instructions:

1. Calculate expected profit. (5 marks)
2. Calculate the margin of safety in dollars. (5 marks)

Question 8: 12 marks

Brown Shoe Company is considering investing in one of two machines that cut leather for shoes. Machine A costs $55,000 and is expected to save the company $13,000 annual operating cash flows for six years. Machine B costs $89,000 and is expected to save the company $22,000 annual cash flows for six years.

Instructions:

1. Determine the net present value for each machine. (9 marks)
2. Decide which machine should be purchased if the required rate of return is 10 percent.

(3 marks)