Question 1 (Inventory Valuation / 20 marks) XYZ Company sells computers, and the company purchased nine computers from Dell Computer at the following dates and costs: Units Purchased Date Oct 1 Nov 1 Dec 1 Total Unit Cost $3,000 $3,200 $3,250 Total Cost $6,000 $9,600 $13,000 $28,600 On November 21, XYZ sold four of these computers and the other five computers remained in the company's inventory at December 31. Assume the XYZ uses a perpertual inventory system. Compute the Cost of Goods Sold (COGS) and the ending inventory value in the following two methods: a) Average Cost b) FIFO (12 marks) Show the number of units and the unit costs layers comprising the COGS and the ending inventory. c) Discuss the possible reason behind adopting the FIFO method. (8 marks) Question 4 (Preparing the budgets / 15 marks) ABC Production produces coat racks. The projected sales for the first quarter of the coming year and the beginning and ending inventory data are as follows: Unit Sales 100,000 Unit Price $15 Units in beginning inventory 8,000 Units in targeted ending inventory 12,000 The coat racks are molded and then painted. Each rack requires four pounds of metal, which costs $2.50 per pound. The beginning inventory of materials is 4,000 pounds. ABC Production wants to have 6,000 pounds of metal in inventory at the end of the quarter. Each rack produced requires 30 minutes of direct labor time, which is billed at $9 per hour. Required (a) Prepare a sales budget for the first quarter. (2 marks) (b) Prepare a production budget for the first quarter. (4 marks) (c) Prepare a direct materials purchases budget for the first quarter. (6 marks) (d) Prepare a direct labor budget for the first quarter. (3 marks) Question 5 (Preparing the cash budget / 20 marks) Star, Inc., expects to receive cash from sales of $45,000 in March. In addition, Star Inc. expects to sell property worth $3,500. Payments for materials and supplies are expected to total $10,000, direct labor payroll will be $12,500, and other expenditures are budgeted at $14,900. On March 1, the cash account balance is $1,230. Required (a) Prepare a cash budget for Star, Inc., for the month of March. (12 marks) (b) Assume that Star, Inc., wanted a minimum cash balance of $15,000 and that it could borrow from the bank in multiples of $1,000 at an interest rate of 12 percent per year. What would Star's adjusted ending balance for March be? How much interest would Star owe in April assuming that the entire amount borrowed in March would be paid back? (8 marks) Question 3 (Cost-Volume-Profit Analysis/ 20 marks) AMC Company's projected profit for the coming year is as follows: Per Unit $20 Sales Less: Variable expenses Contribution margin Less: Fixed expenses Operating income Total $200,000 120,000 $80,000 64,000 16,000 Required (a) Compute the break-even point in units. (3 marks) (b) How many units must be sold to earn a profit of $30,000? (3 marks) (c) Compute the contribution margin ratio. Using that ratio, compute the additional profit that AMC Company would earn if sales were $25,000 more than expected. (2 marks) (d) Suppose AMC Company would like to earn operating income equal to 20 percent of sales revenue. How many units must be sold for this goal to be realized? Prepare an income statement to prove your answer. (10 marks) (e) For the projected level of sales, compute the margin of safety. (2 marks) Question 2 (Ratio Analysis/ 25 marks) Selected year-end financial statements of Healthy Life Limited are as follows: Healthy Life Limited Comparative Statements of Financial Position As at December 31, 2019 and 2018 2019 2018 Assets Cash Short-term investment Accounts receivable (net) Notes receivable (due in 3 months) Inventory Prepaid rent Property, plant and equipment (net) Total Assets $ 120,000 100,800 350,400 54,000 385,800 31,800 1,839,600 $2,882,400 $108,000 54,000 78,000 30,000 586,800 24,000 1,686,000 $2,566,800 $345,024 78,000 30,000 Liabilities and Equity Accounts payable Wages payable Income taxes payable Long-term loans (due in 5 years) Share capital Retained earnings Total Liabilities and Equity $ 210,000 38,400 39,600 760,800 1,080,000 753,600 $2,882,400 760,800 1,080,000 272,976 $2.566,800 Healthy Life Limited Income Statement For the year ended December 31, 2019 Net sales (all on credit) Cost of goods sold Gross profit Selling expenses Administrative expenses Finance costs - interest expenses Income before income taxes Income taxes (@ 40%) Net income $5,383,200 (3,400,070) (?,???,???) (120,000) (962,200) (49,900) (???,???) (???,???) $ ??,??? Required: (a) Calculate the following ratios for Healthy Life Limited: i) Current ratio for 2019 and 2018 (3 marks) ii) Acid-test ratio for 2019 and 2018 (3 marks) iii) Debt ratio for 2019 and 2018 (3 marks) iv) Which ratio(s) has/have improved? (1 mark) (Please provide formulae and all ratios should be expressed in one decimal place.) (10 marks) (b) Calculate the following ratios for Healthy Life Limited for 2019: i) Accounts receivable collection period (2 marks each) ii) Inventory holding period iii) Gross profit margin iv) Profit margin v) Return on equity (Please provide formulae and all ratios should be expressed in one decimal place.) (10 marks) (c) Discuss the implications of gross profit margin and profit margin, and the relationship between these two margins. (5 marks) Question 1 (Inventory Valuation / 20 marks) XYZ Company sells computers, and the company purchased nine computers from Dell Computer at the following dates and costs: Units Purchased Date Oct 1 Nov 1 Dec 1 Total Unit Cost $3,000 $3,200 $3,250 Total Cost $6,000 $9,600 $13,000 $28,600 On November 21, XYZ sold four of these computers and the other five computers remained in the company's inventory at December 31. Assume the XYZ uses a perpertual inventory system. Compute the Cost of Goods Sold (COGS) and the ending inventory value in the following two methods: a) Average Cost b) FIFO (12 marks) Show the number of units and the unit costs layers comprising the COGS and the ending inventory. c) Discuss the possible reason behind adopting the FIFO method. (8 marks) Question 4 (Preparing the budgets / 15 marks) ABC Production produces coat racks. The projected sales for the first quarter of the coming year and the beginning and ending inventory data are as follows: Unit Sales 100,000 Unit Price $15 Units in beginning inventory 8,000 Units in targeted ending inventory 12,000 The coat racks are molded and then painted. Each rack requires four pounds of metal, which costs $2.50 per pound. The beginning inventory of materials is 4,000 pounds. ABC Production wants to have 6,000 pounds of metal in inventory at the end of the quarter. Each rack produced requires 30 minutes of direct labor time, which is billed at $9 per hour. Required (a) Prepare a sales budget for the first quarter. (2 marks) (b) Prepare a production budget for the first quarter. (4 marks) (c) Prepare a direct materials purchases budget for the first quarter. (6 marks) (d) Prepare a direct labor budget for the first quarter. (3 marks) Question 5 (Preparing the cash budget / 20 marks) Star, Inc., expects to receive cash from sales of $45,000 in March. In addition, Star Inc. expects to sell property worth $3,500. Payments for materials and supplies are expected to total $10,000, direct labor payroll will be $12,500, and other expenditures are budgeted at $14,900. On March 1, the cash account balance is $1,230. Required (a) Prepare a cash budget for Star, Inc., for the month of March. (12 marks) (b) Assume that Star, Inc., wanted a minimum cash balance of $15,000 and that it could borrow from the bank in multiples of $1,000 at an interest rate of 12 percent per year. What would Star's adjusted ending balance for March be? How much interest would Star owe in April assuming that the entire amount borrowed in March would be paid back? (8 marks) Question 3 (Cost-Volume-Profit Analysis/ 20 marks) AMC Company's projected profit for the coming year is as follows: Per Unit $20 Sales Less: Variable expenses Contribution margin Less: Fixed expenses Operating income Total $200,000 120,000 $80,000 64,000 16,000 Required (a) Compute the break-even point in units. (3 marks) (b) How many units must be sold to earn a profit of $30,000? (3 marks) (c) Compute the contribution margin ratio. Using that ratio, compute the additional profit that AMC Company would earn if sales were $25,000 more than expected. (2 marks) (d) Suppose AMC Company would like to earn operating income equal to 20 percent of sales revenue. How many units must be sold for this goal to be realized? Prepare an income statement to prove your answer. (10 marks) (e) For the projected level of sales, compute the margin of safety. (2 marks) Question 2 (Ratio Analysis/ 25 marks) Selected year-end financial statements of Healthy Life Limited are as follows: Healthy Life Limited Comparative Statements of Financial Position As at December 31, 2019 and 2018 2019 2018 Assets Cash Short-term investment Accounts receivable (net) Notes receivable (due in 3 months) Inventory Prepaid rent Property, plant and equipment (net) Total Assets $ 120,000 100,800 350,400 54,000 385,800 31,800 1,839,600 $2,882,400 $108,000 54,000 78,000 30,000 586,800 24,000 1,686,000 $2,566,800 $345,024 78,000 30,000 Liabilities and Equity Accounts payable Wages payable Income taxes payable Long-term loans (due in 5 years) Share capital Retained earnings Total Liabilities and Equity $ 210,000 38,400 39,600 760,800 1,080,000 753,600 $2,882,400 760,800 1,080,000 272,976 $2.566,800 Healthy Life Limited Income Statement For the year ended December 31, 2019 Net sales (all on credit) Cost of goods sold Gross profit Selling expenses Administrative expenses Finance costs - interest expenses Income before income taxes Income taxes (@ 40%) Net income $5,383,200 (3,400,070) (?,???,???) (120,000) (962,200) (49,900) (???,???) (???,???) $ ??,??? Required: (a) Calculate the following ratios for Healthy Life Limited: i) Current ratio for 2019 and 2018 (3 marks) ii) Acid-test ratio for 2019 and 2018 (3 marks) iii) Debt ratio for 2019 and 2018 (3 marks) iv) Which ratio(s) has/have improved? (1 mark) (Please provide formulae and all ratios should be expressed in one decimal place.) (10 marks) (b) Calculate the following ratios for Healthy Life Limited for 2019: i) Accounts receivable collection period (2 marks each) ii) Inventory holding period iii) Gross profit margin iv) Profit margin v) Return on equity (Please provide formulae and all ratios should be expressed in one decimal place.) (10 marks) (c) Discuss the implications of gross profit margin and profit margin, and the relationship between these two margins