Question 5 (10 marks) Bedtime Bedding Ltd. manufactures pillows. The Cover Division makes covers, and the Assembly Division makes the finished products. The covers can be sold separately for $5.00. The pillows sell for $6.00. The Information related to manufacturing for the most recent year is as follows: Cover Division manufacturing costs $6,000,000 External sales of covers by Cover Division $4,000,000 Market value of covers transferred to Assembly $6,000,000 Sales of pillows by Assembly Division $7,200,000 Additional manufacturing of Assembly Division $1,500,000 Required: Compute the operating income for each division and the company as a whole. Use market value as the transfer price. Are all managers happy with this concept? Explain. Question 1 (20 marls) Burnaby Ltd. is considering the acquisition of new production equipment. If purchased, the new equipment would cost $1,850,000. Installation and testing costs would be $35,000 and $25,000 respectively. Once operational, the equipment will cause an increase in working capital of $120,000. The new equipment is expected to generate increased annual sales of $720,000. Variable costs to operate the machine are estimated at 42% of sales and annual fixed costs would be lowered by $75,000. The equipment has an estimate 6 year life and a salvage value of $90,000. The company requires an 11% return on its investments. Ignore income taxes. Required: a. Compute the net present value. b. How do you compare NPV to Payback method? Which method is likely to be more reliable? Question 2 (20 marks) McKenna Company planned to produce 900 units during April with a total overhead budget of $12,400. However, while manufacturing the 1,000 units the microcomputer that contained the month's cost information broke down. With the computer out of commission, the accountant has been unable to complete the variance analysis report. The information missing from the report islettered in the following set of data: Variable overhead: Standard cost per unit: 0.4 labour hour at $4 per hour Actual costs: $2,100 for 376 hours Flexible budget: Total flexible-budget variance: Variable overhead rate variance: Variable overhead efficiency variance: 2011 01 Fixed overhead: Budgeted costs: Actual costs: Flexible-budget variance: $500 favourable Required: Compute the missing elements in the report represented by the lettered items Question 3 (30 marks) Surrey Glass Manufacturing, manufactures a variety of high quality electronic components. Data from the last three months are presented below: April 0.85 May 0.86 75 Direct materials partial productivity Overtime hours worked Defect rate On time delivery Setup time (average in hours) Number of machine breakdowns Downtime (hours) Number of products returned Throughput time (hours) June 0.87 72 1.92% 98.0% 6.80 2.00% 98.0% 6.90 1.9596 98.396 16.85 12.0 12.0 11.5 11.25 12.0 11.8 11.5 You are the new assistant controller for Ranger and the controller has asked you to review the performance over the last 3 months and write a summary analysis with your recommendations for follow up or further monitoring. In addition, the controller notes that the company, although it has many detailed performance measures, is considering implementing a balanced Scorecard and asks you to identify the measures you think would be most appropriate to include in the balanced Scorecard. Required: Analyze the performance and prepare a detailed Balanced Scorecard. Question 4 (20 marks) Lily factory allows its departments to operate as autonomous units. Their results for the current year were as follows: Candy $2,200,000 Beverage $670,000 Packaging $1,200,000 Revenues Current assets 320,000 535,000 112,000 488,000 Capital assets 765,000 1,320,000 432,000 Current liabilities 276,000 107,000 Netoperating income 57,000 420,000 312,000 218,000 After-tax income 39,000 299,000 Weighted average cost of capital 7.5% 7.596 7.596 Required: For each division compute the: 1. Return on sales Return on investment based on total assets employed Question 5 (10 marks) Bedtime Bedding Ltd. manufactures pillows. The Cover Division makes covers, and the Assembly Division makes the finished products. The covers can be sold separately for $5.00. The pillows sell for $6.00. The Information related to manufacturing for the most recent year is as follows: Cover Division manufacturing costs $6,000,000 External sales of covers by Cover Division $4,000,000 Market value of covers transferred to Assembly $6,000,000 Sales of pillows by Assembly Division $7,200,000 Additional manufacturing of Assembly Division $1,500,000 Required: Compute the operating income for each division and the company as a whole. Use market value as the transfer price. Are all managers happy with this concept? Explain. Question 1 (20 marls) Burnaby Ltd. is considering the acquisition of new production equipment. If purchased, the new equipment would cost $1,850,000. Installation and testing costs would be $35,000 and $25,000 respectively. Once operational, the equipment will cause an increase in working capital of $120,000. The new equipment is expected to generate increased annual sales of $720,000. Variable costs to operate the machine are estimated at 42% of sales and annual fixed costs would be lowered by $75,000. The equipment has an estimate 6 year life and a salvage value of $90,000. The company requires an 11% return on its investments. Ignore income taxes. Required: a. Compute the net present value. b. How do you compare NPV to Payback method? Which method is likely to be more reliable? Question 2 (20 marks) McKenna Company planned to produce 900 units during April with a total overhead budget of $12,400. However, while manufacturing the 1,000 units the microcomputer that contained the month's cost information broke down. With the computer out of commission, the accountant has been unable to complete the variance analysis report. The information missing from the report islettered in the following set of data: Variable overhead: Standard cost per unit: 0.4 labour hour at $4 per hour Actual costs: $2,100 for 376 hours Flexible budget: Total flexible-budget variance: Variable overhead rate variance: Variable overhead efficiency variance: 2011 01 Fixed overhead: Budgeted costs: Actual costs: Flexible-budget variance: $500 favourable Required: Compute the missing elements in the report represented by the lettered items Question 3 (30 marks) Surrey Glass Manufacturing, manufactures a variety of high quality electronic components. Data from the last three months are presented below: April 0.85 May 0.86 75 Direct materials partial productivity Overtime hours worked Defect rate On time delivery Setup time (average in hours) Number of machine breakdowns Downtime (hours) Number of products returned Throughput time (hours) June 0.87 72 1.92% 98.0% 6.80 2.00% 98.0% 6.90 1.9596 98.396 16.85 12.0 12.0 11.5 11.25 12.0 11.8 11.5 You are the new assistant controller for Ranger and the controller has asked you to review the performance over the last 3 months and write a summary analysis with your recommendations for follow up or further monitoring. In addition, the controller notes that the company, although it has many detailed performance measures, is considering implementing a balanced Scorecard and asks you to identify the measures you think would be most appropriate to include in the balanced Scorecard. Required: Analyze the performance and prepare a detailed Balanced Scorecard. Question 4 (20 marks) Lily factory allows its departments to operate as autonomous units. Their results for the current year were as follows: Candy $2,200,000 Beverage $670,000 Packaging $1,200,000 Revenues Current assets 320,000 535,000 112,000 488,000 Capital assets 765,000 1,320,000 432,000 Current liabilities 276,000 107,000 Netoperating income 57,000 420,000 312,000 218,000 After-tax income 39,000 299,000 Weighted average cost of capital 7.5% 7.596 7.596 Required: For each division compute the: 1. Return on sales Return on investment based on total assets employed