Applied Question: BBJ Industries [20 Marks] BBJ Industries (BBJ) is a construction company located in Nova Scotia. During the year, there have been several activities that have taken place. As the senior financial analyst for BBJ, you have been asked to provide a full analysis of these events. The Zamboni Shed (8 Marks) The city of Halifax would like to build a Zamboni shed at one of its arenas and has decided to tender the project to local contractors. BBJ dispatched its estimator to the site who has returned with the following cost estimates: Variable Labour: 250 hours in the shop. Staff costs are $30 per hour including all payroll-related costs. BBJ is currently experiencing slack in the shop and doesn't have enough work to keep everyone busy but is not planning on laying anyone off. Delivery and installation: 40 hours. This work will be subcontracted to another small builder at $50/hour Supervision: This cost is calculated at 20% of direct labour in the factory and is an allocation of costs for the factory manager, foreman, and administrative staff. Materials: o Lumber for the shed is regularly used in the factory. There is sufficient lumber in the shop to build the shed with a recorded cost of $10,000. The current replacement cost for the lumber is $11,000 o A metal frame is also necessary. BBJ purchased a suitable frame 2 years ago for $7,500 for a similar project but the project fell through and BBJ didn't use the shed. Interestingly a metal supplier saw the frame last week and offered BBJ $5,000 for the frame. o Indirect materials like paint, screws, hinges will cost approximately $1,000 Overhead: BBJ uses a very simple methodology to allocate overhead and simply charges $2,500 for any job produced in the factory. Other costs: Since this is a shed to be used by the city an inspector must look at various stages of completion ensuring materials meet the city's standards. The cost for these inspections is $500. Required: Based on the information provided, you have been asked to calculate the relevant costs and to determine the lowest tender price assuming that BBJ wants to make a minimum profit of $10,000. The Loan [6 Marks) Griffin Inc., a company that BBJ has done business within the past, has come to BBJ looking to see if BBJ would be interested in providing Griffin with a $250,000 long-term loan. The controller has asked you to review the following data provided by Griffin: 2018 2019 2020 Current assets. $316,500 $475,200 $820,800 Current liabilities.. 120,000 155,400 414,600 Non-current liabilities. 60,800 175,200 300,000 Shareholders' equity. 303,700 408,600 490,200 Operating income. 168,900 103,500 208,500 Interest expense. 7,200 13,200 28,500 Income tax expense 65,400 34,200 72,000 Net income.. 96,300 56,100 108,000 Operating cash flow 106,300 64,200 115,000 Required: Using at least two different ratios, calculate them, and then briefly conclude on whether BBJ should provide the loan to Griffin. The Reconciliation [6 Marks] BBJ uses the balance sheet approach based on aging of accounts receivable in accounting for its doubtful receivables. The balance in the allowance for doubtful accounts on December 31st was a debit of $43,000 [i.e. it is currently in a debit position]. In previous years, the allowance account was always in a year ending credit position and you note that this seems excessively high. In analyzing the receivables, you note the following: Receivables outstanding less than 60 days amounted to $144,000; 60-90 days amounted to $198,000 and greater than 90 days amounted to $89,000. Previous experience shows a doubtful percentage of 2%, 11% and 60% respectively. Required: Using this information, you proceed to prepare the entry required to adjust the allowance for doubtful accounts to actual for the year end. Show all work. Applied Question: BBJ Industries [20 Marks] BBJ Industries (BBJ) is a construction company located in Nova Scotia. During the year, there have been several activities that have taken place. As the senior financial analyst for BBJ, you have been asked to provide a full analysis of these events. The Zamboni Shed (8 Marks) The city of Halifax would like to build a Zamboni shed at one of its arenas and has decided to tender the project to local contractors. BBJ dispatched its estimator to the site who has returned with the following cost estimates: Variable Labour: 250 hours in the shop. Staff costs are $30 per hour including all payroll-related costs. BBJ is currently experiencing slack in the shop and doesn't have enough work to keep everyone busy but is not planning on laying anyone off. Delivery and installation: 40 hours. This work will be subcontracted to another small builder at $50/hour Supervision: This cost is calculated at 20% of direct labour in the factory and is an allocation of costs for the factory manager, foreman, and administrative staff. Materials: o Lumber for the shed is regularly used in the factory. There is sufficient lumber in the shop to build the shed with a recorded cost of $10,000. The current replacement cost for the lumber is $11,000 o A metal frame is also necessary. BBJ purchased a suitable frame 2 years ago for $7,500 for a similar project but the project fell through and BBJ didn't use the shed. Interestingly a metal supplier saw the frame last week and offered BBJ $5,000 for the frame. o Indirect materials like paint, screws, hinges will cost approximately $1,000 Overhead: BBJ uses a very simple methodology to allocate overhead and simply charges $2,500 for any job produced in the factory. Other costs: Since this is a shed to be used by the city an inspector must look at various stages of completion ensuring materials meet the city's standards. The cost for these inspections is $500. Required: Based on the information provided, you have been asked to calculate the relevant costs and to determine the lowest tender price assuming that BBJ wants to make a minimum profit of $10,000. The Loan [6 Marks) Griffin Inc., a company that BBJ has done business within the past, has come to BBJ looking to see if BBJ would be interested in providing Griffin with a $250,000 long-term loan. The controller has asked you to review the following data provided by Griffin: 2018 2019 2020 Current assets. $316,500 $475,200 $820,800 Current liabilities.. 120,000 155,400 414,600 Non-current liabilities. 60,800 175,200 300,000 Shareholders' equity. 303,700 408,600 490,200 Operating income. 168,900 103,500 208,500 Interest expense. 7,200 13,200 28,500 Income tax expense 65,400 34,200 72,000 Net income.. 96,300 56,100 108,000 Operating cash flow 106,300 64,200 115,000 Required: Using at least two different ratios, calculate them, and then briefly conclude on whether BBJ should provide the loan to Griffin. The Reconciliation [6 Marks] BBJ uses the balance sheet approach based on aging of accounts receivable in accounting for its doubtful receivables. The balance in the allowance for doubtful accounts on December 31st was a debit of $43,000 [i.e. it is currently in a debit position]. In previous years, the allowance account was always in a year ending credit position and you note that this seems excessively high. In analyzing the receivables, you note the following: Receivables outstanding less than 60 days amounted to $144,000; 60-90 days amounted to $198,000 and greater than 90 days amounted to $89,000. Previous experience shows a doubtful percentage of 2%, 11% and 60% respectively. Required: Using this information, you proceed to prepare the entry required to adjust the allowance for doubtful accounts to actual for the year end. Show all work