Midterm FMG

ឈ្មោ ះ ភាស់ ផាក់
ជំនាន់29 ក្រុម 63 ថ្នា ក់15A

Midterm Exam
មុខវជ្ជា
ិ FMG
1. Mr. Eli Lilly is very excited because sales for his nursery and plant company are
expected to double from $700,000 to $1,400,000 next year. Eli notes that net
assets (assets – liabilities) will remain at 50 percent of sales. His firm will enjoy
an 8 percent return on total sales. He will start the year with $130,000 in the
bank and is bragging about the Jaguar and luxury townhouse he will buy. Does
his optimistic outlook for his cash position appear to be correct? Compute his
likely cash balance or deficit for the end of the year. Start with beginning cash
and subtract the asset buildup (equal to 50 percent of the sales increase) and add
in profit.
2.
Howe Corporation is trying to improve its inventory control system and has
installed an on-line computer at its retail stores. Howe anticipates sales of
127,000 units per year, an ordering cost of $4 per order, and carrying costs
of
$1.008 per unit.
a. What is the economic ordering quantity?

b. How many orders will be placed during the year?
c. What will the average inventory be?
d. What is the total cost of inventory expected to be?
3. Gibson Manufacturing Corp. expects to sell the following number of units of steel cables
at the prices indicated under three different scenarios in the economy. The probability of
each outcome is indicated. What is the expected value of the total sales projection?
Outcom Probability Unit Price

e .10 200 20$
A .20 190 25$
B .30 210 30$
C
Convex Mechanical Supplies
produces a product with the
following costs as of July 1,
2004:
Material . . . . . . . . $ 6
Labor..........................4
Overhead . . . . . . . 2
$12
Beginning inventory at these costs

on July 1 was 5,000 units. From
July 1 to December 1, Convex
produced 15,000 units. These
units had a material cost of $10
per unit. The costs for labor and
overhead were the same. Convex
uses FIFO inventory accounting.
Assuming Convex sold 17,000

units during the last six months of
the year at $20 each, what would
gross profit be? What is the value
of ending inventory?
ANSWER AND EXPLANATION

1.The sale will increase from $700,000 to $1,400,000 for Nursery and Plan Company.
Hence, the increase in sales is $600,000. The return on total sales is 8%. The beginning
balance of the cash/bank is $130,000. Net assets are equal to 50% of the sales. With the help of
financial forecasting financial managers are able to anticipate future events before they occur
and it helps them to understand when to raise funds externally. Especially, in case of growth of
any firm, additional sources of financing are needed as profit alone is not enough to cover
additional build up in assets like receivables and inventory. In the given case, the effect of
growth on the cash flow helps the manager to know the status of the requirement of the
borrowed funds.
 Values provided:
Beginning balance = $130,000
Sales = $700,000
Sales next year = $1,400,000
Solution:
Asset build up = Sales * 50%
Asset build up = 700,000 * 0.5
Asset build up = $350,000
Profit = Sales * 8%
Profit = 1,400,000 *
0.08
Profit =
$112,000
Ending cash balance/deficit = Beginning balance - Asset build-up +

Profit Ending cash balance/deficit = 130,000 - 350,000 + 112,000
Ending cash balance/deficit = -
$108,000
Here, the sales have doubled but the profit is not sufficient to cover asset build-up.
Hence optimistic outlook for his cash position appeared is not correct. Hence, the
company needs to finance the future cash deficit.
2.
a. What is the economic ordering quantity?
Formula for EOQ
is
EOQ= √2DCo/Ch
Where D= 127,000 Co=4$ Ch=1.008/unit year
→ EOQ= √2 × 127,000 × 4/1.008
= 1003.96≃1004 units
b. How many orders will be placed during the year?
N=D/EOQ
=127,000/1004
=126.5≃127 orders
c.What will the average inventory be?

Average inv= EOQ/2
= 1004/2=502 units
d. What is the total cost of inventory expected to be?

TC= Ch/year + Co/year
=EOQ/2×Ch + D/EOQ×Co
=502×1.008 + 127×4 = 1012$
3. What is the expected value of the total sales projection?
Outcome Probability Units Price

A 0.1 200 20
B 0.2 190 25
C 0.3 210 30
Gibson Manufacturing Corp
1. 2. 4. 5. Total Value
3. Units 6. Expected Value (2x5)
Outcome Probability Price (3x4)
A 0.1 200 20 4,000 $400.00
B 0.2 190 25 4,750 $950.00
C 0.3 210 30 6,300 $1,890.00
Total expected value: $3,240.00
 Convex Mechanical Supplies produces a product with the following costs as of July 1, 2004:
Answer:
Gross profit=
$88,000 Inventory=
$48,000
Explanation:
Giving the following information:
Material $6
Labor 4
Overhead 2
$12
Beginning inventory at these costs on July 1 was 5,000 units. From July 1 to December
1, Convex produced 15,000 units. These units had a material cost of $10 per unit.
Convex sold 17,000 units during the last six months of the year at $20
each. First, we need to find the cost of goods sold:
COGS= 5,000 x 12 + 12,000 x (10+4+2) = 252,000
Gross profit= 17,000 x 20 - 252,000= $88,000
Inventory= 3,000 x 16= $48,000

Midterm FMG

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ឈ្មោ ះ ភាស់ ផាក់

ជំនាន់29 ក្រុម 63 ថ្នា ក់15A

a. What is the economic ordering quantity?

Outcom Probability Unit Price

Beginning inventory at these costs

Assuming Convex sold 17,000

ANSWER AND EXPLANATION

Ending cash balance/deficit = Beginning balance - Asset build-up +

c.What will the average inventory be?

d. What is the total cost of inventory expected to be?

Outcome Probability Units Price

Total expected value: $3,240.00

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