Balkh University

Faculty of Economy
MFA 6
Final Exam
Saterday Jul.13.2024

Closed book and closed notes

NAME (please print): _______________________________________________________________________

1. This exam is closed book, closed notes.

2. NO Programmable/Graphing calculator may be used for the exam. Allowable calculators include non-
programmable scientific calculators and simple four-function calculators.
You may not use a cell phone as a calculator.
3. The exam is composed of the following:

Problems: Points

Multiple Choice (3 points each) 36 _______

Cost-Volume-Profit Analysis 14 _______

Sales Mix 12 _______

Master Budgeting 29 _______

Performance Analysis 12 _______

Financial Statement Analysis 22 _______

Total Points 125 _______

NOTE: This exam consists of 11 pages—printed on both sides.

SHOW ALL WORK/COMPUTATIONS IN SUPPORT OF YOUR ANSWERS.

Pledge: This represents my own work, with no unauthorized help on this examination, in accordance with
the University Honor Code.
Further, I have read the instructions and questions thoroughly, and I am well-prepared and have
answered all questions thoughtfully and intelligently. None of my answers are so ridiculously made
up that Professor Favorite will wonder if I am even in this class.

Signature: ____________________________________________________
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PROBLEM 1 MULTIPLE CHOICE (2 POINTS EACH) 36 POINTS

Instructions: Circle the letter corresponding to the best answer.

Chapter 5 Cost-Volume-Profit Relationships

41) Rovinsky Corporation, a company that produces and sells a single product, has provided its
contribution format income statement for November.

Sales (5,700 units) $ 319,200

Variable expenses 188,100
Contribution margin 131,100
Fixed expenses 106,500
Net operating income $ 24,600

If the company sells 5,300 units, its net operating income should be closest to:
A) $24,600
B) $2,200
C) $22,874
D) $15,400

Answer: D
Explanation: Selling price per unit = Sales ÷ Quantity sold = $319,200 ÷ 5,700 units = $56 per unit
Variable expenses per unit = Variable expenses ÷ Quantity sold = $188,100 ÷ 5,700 units = $33 per unit
Unit CM = Selling price per unit – Variable expenses per unit = $56 per unit – $33 per unit = $23 per
unit
Profit = (Unit CM × Q) – Fixed expenses = ($23 per unit × 5,300 units) – $106,500 = $121,900 –
$106,500 = $15,400

55) The following information pertains to Nova Co.'s cost-volume-profit relationships:

Breakeven point in units sold 1,000

Variable expenses per unit $ 500
Total fixed expenses $ 150,000

How much will be contributed to net operating income by the 1,001st unit sold?
A) $650
B) $500
C) $150
D) $0

Answer: C
Explanation: Profit = (Unit CM × Q) – Fixed expenses

$0 = (Unit CM × 1,000 units) – $150,000

Unit CM = $150,000 ÷ 1,000 units = $150 per unit

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75) Kuzio Corporation produces and sells a single product. Data concerning that product appear below:

Per Unit Percent of Sales

Selling price $ 130 100 %
Variable expenses 78 60 %
Contribution margin $ 52 40 %

The company is currently selling 6,000 units per month. Fixed expenses are $263,000 per month. The
marketing manager believes that a $5,000 increase in the monthly advertising budget would result in a
140 unit increase in monthly sales. What should be the overall effect on the company's monthly net
operating income of this change?
A) increase of $2,280
B) increase of $7,280
C) decrease of $5,000
D) decrease of $2,280

Answer: A
Explanation:
Contribution Income Statement
6,000 units 6,140 units
Sales (at $130 per unit) $ 780,000 $ 798,200
Variable expenses (at $78 per unit) 468,000 478,920
Contribution margin 312,000 319,280
Fixed expenses ($5,000 increase) 263,000 268,000
Net operating income $ 49,000 $ 51,280

Net operating income would increase by $2,280.

108) Cubie Corporation has provided the following data concerning its only product:

Selling price $ 100 per unit

Current sales 10,600 units
Break-even sales 9,540 units

What is the margin of safety in dollars?

A) $1,060,000
B) $106,000
C) $954,000
D) $706,667

Answer: B
Explanation: Margin of safety in dollars = Total sales – Break-even sales
= (10,600 units × $100 per unit) – (9,540 units × $100 per unit)
= $1,060,000 – $954,000 = $106,000
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118) Lofft Corporation has provided the following contribution format income statement. Assume that
the following information is within the relevant range.

Sales (2,000 units) $ 120,000

Variable expenses 90,000
Contribution margin 30,000
Fixed expenses 16,500
Net operating income $ 13,500

Using the degree of operating leverage, the estimated percent increase in net operating income as the
result of a 10% increase in sales is closest to:
A) 1.13%
B) 88.89%
C) 22.22%
D) 4.50%

Answer: C
Explanation: Degree of operating leverage = Contribution margin ÷ Net operating income
= $30,000 ÷ $13,500 = 2.2

Percentage change in net operating income = Degree of operating leverage × Percentage change in sales
= 2.2 × 10% = 22%

124) Steffen Corporation has three products with the following characteristics:

Product A Product B Product C

Monthly sales in dollars $ 120,000 $ 160,000 $ 200,000
Contribution margin ratio 20 % 40 % 16 %

The overall contribution margin ratio for the company as a whole is closest to:
A) 35.3%
B) 75.0%
C) 25.0%
D) 28.5%

Answer: C
Explanation:
Product A Product B Product C Total
Monthly sales
in dollars $ 120,000 $ 160,000 $ 200,000 $ 480,000
Contribution
margin ratio 20 % 40 % 16 %
Contribution
margin $ 24,000 $ 64,000 $ 32,000 $ 120,000

Overall CM ratio = Contribution margin ÷ Sales = $120,000 ÷ $480,000 = 0.25

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Chapter 8, Master Budgeting

31. All of Gaylord Corporation's sales are on account. Thirty-five percent of the sales on account are
collected in the month of sale, 45% in the month following sale, and the remainder are collected in the
second month following sale. The following are budgeted sales data for the company:

January February March April

Total sales..... $50,000 $60,000 $40,000 $30,000

What is the amount of cash that should be collected in March?

A) $24,000
B) $37,000
C) $41,000
D) $51,000
Answer: D
Feedback:
March sales collected in March ($40,000 × 35%) ................. $14,000
February sales collected in March ($60,000 × 45%) ............. 27,000
January sales collected in March ($50,000 × 20%) 10,000
Total cash collections in March ............................................. $51,000

40. Crocetti Corporation makes one product and has provided the following information to help prepare
the master budget for the next four months of operations:

Budgeted selling price per unit .... $121

Budgeted unit sales (all on
credit):
January ..................................... 7,000
February ................................... 7,500
March ....................................... 11,900
April ......................................... 14,900

Credit sales are collected:

40% in the month of the sale
60% in the following month

The budgeted accounts receivable balance at the end of February is closest to:
A) $544,500
B) $907,500
C) $605,000
D) $363,000
Answer: A
Feedback:
The budgeted accounts receivable balance at the end of February is:
February sales 7,500 units × $121 per unit (a) $907,500
Percent uncollected (b) ..................................... 60%
Accounts receivable (a) × (b) ........................... $544,500
42. Frolic Corporation has budgeted sales and
production over the next quarter as follows:
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July August September

Sales in units ............. 70,000 83,000 ?
Production in units .... 73,250 84,750 91,750

The company has 17,500 units of product on

hand at July 1. 25% of the next month's sales
in units should be on hand at the end of each
month. October sales are expected to be
97,000 units. Budgeted sales for September
would be (in units):
A) 88,000
B) 90,000
C) 86,000
D) 84,000
Answer: B
Feedback:
August September
Budgeted unit sales ............................................ 83,000 X
Add desired ending finished goods inventory
(X × 25%; 97,000 × 25%) .............................. 0.25X 24,250
83,000 +
Total needs ......................................................... 0.25X 24,250 + X
Less beginning finished goods inventory
(83,000 × 25%; X × 25%) .............................. 20,750 0.25X
Required production in units.............................. 84,750 91,750

83,000 + 0.25X – 20,750 = 84,750

0.25X = 22,500
X = 90,000
or
24,250 + X – 0.25X = 91,750
0.75X = 67,500
X = 90,000

55. Reaser Corporation makes one product.

April May June July

Budgeted unit sales ..... 8,400 8,700 12,600 13,100

Each unit of finished goods requires 4 pounds

of raw materials. The ending finished goods
inventory equals 10% of the following
month's sales. The ending raw materials
inventory equals 40% of the following
month’s raw materials production needs. If
50,600 pounds of raw materials are required
for production in June, then the budgeted raw
material purchases for May is closest to:
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A) 56,600 pounds
B) 42,056 pounds
C) 71,144 pounds
D) 36,360 pounds

Answer: B
Feedback:
The budgeted required production for May is
computed as follows:
Budgeted sales in units .............. 8,700
Add desired ending inventory* .. 1,260
Total needs ................................. 9,960
Less beginning inventory** ....... 870
Required production .................. 9,090
*June sales of 12,600 units × 10% = 1,260
units
** May sales of 8,700 units × 10%= 870 units

The budgeted raw material purchases for May

are computed as follows:
Required production in units of finished goods ................ 9,090
Units of raw materials needed per unit of finished goods 4
Units of raw materials needed to meet production ........... 36,360
Add desired units of ending raw materials inventory* ..... 20,240
Total units of raw materials needed .................................. 56,600
Less units of beginning raw materials inventory** .......... 14,544
Units of raw materials to be purchased ............................. 42,056
* 50,600 pounds × 40% = 20,240 pounds.
** 36,360 pounds × 40% = 14,544 pounds.

64. Catano Corporation pays for 40% of its

raw materials purchases in the month of
purchase and 60% in the following month. If
the budgeted cost of raw materials purchases
in July is $256,550 and in August is $278,050,
then in August the total budgeted cash
disbursements for raw materials purchases is
closest to:
A) $265,150
B) $153,930
C) $166,830
D) $111,220
Answer: A
Feedback:
The estimated cash disbursements for
materials purchases in August is computed as
follows:
$153,93
July purchases: $256,550 × 60% ........... 0
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August purchases: $278,050 × 40% ...... 111,220

$265,15
Total cash disbursements ....................... 0
79. Sedita Inc. is working on its cash budget for July. The budgeted beginning cash balance is $46,000.
Budgeted cash receipts total $175,000 and budgeted cash disbursements total $174,000. The desired
ending cash balance is $50,000. The excess (deficiency) of cash available over disbursements for July
will be:
A) $47,000
B) $221,000
C) $45,000
D) $1,000
Answer: A
Feedback:
Beginning cash balance .......................................................... $46,000
Add cash receipts (all sales are for cash) ............................... 175,000
Total cash available ................................................................ 221,000
Less cash disbursements ........................................................ 174,000
Excess (deficiency) of cash available over disbursements..... $47,000

Chapter 9 Flexible Budgets and Performance Analysis

42) Thilking Midwifery's cost formula for its wages and salaries is $2,140 per month plus $454 per
birth. For the month of August, the company planned for activity of 102 births, but the actual level of
activity was 100 births. The actual wages and salaries for the month was $47,660. The wages and
salaries in the flexible budget for August would be closest to:
A) $47,540
B) $48,448
C) $47,498
D) $47,660

Answer: A
Explanation: Cost = Fixed cost + (Variable cost per unit × q)
= $2,140 + ($454 × 100) = $47,540

52) Picozzi Snow Removal's cost formula for its vehicle operating cost is $2,060 per month plus $306
per snow-day. For the month of January, the company planned for activity of 16 snow-days, but the
actual level of activity was 18 snow-days. The actual vehicle operating cost for the month was $7,720.
The vehicle operating cost in the planning budget for January would be closest to:
A) $6,956
B) $6,862
C) $7,720
D) $7,568

Answer: A
Explanation: Cost = Fixed cost + (Variable cost per unit × q)
= $2,060 + ($306 × 16) = $6,956

102) Tomlison Corporation manufactures and sells a single product. The company uses units as the
measure of activity in its budgets and performance reports. During October, the company budgeted for
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5,100 units, but its actual level of activity was 5,150 units. The company has provided the following data
concerning the formulas to be used in its budgeting:

Fixed Element Variable element

per Month per unit
Revenue - $ 42.40

Direct labor $ 0 $ 7.70

Direct materials 0 15.40
Manufacturing overhead 46,800 1.20
Selling and administrative expenses 21,000 0.40
Total expenses $ 67,800 $ 24.70

The direct materials in the flexible budget for October would be closest to:
A) $79,310
B) $78,540
C) $79,239
D) $77,708

Answer: A
Explanation: Cost = Fixed cost + (Variable cost per unit × q)
= $0 + ($15.40 × 5,150) = $79,310

162) Leven Clinic uses client-visits as its measure of activity. During September, the clinic budgeted for
3,000 client-visits, but its actual level of activity was 3,050 client-visits. The clinic has provided the
following data concerning the formulas to be used in its budgeting for September:

Fixed element Variable element

per month per client-visit
Revenue - $ 31.00

Personnel expenses $ 23,900 $ 10.70

Medical supplies 1,400 3.90
Occupancy expenses 5,700 1.10
Administrative expenses 5,100 0.10
Total expenses $ 36,100 $ 15.80

The personnel expenses in the planning budget for September would be closest to:
A) $56,535
B) $54,575
C) $55,485
D) $56,000

Answer: D
Explanation: Cost = Fixed cost + (Variable cost per unit × q)
= $23,900 + ($10.70 × 3,000) = $56,000

289) Kirnon Clinic uses client-visits as its measure of activity. During July, the clinic budgeted for 2,000
client-visits, but its actual level of activity was 2,010 client-visits. The clinic has provided the following
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data concerning the formulas to be used in its budgeting:

Fixed element Variable element

per month per client-visit
Revenue - $ 43.70

Personnel expenses $ 26,100 $ 12.10

Medical supplies 1,000 6.30
Occupancy expenses 6,800 1.60
Administrative expenses 3,000 0.20
Total expenses $ 36,900 $ 20.20

The activity variance for administrative expenses in July would be closest to:
A) $2 U
B) $162 F
C) $2 F
D) $162 U

Answer: A
Explanation:

Flexible budget [$3,000 + ($0.20 × 2,010)] $ 3,402

Planning budget [$3,000 + ($0.20 × 2,000)] 3,400
Activity variance $ 2

Chapter 15, Financial Statement Analysis

60. Data from Fontecchio Corporation's most recent balance sheet appear below:

Cash ........................................ $18,000

Marketable securities ............. $24,000
Accounts receivable ............... $39,000
Short-term notes receivable.... $0
Inventory ................................ $60,000
Prepaid expenses .................... $14,000
Current liabilities .................... $120,000

The corporation's acid-test ratio is closest to:

A) 0.35
B) 0.15
C) 0.68
D) 0.79
Answer: C
Feedback:
Quick assets = Cash + Marketable securities + Accounts receivable + Short-term notes receivable
= $18,000 + $24,000 + $39,000 + $0 = $81,000
Acid-test ratio = Quick assets ÷ Current liabilities
= $81,000 ÷ $120,000 = 0.675
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70. Orem Corporation's current liabilities are $75,000, its long-term liabilities are $225,000, and its
working capital is $100,000. If the corporation's debt-to-equity ratio is 0.30, total long-term assets must
equal:
A) $1,000,000
B) $1,300,000
C) $1,125,000
D) $1,225,000
Answer: C
Feedback:
Working capital = Current assets – Current liabilities
$100,000 = Current assets – $75,000
Current assets = $100,000 + $75,000 = $175,000

Debt-to-equity ratio = Total liabilities ÷ Stockholders' equity

0.30 = ($75,000 + $225,000) ÷ Stockholders' equity
Stockholders’ equity = ($75,000 + $225,000) ÷ 0.30 = $1,000,000

Total assets = Total liabilities + Stockholders' equity

Current assets + Long-term assets = Current liabilities + Long-term liabilities + Stockholders' equity
$175,000 + Long-term assets = $75,000 + $225,000 + $1,000,000
Long-term assets = $75,000 + $225,000 + $1,000,000 – $175,000 = $1,125,000

92. Klein Corporation has provided the following data:

Year 2 Year 1
Total assets ........................ $1,337,00 $1,310,000
0
Total liabilities .................. $598,000 $580,000
Total stockholders' equity . $739,000 $730,000

The company’s equity multiplier is closest to:

A) 1.24
B) 0.56
C) 1.80
D) 0.81
Answer: C
Feedback:
Equity multiplier = Average total assets* ÷ Average stockholders' equity*
= $1,323,500 ÷ $734,500 = 1.80 (rounded)
*Average total assets = ($1,337,000 + $1,310,000) ÷ 2 = $1,323,500
**Average stockholders' equity = ($739,000 + $730,000) ÷ 2 = $734,500

101. Younis Corporation’s income statement appears below:

Income Statement
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Sales (all on account) ......... $1,240,00

0
Cost of goods sold.............. 780,000
Gross margin ...................... 460,000
Operating expenses ............ 416,571
Net operating income ......... 43,429
Interest expense.................. 14,000
Net income before taxes .... 29,429
Income taxes (30%) ........... 8,829
Net income ......................... $ 20,600

The company’s net profit margin percentage is closest to:

A) 37.1%
B) 3.5%
C) 2.4%
D) 1.7%
Answer: D
Feedback:
Net profit margin percentage = Net income ÷ Sales
= $20,600 ÷ $1,240,000 = 1.7% (rounded)

109. Valdovinos Corporation has provided the following data:

Sales (all on account) ...... $1,150,00

0
Gross margin ................... $440,000
Net operating income ...... $40,077
Net income before taxes . $23,077
Net income ...................... $15,000

The company’s net profit margin percentage is closest to:

A) 38.3%
B) 3.5%
C) 1.3%
D) 2.0%
Answer: C
Feedback:
Net profit margin percentage = Net income ÷ Sales
= $15,000 ÷ $1,150,000 = 1.3% (rounded)

115. Goldsmith Corporation has provided the following data:

Year 2 Year 1
Common stock, $3 par value ............. $270,000 $270,000
Retained earnings ............................... $419,000 $400,000
Total stockholders' equity .................. $749,000 $730,000
Total liabilities & stockholders' equity $1,291,00 $1,270,00
........................................................ 0 0
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The company’s net income in Year 2 was $24,400. The company’s book value per share at the end of
Year 2 is closest to:
A) $8.32 per share
B) $4.66 per share
C) $14.34 per share
D) $0.27 per share
Answer: A
Feedback:
Book value per share = Common stockholders' equity ÷ Number of common shares outstanding*
= $749,000 ÷ 90,000 shares = $8.32 per share (rounded)
*Number of common shares outstanding = Common stock ÷ Par value
= $270,000 ÷ $3 per share =90,000 shares

125. Spincic Corporation has provided the following data:

Year 2 Year 1
Common stock, $2 par value . $200,000 $200,000
Net operating income ............. $66,769
Net income before taxes ........ $50,769
Net income ............................. $33,000

The market price of common stock at the end of Year 2 was $4.13 per share. The company’s price-
earnings ratio for Year 2 is closest to:
A) 0.52
B) 8.10
C) 6.16
D) 12.52
Answer: D
Feedback:
Earnings per share = Net Income ÷ Average number of common shares outstanding*
= $33,000 ÷ 100,000 shares = $0.33 per share (rounded)
*Number of common shares outstanding = Common stock ÷ Par value
= $200,000 ÷ $2 per share = 100,000 shares

Price-earnings ratio = Market price per share ÷ Earnings per share

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= $4.13 ÷ $0.33 = 12.52 (rounded)

PROBLEM 2 COST-VOLUME-PROFIT ANALYSIS AND DECISIONS 14 POINTS

220) The management of Merklin Corporation expects sales in May to be $105,000. The company's
contribution margin ratio is 70% and its fixed monthly expenses are $48,000.

Required:
Estimate the company's net operating income for May, assuming that the fixed monthly expenses do not
change.

Answer: Profit = (CM ratio × Sales) – Fixed expenses

= (70% × $105,000) – $48,000

= $73,500 – $48,000 = $25,500

231) Cleghorn Corporation produces and sells a single product. Data concerning that product appear
below:

Selling price per unit $ 160.00

Variable expense per unit $ 70.40
Fixed expense per month $ 153,216
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Required:
Determine the monthly break-even in total dollar sales.

Answer:
Percent of
Per Unit Sales
Selling price per unit $ 160.00 100%
Variable expense per unit 70.40 44%
Contribution margin per unit and contribution margin
ratio $ 89.60 56 %

Dollar sales to break even = Fixed expenses ÷ CM ratio = $153,216 ÷ 0.56 = $273,600

237) Brihon Corporation produces and sells a single product. Data concerning that product appear
below:

Selling price per unit $ 230.00

Variable expense per unit $ 103.50
Fixed expense per month $ 518,650

Required:
a. Assume the company's monthly target profit is $12,650. Determine the unit sales to attain that target
profit.
b. Assume the company's monthly target profit is $63,250. Determine the dollar sales to attain that target
profit.

Answer:
Percent of
Per Unit Sales
Selling price per unit $ 230.00 100%
Variable expense per unit 103.50 45%
Contribution margin per unit and CM ratio $ 126.50 55%

a.
Unit sales to attain target profit = (Target profit + Fixed expenses) ÷ Unit CM = ($518,650 + $12,650) ÷
$126.50 per unit = 4,200 units

b.
Dollar sales to attain target profit = (Target profit + Fixed expenses) ÷ CM ratio = ($518,650 + $63,250)
÷ 0.55 = $1,058,000

246) Lubke Corporation's contribution format income statement for the most recent month follows:

Sales $ 506,000
Variable expenses 236,500
Contribution margin 269,500
Fixed expenses 241,700
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Net operating income $ 27,800

Required:
a. Compute the degree of operating leverage to two decimal places.
b. Using the degree of operating leverage, estimate the percentage change in net operating income that
should result from a 3% increase in sales.

Answer:
a.
Degree of operating leverage = Contribution margin ÷ Net operating income = $269,500 ÷ $27,800 =
9.69

b.
Percent increase in net operating income = Percent increase in sales × Degree of operating leverage =
3% × 9.69 = 29.07%
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PROBLEM 3 SALES MIX (MULTIPLE PRODUCT CVP) 12 POINTS

215. At March 31 Streuling Enterprises, a merchandising firm, had an inventory of 38,000 units, and it
had accounts receivable totaling $85,000. Sales, in units, have been budgeted as follows for the next four
months:

April .... 60,000

May ..... 75,000
June ..... 90,000
July ...... 81,000

Streuling's board of directors has established a policy to commence in April that the inventory at the end
of each month should contain 40% of the units required for the following month's budgeted sales.
The selling price is $2 per unit. One-third of sales are paid for by customers in the month of the sale, the
balance is collected in the following month.

Required:
a. Prepare a merchandise purchases budget showing how many units should be purchased for each of the
months April, May, and June.
b. Prepare a schedule of expected cash collections for each of the months April, May, and June.
Answer:
a. Merchandise Purchases Budget (units)
April May June July
Budgeted unit sales ........................................................... 60,000 75,000 90,000 81,000
Desired ending inventory (40% of following months’
sales) ............................................................................. 30,000 36,000 32,400
Total needs ....................................................................... 90,000 111,000 122,400
Less beginning inventory ................................................. 38,000 30,000 36,000
Required purchases .......................................................... 52,000 81,000 86,400

b. Schedule of Expected Cash Collections

April May June
Budgeted sales, at $2 per unit.......... $120,000 $150,000 $180,000

Beginning accounts receivable ........ $85,000

April sales
(1/3 × $120,000; 2/3 × $120,000) 40,000 $ 80,000
May sales
(1/3 × $150,000; 2/3 × $150,000) 50,000 $100,000
June sales (1/3 × $180,000) ............. 60,000
Total cash collections ...................... $125,000 $130,000 $160,000

224. Weller Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data
regarding the store's operations follow:

o Sales are budgeted at $330,000 for November, $300,000 for December, and $320,000 for January.
o Collections are expected to be 85% in the month of sale and 15% in the month following the sale.
o The cost of goods sold is 60% of sales.
 18

o The company desires an ending merchandise inventory equal to 80% of the cost of goods sold in the
following month.
o Payment for merchandise is made in the month following the purchase.
o Other monthly expenses to be paid in cash are $21,200.
o Monthly depreciation is $21,000.
o Ignore taxes.

Balance Sheet
October 31
Assets
Cash ............................................................................................................ $ 22,000
Accounts receivable ................................................................................... 83,000
Merchandise inventory ............................................................................... 158,400
Property, plant and equipment (net of $594,000 accumulated
depreciation) ........................................................................................... 1,004,000
$1,267,40
Total assets ................................................................................................. 0

Liabilities and Stockholders' Equity

Accounts payable ....................................................................................... $ 196,000
Common stock ........................................................................................... 620,000
Retained earnings ....................................................................................... 451,400
$1,267,40
Total liabilities and stockholders' equity .................................................... 0

Required:
a. Prepare a Schedule of Expected Cash Collections for November and December.
b. Prepare a Merchandise Purchases Budget for November and December.
c. Prepare Cash Budgets for November and December.
d. Prepare Budgeted Income Statements for November and December.
e. Prepare a Budgeted Balance Sheet for the end of December.
Answer:
a. Novembe
r December
Sales ................................................................................ $330,000 $300,000
Schedule of Expected Cash Collections
Accounts receivable ........................................................ $ 83,000
November sales (85% × $330,000; 15% × $330,000) .... 280,500 $ 49,500
December sales (85% × $300,000) ................................. 255,000
Total cash collections ...................................................... $363,500 $304,500

b. November December
Budgeted cost of goods sold
(60% × $330,000; 60% × $300,000) ........................... $198,000 $180,000
Add desired ending merchandising inventory
(80% × $180,000; 80% × 60% × $320,000) .............. 144,000 153,600
Total needs ......................................................... 342,000 333,600
Less beginning merchandise inventory.......................... 158,400 144,000
 19

Required purchases ........................................................ $183,600 $189,600

c. November December
Cash disbursements for merchandise ...................................... $196,000 $183,600
Other monthly cash expenses ................................................. 21,200 21,200
Total cash disbursements ........................................................ $217,200 $204,800

Beginning cash balance .......................................................... $22,000 $168,300

Add cash receipts .................................................................... 363,500 304,500
Total cash available ................................................................ 385,500 472,800
Less cash disbursements ......................................................... 217,200 204,800
Excess (deficiency) of cash available over disbursements ..... 168,300 268,000
Financing ................................................................................ 0 0
Ending cash balance................................................................ $168,300 $268,000

d. November December
Sales .................................. $330,000 $300,000
Cost of goods sold............. 198,000 180,000
Gross margin ..................... 132,000 120,000
Other monthly expenses.... 21,200 21,200
Depreciation ...................... 21,000 21,000
Net operating income ........ $ 89,800 $ 77,800

e.
Balance Sheet
December 31

Assets
Cash ............................................................................................................ $ 268,000
Accounts receivable (15% × $300,000) ..................................................... 45,000
Inventory .................................................................................................... 153,600
Property, plant and equipment (net of $636,000 accumulated
depreciation) ........................................................................................... 962,000
$1,428,60
Total assets ................................................................................................. 0

Liabilities and Stockholders' Equity

Accounts payable ....................................................................................... $ 189,600
Common stock ........................................................................................... 620,000
Retained earnings ($451,400 + $89,800 + $77,800) .................................. 619,000
$1,428,60
Total liabilities and stockholders' equity .................................................... 0
 20

PROBLEM 4 MASTER BUDGETING 29 POINTS

 21

PROBLEM 4 MASTER BUDGETING, CONTINUED

)
 22

PROBLEM 4 MASTER BUDGETING, CONTINUED

 23

PROBLEM 5 FLEXIBLE BUDGET AND PERFORMANCE ANALYSIS 12 POINTS

 24

347) Shiigi Urban Diner is a charity supported by donations that provides free meals to the homeless.
The diner's budget for May is to be based on 3,300 meals. The diner's director has provided the
following cost data to use in the budget: groceries, $3.80 per meal; kitchen operations, $4,600 per month
plus $1.25 per meal; administrative expenses, $3,800 per month plus $0.40 per meal; and fundraising
expenses, $1,700 per month.

Required:

Prepare the diner's budget for the month of May. The budget will only contain the costs listed above; no
revenues will be on the budget.

Answer:
Shiigi Urban Diner
Planning Budget
For the Month Ended May 31
Budgeted meals (q) 3,300

Groceries ($3.80q) $ 12,540

Kitchen operations ($4,600 + $1.25q) 8,725
Administrative expenses ($3,800 + $0.40q) 5,120
Fundraising expenses ($1,700) 1,700
Total expense $ 28,085

355) During October, Fryer Corporation budgeted for 30,000 customers, but actually served 33,000
customers. Revenue should be $2.90 per customer served. Wages and salaries should be $27,200 per
month plus $0.80 per customer served. Supplies should be $0.60 per customer served. Insurance should
be $6,700 per month. Miscellaneous expenses should be $3,100 per month plus $0.10 per customer
served.

Required:

Prepare the company's flexible budget for October based on the actual level of activity for the month.

Answer:
Fryer Corporation
Flexible Budget
For the Month Ended October 31
Actual customers served (q) 33,000
Revenue ($2.90q) $ 95,700
Expenses:
Wages and salaries ($27,200 + $0.80q) 53,600
Supplies ($0.60q) 19,800
Insurance ($6,700) 6,700
Miscellaneous expense ($3,100 + $0.10q) 6,400
Total expense 86,500
Net operating income $ 9,200
 25

365) Varcoe Corporation bases its budgets on the activity measure customers served. During September,
the company planned to serve 30,000 customers, but actually served 25,000 customers. Revenue is
$3.80 per customer served. Wages and salaries are $34,100 per month plus $1.20 per customer served.
Supplies are $0.50 per customer served. Insurance is $8,300 per month. Miscellaneous expenses are
$6,400 per month plus $0.20 per customer served.

Required:

Prepare a report showing the company's activity variances for September. Indicate in each case whether
the variance is favorable (F) or unfavorable (U).

Answer:
Varcoe Corporation
Activity Variances
For the Month Ended September 30
Flexible Planning Activity
Budget Budget Variances
Customers served (q) 25,000 30,000
Revenue ($3.80q) $ 95,000 $ 114,000 $ 19,000 U
Expenses:
Wages and salaries ($34,100 + $1.20q) 64,100 70,100 6,000 F
Supplies ($0.50q) 12,500 15,000 2,500 F
Insurance ($8,300) 8,300 8,300 0
Miscellaneous expense ($6,400 +
11,400 12,400 1,000 F
$0.20q)
Total expense 96,300 105,800 9,500 F
Net operating income ($ 1,300 ) $ 8,200 $ 9,500 U
 26

PROBLEM 6 FINANCIAL ANALYSES 22 POINTS

289. Sehrt Corporation has provided the following financial data:

Year 2 Year 1
Common stock, $3 par value . $300,000 $300,000
Total stockholders' equity ...... $803,000 $770,000

The company’s net income for Year 2 was $44,000. Dividends on common stock during Year 2 totaled
$11,000. The market price of common stock at the end of Year 2 was $6.29 per share.

Required:
a. What is the company’s earnings per share for Year 2?
b. What is the company’s price-earnings ratio for Year 2?
c. What is the company’s dividend payout ratio for Year 2?
d. What is the company’s dividend yield ratio for Year 2?
e. What is the company’s book value per share at the end of Year 2?
Answer:
a. Earnings per share = Net Income ÷ Average number of common shares outstanding*
= $44,000 ÷ 100,000 shares = $0.44 per share (rounded)
*Number of common shares outstanding = Common stock ÷ Par value
= $300,000 ÷ $3 per share = 100,000 shares

b. Price-earnings ratio = Market price per share ÷ Earnings per share

= $6.29 ÷ $0.44 = 14.30 (rounded)

c. Dividend payout ratio = Dividends per share* ÷ Earnings per share

= $0.11 ÷ $0.44 = 25.0% (rounded)
*Dividends per share = Common dividends ÷ Common shares (see above)
= $11,000 ÷ 100,000 shares = $0.11 per share (rounded)

d. Dividend yield ratio = Dividends per share* ÷ Market price per share
= $0.11 ÷ $6.29 = 1.75% (rounded)
*Dividends per share = Common dividends ÷ Common shares (see above)
= $11,000 ÷ 100,000 shares = $0.11 per share (rounded)

e. Book value per share = Common stockholders' equity ÷ Number of common shares outstanding*
= $803,000 ÷ 100,000 shares = $8.03 per share (rounded)
*Number of common shares outstanding = Common stock ÷ Par value
= $300,000 ÷ $3 per share = 100,000 shares
 27

B:280. Pribyl Corporation has provided the following financial data:

Year 2 Year 1
Total assets ..................................................... $1,476,00 $1,450,00
0 0
Total stockholders' equity .............................. $1,013,00 $1,000,00
0 0

Income Statement
For the Year Ended December 31, Year 2

Sales (all on account) ..................................... $1,270,00

0
Cost of goods sold.......................................... 720,000
Gross margin .................................................. 550,000
Operating expenses ........................................ 506,846
Net operating income ..................................... 43,154
Interest expense.............................................. 17,000
Net income before taxes ................................ 26,154
Income taxes (35%) ....................................... 9,154
Net income ..................................................... $ 17,000

Required:
a. What is the company’s net profit margin percentage for Year 2?
b. What is the company’s gross margin percentage for Year 2?
c. What is the company’s return on total assets for Year 2?
d. What is the company’s return on equity for Year 2?
Answer:
a. Net profit margin percentage = Net income ÷ Sales
= $17,000 ÷ $1,270,000 = 1.3% (rounded)

b. Gross margin percentage = Gross margin ÷ Sales

= $550,000 ÷ $1,270,000 = 43.3% (rounded)

c. Return on total assets = Adjusted net income* ÷ Average total assets**

= $28,050 ÷ $1,463,000 = 1.92% (rounded)
*Adjusted net income = Net income + [Interest expense × (1 – Tax rate)]
= $17,000 + [$17,000 × (1 – 0.35)] = $28,050
**Average total assets = ($1,476,000 + $1,450,000) ÷ 2 = $1,463,000

d. Return on equity = Net income ÷ Average stockholders' equity*

= $17,000 ÷ $1,006,500 = 1.69% (rounded)
*Average stockholders' equity = ($1,013,000 + $1,000,000) ÷ 2 = $1,006,500