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DEVRY ACCT505 course project [ course project a and b ]




Question;COURSE PROJECT A INSTRUCTIONSYou have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash.Since you are well trained in budgeting, you have decided to prepare comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program. To this end, you have worked with accounting and other areas to gather the information assembled below.The company sells many styles of earrings, but all are sold for the same price?$10 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings):The concentration of sales before and during May is due to Mother's Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month.Suppliers are paid $4 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchase, the other half is paid for in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a month's sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.Monthly operating expenses for the company are given below:Insurance is paid on an annual basis, in November of each year.The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June, both purchases will be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter.A listing of the company's ledger accounts as of March 31 is given below:The company maintains a minimum cash balance of $50,000. All borrowing is done at the beginning of a month, any repayments are made at the end of a month.The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $50,000 in cash.Required:Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:? 1.o a. A sales budget, by month and in total.o b. A schedule of expected cash collections from sales, by month and in total.o c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.o d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.? 2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.? 3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.? 4. A budgeted balance sheet as of June 30.PROJECT A - Case 9-30Student Name:SALES BUDGET:AprilMayJuneQuarterBudgeted unit salesSelling price per unitTotal SalesSCHEDULE OF EXPECTED CASH COLLECTIONS:AprilMayJuneQuarterFebruary salesMarch salesApril salesMay salesJune salesTotal Cash CollectionsMERCHANDISE PURCHASES BUDGET:AprilMayJuneQuarterBudgeted unit salesAdd desired ending inventoryTotal needsLess beginning inventoryRequired purchasesCost of purchases @ $4 per unitBUDGETED CASH DISBURSEMENTS FOR MERCHANDISE PURCHASES:AprilMayJuneQuarterAccounts payableApril purchasesMay purchasesJune purchasesTotal cash paymentsEARRINGS UNLIMITEDCASH BUDGETFOR THE THREE MONTHS ENDING JUNE 30AprilMayJuneQuarterCash balanceAdd collections from customersTotal cash availableLess DisbursementsMerchandise purchasesAdvertisingRentSalariesCommissionsUtilitiesEquipment purchasesDividends paidTotal DisbursementsExcess (deficiency) of receiptsover disbursementsFinancing:BorrowingsRepaymentsInterestTotal financingCash balance, endingEARRINGS UNLIMITEDBUDGETED INCOME STATEMENTFOR THE THREE MONTHS ENDED JUNE 30Sales-Variable expenses:Cost of goods sold-Commissions--Contribution Margin-Fixed expenses:Advertising-Rent-Salaries-Utilities-Insurance-Depreciation--Net operating income-Interest expense-Net income-EARRINGS UNLIMITEDBUDGETED BALANCE SHEETJUNE 30Assets:CashAccounts receivable (see below)InventoryPrepaid insuranceProperty and equipment, netTotal assetsLiabilities and Stockholders' EquityAccounts payable, purchasesDividends payableCapital stockRetained earnings (see below)Total liabilities and stockholders' equityAccounts receivable at June 30:May sales x?%June sales x?%TotalRetained earnings at June 30:Balance, March 31Add net incomeTotalLess dividends declaredBalance, June 30Capital BudgetiCapital Budgeting DecisionThese instructions can also be downloaded from DocSharing!!Due by Tuesday of week 8, midnight, Mountain TimeHere is Part B:Clark Paints: The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the paint cans instead of purchasing them. The equipment needed would cost $200,000 with a disposal value of $40,000 and would be able to produce 5,500,000 cans over the life of the machinery. The production department estimates that approximately 1,100,000 cans would be needed for each of the next five years.The company would hire three new employees. These three individuals would be full-time employees working 2,000 hours per year and earning $12.00 per hour. They would also receive the same benefits as other production employees, 18% of wages in addition to $2,500 of health benefits.It is estimated that the raw materials will cost 25? per can and that other variable costs would be 5? per can. Since there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted.It is expected that cans would cost 45? per can if purchased from the current supplier. The company's minimum rate of return (hurdle rate) has been determined to be 12% for all new projects, and the current tax rate of 35% is anticipated to remain unchanged. The pricing for a gallon of paint as well as number of units sold will not be affected by this decision. The unit-of-production depreciation method would be used if the new equipment is purchased.Required:1. Based on the above information and using Excel, calculate the following items for this proposed equipment purchase:Annual cash flows over the expected life of the equipmentPayback periodAnnual rate of returnNet present valueInternal rate of return2. Would you recommend the acceptance of this proposal? Why or why not. Prepare a short double spaced Word paper elaborating and supporting your answer.ACCT505Part BCapital Budgeting problemCLARK PAINTSData:Cost of new equipment$2,00,000Expected life of equipment in years5Disposal value in 5 years$40,000Life production - number of cans55,00,000Annual production or purchase needs11,00,000Initial training costs0Number of workers needed3Annual hours to be worked per employee2,000Earnings per hour for employees$12.00Annual health benefits per employee$2,500Other annual benefits per employee-% of wages18%Cost of raw materials per can$0.25Other variable production costs per can$0.05Costs to purchase cans - per can$0.45Required rate of return12%Tax rate35%MakePurchaseCost to produceAnnual cost of direct material:Need of 1,000,000 cans per yearAnnual cost of direct labor for new employees:WagesHealth benefitsOther benefitsTotal wages and benefits0Other variable production costsTotal annual production costs0Annual cost to purchase cansPart 1 Cash flows over the life of the projectBefore TaxTaxAfter TaxItemEffectAmountAnnual cash savings0.65$0Tax savings due to depreciation0.35$0Total annual cash flow$0Part 2 Payback PeriodyearsPart 3 Annual rate of returnAccounting income as result of decreased costsAnnual cash savingsLess DepreciationBefore tax income0Tax at 35% rateAfter tax income$0Part 4 Net Present ValueBefore TaxAfter tax10% PVPresentItemYearAmountTax %AmountFactorValueCost of machine0$0$0Cost of training00$0Annual cash savings1-50.65-$0Tax savings due to depreciation1-50.35-$0Disposal value50$0Net Present Value$0Part 5 Internal Rate of ReturnExcel Function method to calculate IRRThis function REQUIRES that you have only one cash flow per period (period 0 through period 5 for our example)This means that no annuity figures can be used. The chart for our example can be revised as follows:After TaxItemYearAmountCost of machine and training0Year 1 inflow1Year 2 inflow2Year 3 inflow3Year 4 inflow4Year 5 inflow5The IRR function will require the range of cash flows beginning with the initial cash outflow for the investmentand progressing through each year of the project. You also have to include an initial "guess" for thepossible IRR. The formula is: =IRR(values,guess)IRR FunctionIRR(f84..f89,.30)#NUM!="msonormal">


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