1. (TCO 7) The cash budget is one of the primary financial budgets. Discuss the importance of the cash budget. Identify the individual sections of the cash budget and the information included in each section.
Question 2. 2. (TCO 9) Distinguish between fixed budgets and flexible budgets. When are each an appropriate means of evaluating a manager's performance and why?
Question 3. 3. (TCO 6) Yappy Company is considering a capital investment of $320,000 in additional equipment. The new equipment is expected to have a useful life of 8 years with no salvage value. Depreciation is computed by the straight-line method. During the life of the investment, annual net income and cash inflows are expected to be $25,000 and $65,000, respectively. Yappy requires a 10% return on all new investments.
Part (a): Compute each of the following.
1: Payback period
2: Net present value
3: Profitability index
4: Internal rate of return
5: Accounting rate of return
(b): Indicate whether the investment should be accepted or rejected.
Question 4. 4. (TCO 7) The management of Horton Company estimates that credit sales for August, September, October, and November will be $270,000, $375,000, $420,000, and $240,000, respectively. Experience has shown that collections are made as follows.
In month of sales 25%
In first month after sale 60%
In second month after sales 10%
Determine the collections from customers in October and November. Show all computations.
Question 5. 5. (TCO 8) Eastern Company's budgeted and actual sales for 2009 were as follows.
Product Budgeted Sales Actual Sales
A 35,300 units at $2.00 per unit 32,700 units at $2.60 per unit
B 27,900 units at $5.00 per unit 29,200 units at $4.70 per unit
Part (a): Calculate the sales volume variance.
Part (b): Calculate the sales price variance.
Part (c): Calculate the total sales variance.
Question 6. 6. (TCO 9) The Mays Clinic has the following monthly telephone records and costs.
Calls Costs
2,000 $2,400
1,500 2,000
2,200 2,600
2,500 2,900
2,300 2,700
1,700 2,200
Identify the fixed and variable cost elements using the high-low method.