Q1. The city of Bridgeport has received a proposal to build a new multipurpose outdoor sports stadium. The expected life of the stadium is 20 years. It will be financed by a 20-year bond paying 8 percent interest annually. The stadium's primary tenant will be the city's Triple-A baseball team, the Dragons. The plan's backers anticipate that the site will also be used for rock concerts and college and high school sports. The city does not pay any taxes. The city's cost of capital is 8 percent. The costs and estimated revenues are presented below.
Cash Outflows
Construction costs - $10,000,000
General maintenance (including labor) - $200,000 per year
Cash Inflows -
Red Hots' lease payment - $600,000 per year
Concerts - $500,000 per year
College and high school sports - $50,000 per year
a. Should the city build the stadium? (Assume payments are made at the end of the year.)
b. The Dragons have threatened to move out of Bridgeport if they do not get a new stadium. The city comptroller estimates that the move will cost the city $500,000 in lost taxes, parking, and other fees in the first year. The controller estimates that the city can find alternate uses for the space and reduce this loss gradually by about $100,000 a year. Still it would take the city 5 years to recover. Should the city build the stadium now? State your reasoning.
Q2. Comprehensive operating budget
Sleds, Inc. manufactures and sells snow- boards. Sleds manufactures a single model, the Pipex. In the summer of 2012, Sleds' management accountant gathered the following data to prepare budgets for 2013:
Materials and Labor Requirements
Direct Materials
Wood - 7 board feet (b.f.) per snowboard
Fiberglass - 6 yards per snowboard
Direct manufacturing labor - 6 hours per snowboard
Sleds' management expects to sell 1,275 snowboards during 2013 at an estimated retail price of $550 per board. Furthermore, the CEO expects 2013beginning inventory of 500 snowboards and would like to end 2013 with 700 snowboards in stock.
Direct Material Inventories Inventory 1/1/2013 Inventory 12/31/2013
Wood (b.f.) 2,010 1,510
Fiberglass (yards) 1,010 2,500
Variable manufacturing overhead is $10 per direct manufacturing labor-hour. There are also $70,800 in fixed manufacturing overhead costs budgeted for 2013. Sleds combines both variable and fixed manufacturing overhead into a single rate based on direct manufacturing labor hours. Variable marketing costs are allocated at the rate of $260 per sales visit. The marketing plan calls for 35 sales visits during 2013. Finally, there are $32,400 in fixed non-manufacturing costs budgeted for 2013.
2012 Unit Price 2013 Unit Price
Wood $29.00 per b.f $31.00 per b.f.
Fiberglass $5.00 per yard $10.00 per yard
Direct Manufacturing $25.00 per hour $26.00 per hour
The inventoriable unit cost for ending finished goods inventory on December 31, 2012, is $440. Assume Sleds uses a FIFO inventory method for both direct materials and finished goods. Ignore work in process in your calculations.
1. Prepare the 2013 revenues budget (In dollars).
2. Prepare the 2013 production budget (In units).
3. Prepare the direct material usage and purchases budgets for 2013.
4. Prepare a direct manufacturing labor budget for 2013.
5. Prepare a manufacturing overhead budget for 2013.
6. What is the budgeted manufacturing overhead rate for 2013?
7. What is the budgeted manufacturing overhead cost per output unit in 2013?
8. Calculate the cost of a snowboard manufactured in 2013.
9. Prepare an ending inventory budget for both direct materials and finished goods for 2013.
10. Prepare a cost of goods sold budget for 2013.
11. Prepare the budgeted Income statement for Sleds, Inc. for the year ending December 31, 2013.
12. How does preparing the budget help Sleds' management team better manage the company?
Attachment:- Template.rar