Managerial accounting-Assignment 2 seven questions.

Assignment 2

Assignment 2 is made up of seven questions. Read
the requirements for each question thoroughly, and plan your responses
carefully. Ensure that you answer each of the required components as concisely
and completely as possible. If supporting calculations are required, present
them in good form.

Case 1 10 marks

Case 1. Two businesses, Web Services and PC Providers, have
sought business loans from you. To decide whether to make the loans, you have
requested their balance sheets.
Evaluating business operations; using
financial statements

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Required
1. Using only these balance sheets, to
which entity would you be more comfortable lending money? Explain fully, citing
specific items and amounts from the respective balance sheets.
2. Is there other financial information
you would consider before making your decision? Be specific.

C10-37 15 marks

C10-37 Use cash
flow data to evaluate potential investments
Your company has some excess cash and
would like to invest it in the stock of another company. You investigate
several different stocks and are trying to decide which stock would be the best
investment for your company. One factor you investigate is each company’s cash
flow. The summaries of the cash flow statements for your three top stock
choices follow:
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Although you will look at many other
criteria in your stock purchase recommendation, what can you tell about each of
the three companies listed? Based solely on cash flow, which stock appears to
be better?

C11-44 15 marks

C11-44 Investment recommendation

Take the role of an investment
analyst at Prudential Bache. It is your job to recommend investments for your
clients. The only information you have are some ratio values for two companies
in the pharmaceuticals industry.
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Write a report to Prudential Bache’s investment
committee. Recommend on of the company’s stock over the other. State the
reasons for your recommendation.

C12-72 15 marks

C12-72. Prepare cash
budgets under two alternatives
Each autumn, as a hobby, Suzanne De
Angelo weaves cotton placemats to sell at a local crafts shop. The mats sell
for $20 per set of four. The shop charges a 10% commission and remits the net
proceeds to De Angelo at the end of December. De Angelo has woven and sold 25
sets each of the last two years. She has enough cotton in inventory to make
another 25 sets. She paid $7 per set for the cotton. De Angelo uses a
four-harness loom that she purchased for cash exactly two years ago. It is
depreciated at the rate of $10 per month. The accounts payable relate to the
cotton inventory and are payable by September 30.
De Angelo is considering buying an
eight-harness loom so that she can weave more intricate patterns in linen. The
new loom costs $1,000; it would be depreciated at $20 per month. Her bank has
agreed to lend her $1,000 at 18% interest, with $200 principal plus accrued
interest payable each December 31. De Angelo believes she can weave 15 linen
placemat sets in time for the Christmas rush if she does not weave any cotton
mats. She predicts that each linen set will sell for $50. Linen costs $18 per
set. De Angelo’s supplier will sell her linen on credit, payable December 31.
De Angelo plans to keep her old loom
whether or not she buys the new loom. The balance sheet for her weaving
business at August 31 is as follows:
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Requirements
1. Prepare a combined cash budget for
the four months ending December 31, for two alternatives: weaving the placemats
in cotton using the existing loom and weaving the placemats in linen using the
new loom. For each alternative, prepare a budgeted income statement for the
four months ending December 31, and a budgeted balance sheet at December 31.
2. On the basis of financial
considerations only, what should De Angelo do? Give your reason.
3. What nonfinancial factors might De
Angelo consider in her decision?

C13-77 15 marks

C13-77. Calculate
efficiency variances
Assume that you manage your local
Marble Slab Creamery ice cream parlour. In addition to selling ice cream cones,
you make large batches of a few flavours of milk shakes to sell throughout the
day. Your parlour is chosen to test the company’s “Made-for-You” system. The
system allows patrons to customize their milk shakes by choosing different
flavours.
Customers like the new system and
your staff appears to be adapting, but you wonder whether this new
made-to-order system is as efficient as the old system where you made just a
few large batches. Efficiency is a special concern because your performance is
evaluated in part on the restaurant’s efficient use of materials and labour.
Assume that your superiors consider that efficiency variances greater than 5%
are unacceptable.
You decide to look at your sales for
a typical day. You find that the parlour used 390 kilograms of ice cream and 72
hours of direct labour to produce and sell 2,000 shakes. Assume that the
standard quantity allowed for a shake is 0.2 kg of ice cream and 0.03 hours
(1.8 minutes) of direct labour. Further, assume that standard costs are $1.50
per kilogram for ice cream and $8.00 an hour for labour.
Requirements
1. Compute the efficiency variances for
direct labour and direct materials.
2. Provide likely explanations for the
variances. Do you have reason to be concerned about your performance
evaluation? Explain.

3. Write a memo to Marble Slab
Creamery’s national office explaining your concern and suggesting a remedy.

C14-64 15 marks

C14-64. Apply time
value of money to a personal decision
Samer Almasri, a second-year business
student at the University of Ottawa, will graduate in two years with an
accounting major and a Spanish minor. Almasri is trying to decide where to work
this summer. He has two choices: work full-time for a bottling plant or work part-time
in the accounting department of a meat-packing plant. He probably will work at
the same place next summer as well. He is able to work 12 weeks during the
summer.
The bottling plant would pay Almasri
$600 per week this year and 7% more next summer. At the meat-packing plant, he
would work 20 hours per week at $10.00 per hour. By working only part-time, he
would take two accounting courses this summer. Tuition is $225 per hour for
each of the four-hour courses. Almasri believes that the experience he gains
this summer will qualify him for a full-time accounting position with the
meat-packing plant next summer. That position will pay $750 per week.
Almasri sees two additional benefits
of working part-time this summer. First, he could reduce his studying workload
during the fall and spring semesters by one course each term. Second, he would
have the time to work as a grader in the university’s accounting department
during the 15-week fall term. Grading pays $50 per week.
Requirements
1. Suppose that Almasri ignores the
time value of money in decisions that cover this time period because it is so
short. Suppose also that his sole goal is to make as much money as possible
between now and the end of next summer. What should he do? What
non-quantitative factors might Samer consider? What would you do if you were
faced with these alternatives?
2. Now, suppose that Almasri considers
the time value of money for all cash flows that he expects to receive one year
more in the future. Which alternative does this consideration favour? Why?

C15-45 15 marks

C15-45 Collect and
analyze division data
Colgate-Palmolive operates two
product segments. Using the company’s website, locate segment information for
2008 in the company’s 2008 annual report. (Hint: Look under investor
relations.) Then, look in the financial statement footnotes.
Requirements
1. What are the two segments (ignore
geographical subsets of the one product segment)? Gather data about each
segment’s net sales, operating income, and identifiable assets.
2. Calculate ROI for each segment.
3. Which segment has the highest ROI?
Explain why.
4. If you were on the top management
team and could allocate extra funds to only one division, which division would
you choose? Why?