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# Corporate Finance Essay

|Course Code |MBA 625 |Course Name |Corporate Finance | |Date | |Due date |Week 4 | |Maximum Marks |100 |Weight |20% | |Learning Outcomes |LO1, LO2 ,LO3,LO4,LO5 | Student Name | | |Student ID | | Instructions: 1. Read instructions carefully and complete your report For Examiner’s Use Only |Tasks |1 | |Marks Allocated |100 | |Marks Obtained | | Total Marks: ______ / 100 marks = ________ %Grade:

Question I: Identification: Fill in the blanks the correct answer. You are having a dress shop, indicate the proper classification of cost behavior whether it is VARIABLE or FIXED for each of the following items below: |Cost Element |Cost Behavior | |Material used to make shirts | | |Depreciation of sewing machine | |Buttons for shirt | | |Wages of workers who operate the sewing machine | | |Rent of the building | | |Annual fees for the business license | | Question II: Problem Solving:Calculate the problem below. | |Using the following data, compute the following: | |1) Cost of Goods Manufactured (2 marks) | | |2) Cost of Goods Sold (2 marks) | | | | CROSSINGS COMPANY | | | | |Beginning Finished Goods Inventory | 18,450 | |Beginning Goods in PRocessInventory | 21,950 | |Beginning Raw Materials Inventory | 11,000 | |Rental Cost on Factory Equipment | 24,750 | |Direct Labor | 37,000 | |Ending Finished Goods Inventory | 15,300 | |Ending Goods in Process Inventory | 18,000 | |Ending Raw Materials Inventory | 9,200 | |Factory Utilities | 14,000 | |Factory Supplies Used | 5,200 | |General Administrative Expense | 45,000 | |Indirect Labor | 9,660 | |Repairs-Factory Equipment | 3,500 | |Raw Materials Purchases | 54,000 | |Sales Salaries | 48,000 | Question II: ANSWER CROSSINGS COMPANY | |Direct materials | |Beginning raw materials inventory |\$ 11,000 | |Raw materials purchases |54,000 | |Raw materials available for use |65,000 | |Less ending raw materials inventory | 9,200 | |Direct materials used |55,800 | | | | |Direct labor | 37,000 | |Factory overhead | | |Rental cost on factory equipment | 24,750 | |Factory utilities | 14,000 | |Factory supplies used | 5,200 | |Indirect labor 9,660 | |Repairs—Factory equipment | 3,500 | |Total factory overhead | 57,110 | |Total manufacturing costs |149,910 | |Beginning goods in process inventory | 21,950 | |Total cost of goods in process |171,860 | |Less ending goods in process inventory | 18,000 | |Cost of goods manufactured |\$153,860 | | | | |Beginning finished goods inventory | 18,450 | |Cost of goods manufactured |153,860 | |Cost of goods available for sale |172,310 | |Less ending finished goods inventory | 15,300 | |Cost of goods sold |\$ 157,010 | QUESTION III: Problem Solving: Calculate the problem below. Best Co. produces and sells two products, BB and TT. It manufactures these products in separate factories and markets them through different channels. They have no shared costs. This year, the company sold 120,000 units of each product. Sales and costs for each product follow: | |Product BB |Product TT | |Sales 3,000,000 |3,000,000 | |Variable Costs |1,800,000 |600,000 | |Contribution Margin |1,200,000 |2,400,000 | |Fixed Costs |600,000 |1,800,000 | |Net Income |600,000 |600,000 | Compute for the following for each product: a) Contribution Margin Ratio ( 2marks) b) Break Even Sales (2 marks) c) Assume that company expects sales of each product to decline to 104,000 units next year with no change in sales price. If sales decreased which product will experience a profit? Show computations. (2marks) QUESTION III: ANSWER Product BB Unit Price: 25/ Variable Cost Per Unit: 15 Product TT Unit Price: 25/ Variable Cost Per Unit: 5 a) Contribution Margin Ratio: a. Product BB: i. 5 – 15 = 10 Contributing Margin Per Unit ii. 10 ? 25 = 0. 4 Contribution Margin Ratio b. Product TT: i. 25 – 5 = 20 Contribution Margin Per Unit ii. 20 ? 25 = 0. 8 Contribution Margin Ratio b) Break Even Sales: a. Product BB: i. 600,000 ? 10 = 60,000 Break Even Sales in Units ii. 600,000 ? 0. 4 = \$ 1,500,000 Break Even Sales in Dollars b. Product TT: i. 1,800,000 ? 20 = 90,000 Break Even Sales in Units ii. 1,800,000 ? 0. 8 = 2,250,000 Break Even Sales in Dollars c) Assume that company expects sales of each product to decline to 104,000 units next year with no change in sales price. If sales decreased which product will experience a profit?

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Show computations: a. Product BB: i. 120,000 – 104,000 = 16,000 Expected Sales for Next Year ii. 16,000 x 25 = 400,000 Sales Amount iii. Break Even Point: PLEASE CONTINUE…… QUESTION IV: Problem Solving: Read the problem carefully give your solutions. Slim Corp. requires a minimum Dhs. 8,000 cash balance. If necessary, loans are taken to meet this requirement at a cost of 1% interest per month (paid monthly). Loans are repaid at month’s end from any excess cash. The cash balance on July 1 is Dhs. 8,400. Cash receipts other than for loans received for July, August, September are forecasted as Dhs. 24,000, Dhs. 32,000, and Dhs. 40,000, respectively.

Payments other than for loan or interest payments for the same period are planned at Dhs. 28,000, Dhs. 30,000, and Dhs. 32,000, respectively at July 1, there are no outstanding loans. Required: Prepare a cash budget for July, August, and September. QUESTION IV: ANSWERS |Slim Corp | |Cash Budget | |For July, August, & September | | July |August |September | |Beginning cash balance |\$ 8,400 |\$ 8,000 |\$ 8,000 | |Cash receipts | 24,000 | 32,000 |40,000 | |Total cash available |32,400 |40,000 |48,000 | |Cash disbursements |(28,000) |(30,000) |(32,000) | |Interest expense | | | | |July (\$3,600 x 1%) |N/A |36 |N/A | |February (\$1,636 x 1%) |N/A |N/A |16. 36 | |Preliminary cash balance |4,400 |9,964 |15,983. 64 | |Additional loan from bank |3,600 |N/A |N/A | |Repayment of loan to bank |N/A |1,964 |1,636 | |Ending cash balance |\$ 8,000 |\$ 8,000 |\$ 14,347. 4 | |Ending loan balance |3,600 |1,636 |0 | QUESTION V: Problem Solving: Read the problem carefully give your solutions. Big Bend Co. fixed budget for the year is shown below: |Sales (50,000 units) | |1,300,000 | |Cost of goods sold: | | | | Direct materials |150,000 | | | Direct labor |450,000 | | Overhead (includes \$2 per unit variable | | | | overhead) | 240,000 | 840,000 | | Gross profit | | 460,000 | |Selling expenses: | | | | Sales commissions(all variable) | 60,000 | | | Rent (all fixed) |40,000 | | | Insurance (all fixed) |35,000 | | |General and administrative expenses: | | | | Salaries (all fixed) |72,000 | | | Rent (all fixed) |54,000 | | | Depreciation (all fixed) | 31,000 | 292,000 | |Net income from operations | |Dhs. 168,000 | | | | | Prepare a flexible budget for Big Bend Co. that shows a detailed budget for its actual sales volume of 42,000 units. Use the contribution margin format QUESTION V: ANSWER |Big Bend Co. |Flexible Budget | | |Flexible Budget |Actual Results |Variances | | |Sales |\$1,300,000 |\$637,500 |\$12,500 |U | |Variable costs | 375,000 | 356,250 | 18,750 |F | |Contribution margin |275,000 |281,250 |6,250 |F | |Fixed costs | 150,000 | 150,000 | 0 | | |Income from operations |\$125,000 |\$131,250 |\$ 6,250 |F | |Big Bend Co. |Flexible Budgets | | |Flexible Budget | | |Variable Amount per Unit* |Total Fixed Cost | |Sales |\$1,300,000 | | |Variable costs | | | |Direct materials |150,000 | | |Direct labor |450,000 | | |Production supplies | | | |Sales commissions |60,000 | | |Packaging | | | |Total variable costs |660,000 | | |Contribution margin |\$640,000 | | |Fixed costs | | | |Salaries | |\$ 72,000 | |Advertising | | | |Admin. salaries | | | |Depr. —Office equip. | | |Insurance | |35,000 | |Office rent | | 24,000 | |Total fixed costs | |\$312,000 | |Income from operations | | | I am not sure how to fix this question;;;; totally LOST! One of the above formats should be used, but how!!???