Problem 3 (5 marks)
Required:
Complete the following table showing the impact of each transaction on total assets, total liabilities and total equity. Use (+) to show an increase, (–) to show a decrease and ‘NC’ if there is no change.
Assets
Liabilities
Shareholders’
Equity
1.
Issued common shares in exchange for a building
2.
Purchased inventory on account
3.
Paid the utility bill for cu
ent month
4.
Paid a cash dividend to common shareholders
5.
Bo
owed money from the bank
Problem 4 (6 marks)
A corporation began the month with $200,000 of cu
ent assets and $80,000 of cu
ent liabilities.
Required:
Review the following transactions. Indicate the effect they have on the corporation’s cu
ent ratio by placing an ‘X’ in the appropriate column. Treat each transaction independently.
Increase
Decrease
No Effect
a.
Paid $5,000 of accounts payable with cash.
b.
Declared a $1 per share cash dividend on the 1,000 common shares that were outstanding.
c.
Paid a $6,000 dividend that was declared one month ago.
d.
Bo
owed $20,000 cash from a bank as a 60-day, 10% loan.
e.
Bo
owed $25,000 cash from a bank as a 10-year mortgage on the plant.
f.
Repurchased $3,000 of common shares for $3,000 cash.
Problem 5 (14 marks)
When a vehicle is built, it contains parts produced by the original equipment manufacturer (OEM). When these parts need to be replaced, consumers often purchase after-market parts instead of OEM replacement parts because they may be cheaper or of better quality, and may enhance the performance or appearance of the vehicle. Acme Auto Parts Ltd. is an after-market automotive parts manufacturer established in 2000. It’s shares were listed on the Toronto Stock Exchange as of 2016. The corporation’s headquarters are located in Oakville, Ontario. It has manufacturing plants in Oakville and four other Canadian and US locations. Each location is organized as a separate division. The corporation manufactures electrical components and provides parts to US and Canadian national retail chains that specialize in providing both sound advice and reliable parts to clients with higher-than-average disposable incomes, like car and truck ho
yists, as well as heavy truck fleet owners. It has several regional warehouses and divisional offices across Canada and the US. It has a reputation for producing high quality parts that are innovative, reliable, and efficient, and backing what it sells through a generous wa
anty and refund policy.
Acme has weathered a recent economic downturn well enough. Demand for its type of electrical auto parts has remained relatively strong. The corporation has two main competitors, both headquartered in the Far East. Though still ranked as the number one after-market electronic parts supplier in Canada in terms of total sales dollars and number four in the US, its competitors are slowly gaining ground. Acme is considered well-managed and is respected for the high quality of its electrical components. It does not compete by supplying a full range of after-market automotive products, but by identifying new niche markets for electrical components and leveraging its product line by continually searching for innovations in design and performance.
Acme has maintained very good relations with its suppliers and retail chains. These chains actively promote the
and as good value for money and provide valuable feedback to Acme about retail customer purchasing trends and requests for new products. Unlike its competitors, the Acme sales force is well-trained to not only sell existing products, but to glean new ideas from customers and communicate these back to Acme management for consideration.
The corporation recognizes that long-term success largely depends on continued promotion of Acme products by these retail chains, which means that the chains must be able to continue to earn high gross profit on sales of these same products. However, increased competition from lower-priced electrical components produced by Acme’s Far East competitors has begun to cut into Acme’s sales and profit margins. In the past, Acme has relied on research and development and the North American patent process to maintain its market share. A few extremely successful product innovations were responsible for most of the past sales and profit levels. However, increased complexity of component design has created longer timelines to move new products from conception to production. Also, at least one of its competitors’ activities border on patent infringement, but legal remedies are costly, time-consuming, and often unsatisfactory.
Acme’s manufacturing facilities and processes are state-of-the-art. Once products have been successfully designed and tested, they are able to be manufactured very quickly and inexpensively, and in small batches. Acme’s distribution costs are lower than competitors because its manufacturing plants are closer to customers. In recent years, the threat of shortages of rare, very expensive metals used in the manufacture of many of its products has required the corporation to increase its raw materials inventories. Rapidly developing economies, particularly China, are demanding increasing amounts of these precious metals, and have begun to lock up supplies from African producers.
Required:
1. (7 marks) Prepare a strategy map for Acme Auto Parts Ltd. Show specific cause-and-effect relationships among the objectives. Identify one objective for each of the four perspectives.
2. (7 marks) Prepare a balanced scorecard for Acme Auto Parts Ltd. that flows logically from your responses to part 1. Provide one performance measure for each objective.
Problem 6 (5 marks)
Tawatinaw Trikes manufactures three different product lines, Models X, Y, and Z. The following per unit data apply:
Model X Model Y Model Z
Selling price $500 $600 $700
Direct materials 70 80 100
Direct labour ($25 per hour) 50 75 100
Variable support costs ($4 per machine hour) 20 28 12
Fixed allocated costs 40 60 80
Required:
If there are a limited number of machine hours available and demand exceeds the total machine hours available, in what order should the models be produced to maximize total contribution margin?
Problem 7 (7 marks)
Beckstead Company makes a single product called a widget. The company normally produces and sells 80,000 widgets each year at a selling price of $40 per unit. The company’s unit cost at this level of activity is given below:
Direct materials
$ 9.50
Direct labo
10.00
Variable manufacturing overhead
2.80
Fixed manufacturing overhead
5.00
($400,000 total)
Variable selling expenses
1.70
Fixed selling expenses
XXXXXXXXXX
($360,000 total)
Total cost per unit
$33.50
Required:
Assume that Beckstead Company has sufficient capacity to produce 100,000 widgets each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 25% above the present 80,000 units each year if it were willing to increase the fixed selling expenses by $150,000. The company’s tax rate is 30%. Would the increased fixed selling expenses be justified?
Problem 8 (5 marks)
Assume a transit bus was purchased two years ago by the City of Edmonton for $200,000. Today, it is announced that a similar bus can be purchased for $175,000. The newest bus will save the city $10,000 per year in operational costs compared to the bus purchased two years ago. Each bus has an estimated useful life of five years and will be used 100,000 kms. per year. They will have no re-sale value at the end of their useful lives. If the new bus is purchased, the maintenance contract with the seller will be reduced from $20,000 per 100,000 km. of use to $18,000. The bus can be sold for $140,000 in one year’s time. In the meantime, it will be used as a temporary replacement vehicle for out-of-service buses.
Required: Calculate the maximum purchase price that the City of Edmonton would be willing to pay for the new bus if the discount rate is 10%. Assume no income taxes apply, and that the maintenance contract and operational costs are paid at each year-end. State any additional assumptions you make.
Problem 9 (25 marks)
AudioFile Products Ltd. is a retailer of sound systems. The company is planning its cash needs for the month of January, 2021. In the past, AudioFile has had to bo
ow money during the post-Christmas season to offset a significant decline in sales. The statement of financial position showed the following at December 31, 2020.
Assets
Cu
ent
Cash
$20,000
Accounts receivable
280,000
Inventory
126,000
426,000
PPE, net
4,000,000
$4,426,000
Liabilities
Cu
ent
Operating loan
$200,000
Accounts payable
190,400
390,400
Non-cu
ent bo
owings
3,000,000
3,390,400
Shareholders’ Equity
Share capital
70,000
Retained earnings
965,600
1,035,600
$4,426,000
Other information:
a.
Cash collection
i.
% cash sales each month
0%
ii.
% credit sales collected in same month
30%
iii.
% credit sales collected in next month
70%
b.
January total sales
$300,000
c.
December credit sales
$400,000
d.
Inventory information
i.
Fe
uary total sales
$250,000
ii.
Gross profit ratio all months
30%
iii.
% purchases paid in cash same month
20%
iv.
% inventory on hand needed for next month’s sales
60%
e.
Accounts payable at Dec. 31 all relate to inventory purchases and will be paid in full in January.
f.
Variable expenses
$0
g.
Fixed expenses
i.
Depreciation
$10,000
ii.
Total January fixed expenses, including depreciation
$30,000
h.
Interest is paid monthly on opening balances of the operating loan and non-cu
ent debt. Interest rate per month:
1%
i.
Ignore income taxes
j.
Monthly dividends paid to shareholders
$0
k.
Budgeted PPE purchases for January
$0
l.
January repayments of principal on non-cu
ent debt
$0
m.
Desired cash balance at end of January
$20,000
n.
Maximum operating loan balance at end of January is
$200,000
Any excess cash will be used to pay down the operating loan.
Required:
1. (18 marks) Using a format similar to the budget worksheet on the following page, record the above information.
2. (7 marks) Prepare a statement of financial