1) Khaled Industries, a defense contractor, is developing a cash budget for October, November, and December.
Khaled’s sales in August and September were $100,000 and $200,000 respectively. Forecasted Sales for October, November, and December are as below: October – $400,000 November – $300,000 December – $200,000.
30% of the firm’s sales have been for cash, 50% have been collected after 1 month, and the remaining 20% after 2 months. Bad-debt expenses (uncollectible accounts) have been negligible. In December, Khaled will receive a $30,000 dividend from stock in a subsidiary.
Khaled has also gathered the relevant information for the development of a cash disbursement schedule. Purchases will represent 70% of sales – 40% will be paid immediately in cash, 60% is paid the month following the purchase. The firm will also expend cash on rent, wages and salaries every month of $52,000.
Prepare Cash Budget for October, November and December.
2) A company has two divisions, Division A and Division B. Division A manufactures products for both outside market as well as for Division B. The manager of Division B has expressed that transfer price of Division A is too high.
Division A has been selling 40000 units to outsiders and 10000 units to Division B, all at $20 per unit. The variable cost is $12 per unit and fixed costs at $200,000. Division B is asking for a transfer price of $18 per unit. If Division A does not sell to Division B, fixed costs of $ 30000 and assets of $175000 can be avoided. The firms existing assets are worth $ 800,000.
Division A is judging based on ROI.
c) Should Division A transfer its products at $18 to Division B?
d) What is the lowest price that Division A should accept?
3) Analyze the inventory valuation of Has been & Tracy based on the information below:
a) Hasbeen Company completed its inventory count. It arrived at a total inventory value of $200,000. You have been given the information listed below. Discuss how this information affects the reported cost of inventory.
i. Hasbeen included in the inventory goods held on consignment for Falls Co., costing $15,000.
ii. The company did not include in the count purchased goods of $10,000, which were in transit (terms: FOB shipping point).
iii. The company did not include in the count inventory that had been sold with a cost of $12,000, which was in transit (terms: FOB shipping point).
b) Tracy Company sells three different types of home heating stoves (gas, wood, and pellet). The cost and net realizable value of its inventory of stoves are as follows.