Assignment #3

Answer the Following Questions

(Question 1)

The Purchasing department of Quality Machines Ltd. has responsibility for all aspects of company's purchase of supplies including the management of the human resource function within their department like the hiring of new employees, and all terminations.

The Purchasing department cost report for the completed 2022 year is as follows:

Average number of employees	20
Number of new hires		5
Number of management employees		4
Purchasing department costs (2022)
Salaries		$1,500,000
Employee benefits (30% of salaries)	Calculate
Office expenses (10% of salaries)		Calculate
Travel costs (20% salaries)		Calculate
Rent		120,000
Total actual cost		Calculate

(Assumptions)

In 2023, it is expected that the number of employees will increase to 25; there will be 5 new employees hired each earning an average of $60,000. Assume the new employees all start for July 1, 2023. All department costs aside from salaries are budgeted to have a 5% inflation increase commencing at the start of 2023.

Required

Using the assumptions provided along with the 2022 department financial information, prepare a Purchasing department cost/expense budget for 2023. Explain how you would monitor this budget on a monthly basis.

(Question 2)

The Furniture Company manufactures wood kitchen tables. The company will often hire underemployed individuals and provide them the carpentry skills in order for them to obtain higher paying employment in the future.

Each table requires 10 board feet of lumber plus fittings, which cost $20 per board foot and fittings of $50 per table. Direct labour paid is $20 per hour, and it takes 12 hours to make each table. The facility in which the tables are made is rented for $2,500 per month. Depreciation for all the manufacturing equipment in the production facility for the plant is $1,000 per month. Other production and administrative overhead (all of which is fixed cost) is $5,000 per month. Each table is sold for $990. Average monthly sales are 25 tables per month.

Required

Calculate the following: variable cost per table, contribution margin per table, total fixed cost per month, and monthly break even in units and sales dollars. Explain how you would use the information of break-even in the running of this business.

(QUESTION 3)

Below are the latest financial statements of Best Company:

Best Company Income Statement ($ thousands)
Sales revenue	$2,174
Cost of sales		1,117
Gross profit		$1,057
Operating expenses		737
Operating profit		$ 320
Interest expenses		40
Income tax expense		20
Net income		$ 260

	Best Company Balance Sheet ($ thousands)
Current assets
Cash	$ 18
Accounts receivable	154
Inventory	267
Total current assets			$ 439
Long-term assets
Property, plant & equipment, net	$ 444
Other assets	337
Total long-term assets			781
Total assets			$1,220
Current liabilities
Trade creditors	$ 143
Short-term bank loans	100
Total current liabilities			$ 243
Long-term debt			550
Total liabilities			$ 793
Common shares (31 million)	$ 31
Retained earnings	396
Total equity			427
Total liabilities & equity			$1,220

(Other Company Information)

The shareholders want to commit to the establishment and operation of a not-for-profit Youth Center located in the downtown core area. The initial cost to establish the Youth Center is $50,000. Operating costs each year for the Youth Center is $50,000. The Best Company will donate $25,000 each year and the local United Way has committed to contributing the other $25,000 towards operating expenses for the next 10 years. The company's debt obligation for the next 10 years including principal and interest is $75,000 per year. The company feels it is important to give back to the community, however, they want to be careful and not jeopardize their current financial well being.

Required

Provide your analysis if the company is able to financially commit to the 10 years for the Youth Center and what could be the advantages of such a financial social contribution.

(QUESTION 4)

The Smart Company manufactures a plastic mailbox. The machine that is being used often breaks down requiring someone from outside the company to repair the machine. There is considerable down time when the machine is not working.

The company is considering the purchase of a new machine that is expected to be more reliable and break down far less than the old machine. The following cash flows for the new machine that will have a useful life of 10 years is as follows:

Investment (Today) $1,200,000

Year 1 to Year 4 cash inflow $150,000

Year 5 to Year 8 cash inflow $225,000

Year 9 to Year 10 cash inflow $250,000

Required

Calculate the payback period for the new machine and explain what the payback period means to the business. Explain what could go wrong with this payback situation.

(QUESTION 5)

1. The Smart Company has budgeted its credit sales for the first 6 months (January to June) of 2023 year as follows:

January $ 100,000 February $ 200,000 March $ 300,000 April $ 400,000 May $ 500,000 June $ 500,000

Collections of credit sales are normally as follows:

Collected within the same month of sale: 50% Collected in 30-60 days: 30% Collected in 60-90 days: 20%

The cash balance on January 1 is expected to be $50,000.

Cash payments are expected to total $200,000 each month.

Required:

Calculate the net cash balance at the end of the June month for the January to June time frame. Suggest a strategy for the company, as they want to expedite the receipt of their money owed from credit sales, as the terms they provide are 30 days from the date of sale. Explain why a business simply will not just demand all customers pay at time of purchase so there will be no need to collect on credit sales.