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College of Administration and Finance Sciences
Assignment (2)
Deadline: 27/07/2024 @ 23:59
Course Name: Managerial Accounting
Student’s Name:Yousef
Course Code: ACCT 322
Student’s ID Number:
Semester: summer term
CRN: 50192
Academic Year: 1445-46 H
For Instructor’s Use only
Instructor’s Name: Dr. Youssef RIAHI
Students’ Grade:
/15
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via
allocated folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No
exceptions.
• All answers must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism.
• Submissions without this cover page will NOT be accepted.
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College of Administration and Finance Sciences
Assignment Question(s):
(Marks 15)
Q1. Assume that you are preparing a Master Budget for a reputed corporation. Bring
out numerical examples on the complete master budget of the corporation.
The master budget encompasses all of a company’s budgets, including the sales budget, production
budget, materials budget, labor budget, overhead budget, Selling and Administrative Expenses, cash
budget, and budgeted financial statements
Assuming the following:
Given a budgeted sales unit of 11,000 and a price of $35 per unit, the sales budget would amount to
11,000 * $35, resulting in sales dollars of $385,000.
It is reasonable to expect that 85% of the sales will be collected in the same month.
For production, each unit requires 3 kilograms of materials at a cost of $4 per kilogram, leading to a
total budget for materials of 11,000 * 3 * $4, which equals $132,000.
It can be assumed that all the purchase costs are paid in the same month. Assuming that the budgeted
production is the same as the sales units, and each unit requires 12 minutes of labor at a rate of $25 per
hour, the budgeted labor budget would be 11,000 * (12/60) * $25, amounting to $55,000.
The overhead budget comprises a variable portion and a fixed portion. For instance, if the variable
overhead rate is $0.60 per unit and the fixed portion is $3,500, the total overhead budget would be ($0.6
* 11,000) + $3,500, resulting in $10,100.
Sales and administrative expenses are budgeted at $27,000.
Assuming the company had a beginning cash balance of $4000, the cash budget would be calculated
accordingly.
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College of Administration and Finance Sciences
Beginning cash balance
$4,000
Cash receipts from sales
$327,250
Total cash available
$331,250
Cash payments:
For materials
$132,000
For labor
55,000
For overheads
$10,100
Sales and administrative expenses
$27,000
Total cash payments
$224,100
Excess of cash (ending cash balance)
$103,150
The ending cash balance is a crucial component included in the budgeted balance sheet.
The budgeted income statement is designed to display the sales subtracted by all expenses in order to
calculate the net income.
Q2. XYZ Company is considering purchasing new equipment costing SAR 250,000.
The company’s management has estimated that the equipment will generate cash
flows as follows (SAR):
Yea
r
1
2
3
4
Net Cash Flow
90,000
75,000
85,000
75,000
PV @10%
0.9091
0.8264
0.7513
0.6830
The company’s required rate of return is 10%. Calculate the net present value and give
reasons on whether the project should be accepted or rejected.
Net Present Value (NPV) is the difference between the present value of cash inflows and the initial
outlay.
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College of Administration and Finance Sciences
The present value of cash inflows will be calculated as follows:
Discounted
Year
Net Cash Flow
PV @10%
Cash flows
1
90,000
0.9091
81,819
2
75,000
0.8264
61,980
3
85,000
0.7513
63,860.50
4
75,000
0.6830
51,225
TOTAL
258,884.50
NPV = 258,884.50 – 250,000 = SAR 8,884.50
According to the net present value criteria, a project is accepted if its NPV is positive.
In this particular case, the NPV is indeed positive, indicating that the project should be accepted.
Q3a. Assume a company manufactures cars and currently uses only 50% of its
manufacturing facility 20,000 cars). The company could utilize more of its facility by
producing its own tires. It currently purchases tires at SAR 30 per set of four. If the
company would incur SAR12 per set for direct materials, SAR10 for direct labor, and
SAR 6 for overhead (variable) to produce the tires.
Required: Compute why the company should, make or buy the tires, in any scenario
give your decision why?
Q3b. The cost to produce one unit of the product is:
Material
SAR 13.00
Labor
8.00
Variable cost
7.00
Fixed expenses
18.00
Total fixed expenses: $ 500,000
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College of Administration and Finance Sciences
The company has received a special order for 20,000 units for a price of SAR 36 per
unit from a foreign customer.
Required: Advice the manufacturer on whether the order should be accepted.
Answe:
When determining the relevant cost of producing each unit of a product, only the variable costs of
manufacturing are considered. This is because if a company has excess capacity, it will not have to bear
the fixed expenses associated with a special order .
The total relevant costs of making each unit of the product will be:
Material
SAR 13.00
Labor
8.00
Variable cost
7.00
Total
28
The customer has offered to pay SAR 36 per unit for the product. As the selling price of SAR 36 exceeds
the cost per unit of SAR 28, the manufacturer should consider accepting the special order.
References:
•
Brewer, P.C., Garrison, R.H. & Noreen, E.W. (2013). Introduction to Managerial Accounting (6th).
New York: McGraw-Hill Irwin. ISBN: 9780078025419.
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