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The following expenditures were among those incurred by AlmaUniversity, a nongovernmental not-for-profit, during the currentyear:

Administrative data processing $ 50,000

Scholarships and fellowships 100,000

Operation and maintenance of physical plant 200,000

The amount to be included in the functional classification forinstitutional support expenditures is

A. $50,000

B. $150,000

C. $250,000

D. $350,000

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Elin Hessel
Elin HesselLv2
28 Sep 2019

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ZXY Company is a food product company. ZXY is considering expanding to two new products and a second production facility. The food products are staples with steady demands. The proposed expansion will require an investment of $7,000,000 for equipment with an assumed ten-year life, after which all equipment and other assets can be sold for an estimated $1,000,000. They will be renting the facility. ZXY requires a 12 percent return on investments. You have been asked to recommend whether or not to make the investment.

In preparing and supporting your recommendation to either make the investment or not, include the following items as part of your analysis:

Analysis of financial information.

Identification of risks associated with the investment. Consider:

How risky the project appears.

How far off your estimates of revenues and expenses can be before your decision would change.

The difference if the company were to use a straight line versus a MACRS depreciation.

Recommendation for a course of action.

Explanation of criteria supporting your recommendation

FINANCIAL STATEMENTS

ZXY - Forecast
Ten Years
Pro-Forma Income Statement Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total
Brand new Acme System - full system
Income
Revenue
Product A 2,400,000 2,800,000 2,800,000 3,240,000 3,900,000 3,900,000 3,900,000 3,900,000 3,900,000 3,900,000 34,640,000
Product B 900,000 1,350,000 2,500,000 3,000,000 4,000,000 4,950,000 5,500,000 22,200,000
Total · Revenue 2,400,000 2,800,000 2,800,000 4,140,000 5,250,000 6,400,000 6,900,000 7,900,000 8,850,000 9,400,000 56,840,000
Cost of Goods Sold
Pest Control 50,000 66,550 73,205 73,205 73,205 73,205 73,205 73,205 73,205 73,205 702,190
SQF FDA mandates 90,000 90,000 90,000 90,000 90,000 30,000 30,000 30,000 30,000 30,000 600,000
Rent - Plant 400,000 408,000 416,160 424,483 432,973 441,632 450,465 459,474 468,664 478,037 4,379,888
Plant Equip. - Fklf - Scrb/Lease 40,000 64,000 64,000 64,000 64,000 64,000 64,000 64,000 64,000 64,000 616,000
Plant Equip. - Ongoing maintenance 50,000 70,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 720,000
Plant Equip. - Parts 40,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 490,000
Miscellaneous - Equipment 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 150,000
Building repairs 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 250,000
Plant supplies 100,000 120,000 144,000 109,808 120,789 132,868 146,154 160,770 176,847 194,532 1,405,767
Plant Utilities 120,000 210,000 240,000 240,000 240,000 240,000 240,000 240,000 240,000 240,000 2,250,000
Garbage removal/Janitorial 30,000 45,626 52,470 52,470 52,470 52,470 52,470 52,470 52,470 52,470 495,388
Plant telephone 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 7,200 72,000
Plant payroll expense 495,000 675,000 825,000 885,000 915,000 975,000 1,005,000 1,065,000 1,095,000 1,125,000 9,060,000
Health Benefits 45,360 97,200 105,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 947,560
WC & P/R Expense 59,400 81,000 99,000 106,200 109,800 117,000 120,600 127,800 131,400 135,000 1,087,200
Installation/Additional Equipment 250,000 - 200,000 - - - - - - - 450,000
Total COGS 1,816,960 2,024,576 2,481,035 2,317,366 2,370,437 2,398,375 2,454,095 2,544,919 2,603,786 2,664,444 23,675,993
Gross Profit 583,040 775,424 318,965 1,822,634 2,879,563 4,001,625 4,445,905 5,355,081 6,246,214 6,735,556 33,164,007
Expenses Other than GOGS
Liability Insurance 60,000 91,253 104,940 104,940 104,940 104,940 104,940 104,940 104,940 104,940 990,776
Bank Service Charges 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 15,000
Interest on debt 90,627 187,626 232,323 206,766 166,740 122,959 75,071 31,993 7,539 111 1,121,754
Incentive Plan 13,200 16,500 16,500 16,500 16,500 16,500 16,500 16,500 16,500 145,200
Management 180,000 180,000 180,000 180,000 180,000 190,000 190,000 190,000 190,000 190,000 1,850,000
Workers Comp./P/R Taxes 21,600 21,600 21,600 21,600 21,600 22,800 22,800 22,800 22,800 22,800 222,000
Health Insurance Benefit 4,200 5,082 5,590 5,590 5,590 5,590 5,590 5,590 5,590 5,590 54,004
Office/Administrative Expenses 12,000 15,972 17,569 17,569 17,569 17,569 17,569 17,569 17,569 17,569 168,526
Legal and Professional - Tax 30,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 120,000
Cellular phones 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 50,000
Internet Services 4,400 5,856 6,442 6,442 6,442 6,442 6,442 6,442 6,442 6,442 61,793
Postage & Delivery 1,100 1,464 1,611 1,611 1,611 1,611 1,611 1,611 1,611 1,611 15,448
Office supplies 11,000 9,983 10,981 10,981 10,981 10,981 10,981 10,981 10,981 10,981 108,829
Employee Food & Beverage 1,100 1,464 1,611 1,611 1,611 1,611 1,611 1,611 1,611 1,611 15,448
Local/Business Taxes 1,100 1,464 1,611 1,611 1,611 1,611 1,611 1,611 1,611 1,611 15,448
Property Taxes 12,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 147,000
Travel - Equip. Consultants 25,000 16,500 16,500 16,500 16,500 16,500 16,500 16,500 16,500 16,500 173,500
Licenses and Permits 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 100,000
Total Expense 470,627 592,964 658,777 633,220 593,194 560,613 512,725 469,647 445,193 437,765 5,374,724
Net Income before Depreciation 112,413 182,460 (339,812) 1,189,413 2,286,369 3,441,012 3,933,181 4,885,434 5,801,021 6,297,791 27,789,282
Depreciation Expense ( 185,770 504,140 652,915 573,415 409,635 325,725 299,025 240,970 124,955 33,450 3,350,000
Tax Expense - - - - 99,961 934,586 1,090,247 1,393,339 1,702,820 1,879,302 7,100,255
Net Income (73,357) (321,680) (992,727) 615,998 1,776,773 2,180,701 2,543,909 3,251,125 3,973,246 4,385,039 17,339,027
Forecast of Cash Flows
Net Income before Depreciation 112,413 182,460 (339,812) 1,189,413 2,286,369 3,441,012 3,933,181 4,885,434 5,801,021 6,297,791 27,789,282
Deduct startup costs - - - - - - - - - - -
Cash flow before income taxes 112,413 182,460 (339,812) 1,189,413 2,286,369 3,441,012 3,933,181 4,885,434 5,801,021 6,297,791 27,789,282
Working Capital - - - - - - - - - - -
Lease Payments - Principal 155,146 303,919 401,132 426,689 466,715 510,496 558,384 370,759 149,371 7,389 3,350,001
Pre-Tax Cash Flow (42,733) (121,460) (740,944) 762,725 1,819,654 2,930,516 3,374,796 4,514,674 5,651,651 6,290,402 24,439,282
Taxes - - - - 99,961 934,586 1,090,247 1,393,339 1,702,820 1,879,302 7,100,255
After tax - Cash Flow (42,733) (121,460) (740,944) 762,725 1,719,693 1,995,930 2,284,549 3,121,335 3,948,831 4,411,100 17,339,027

Kiwi Cellars has many competitors in the New Zealand domesticpremium wine market. The wines are judged similarly in quality& taste although KC employs different production and marketingmethods. Dissatisfied with its current profitability, KC managementis considering their competitive options. An accounting departmentanalyst compiled the following data for the most recent year tofacilitate our analysis.

Note: Assume that the company sells what itproduces, thus they do not produce wine to hold over ininventory.

KC

BenchmarkCompetitor

Sales price per unit (750 ml bottle)

$8.50

$8.00

Variable materials (grapes, bottles, etc.) per unit

$2.25

$2.75

Variable labor per unit

$1.25

$2.00

Variable production overhead (utilities, etc.) perunit

$1.00

$1.25

Fixed production overhead (depreciation, etc.)

$750,000

$250,000

Marketing, administrative and other fixed costs

$250,000

$150,000

Last year’s sales in units

350,000

400,000

Capacity in units

500,000

450,000

1. Demand in recent years has been volatile varying from a lowof 200,000 to a high of 400,000 units. As a measure of the impactof this uncertain demand on profit by assuming demand increases ordecreases by 10%.

Interpret the relative changes in profit.

2. Recommend a coherent plan for how KC could increase profit inthe coming year and calculate the resulting profit for yourplan.

Explain your answer, evaluating their current position relativeto your recommendation.

3. Now assume that the data above for Kiwi actually consists oftwo wines with the following data:

KC-Chard

KC-Shiraz

Sales price per unit (750 ml bottle)

$ 7.50

$ 11.00

Variable cost per unit

$ 4.20

$ 5.25

Last year’s sales in units

250,000

100,000

a. Describe the KC's Unit Level Cost-Volume-Profit (CVP)relationship.

b. Describe the Cost Behavior Analysis - by analyzing the KiwiCellar's business problems.

c. What are the concepts underlying cost-volume-profit analysisfor Kiwi Cellars?

d. What can be said about the Breakeven and Profit Planning ofthe company

e. What can you conclude by conducting an Analysis of OperatingLeverage

Can someone please provide the solutions. No explanation needed,just the answers so I can double check my work.

2. Firms with tangiblelong-term assets and less predictable cash flows, such as automanufacturers and steel companies, whose sales vary with changes ineconomic conditions, tend to use

a.

a more nearly equal mix of long-term debt and shareholders’equity financing.

b.

a greater amount of long-term debt [80%] than shareholders’equity financing [20%].

c.

a smaller amount of long-term debt [20%] than shareholders’equity financing [80%].

d.

a greater amount of long-term debt [80%] than assets [20%].

e.

a greater amount of shareholders’ equity [80%] than assets[20%].

3. During Year 3,Carrington Company made the following expenditures relating toplant machinery and equipment:

·

Continuing, frequent, and low cost repairs

$46,000

·

Special long-term protection devices were attached to tenmachines

11,000

·

A broken gear on a machine was replaced

5,000

How much should be charged to repairs and maintenance in Year3?

a.

$46,000

b.

$51,000

c.

$57,000

d.

$41,000

e.

none of the above

4. Which of the followingis/are not capitalized as an intangible asset?

a.

costs of an internally developed patent

b.

legal costs to defend a patent successfully

c.

goodwill acquired when a company purchases another company

d.

costs to purchase a patent

e.

none of the above

5. Repairs and maintenancedo not include

a.

the costs of restoring an asset's service potential afterbreakdowns.

b.

expenditures that increase the asset's life.

c.

routine costs such as for cleaning and adjusting.

d.

major tune-ups including labor and parts.

e.

All of the above are not considered to be repairs ormaintenance.

12. Sigma Company suffers a loss to itsbuilding in a fire and spends $100,000 on repairs and improvements.It judges that $80,000 of the expenditure replaces long-livedassets lost in the fire, and $20,000 represents improvements to thebuilding. Which of the following is the single journal entry thatSigma Company will make?

a.

Building . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 100,000

Cash . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .. 100,000

b.

Loss from Fire . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 100,000

Cash . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. 100,000

c.

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 100,000

Building . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .. 20,000

Loss from Fire . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .. 80,000

d.

Building . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 20,000

Loss from Fire . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 80,000

Cash . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. 100,000

e.

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 100,000

Loss from Fire . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .. 100,000

16. Firms treat expenditures as assetswhen they:

a.

have acquired rights to the future use of a resource as a resultof a past transaction or event.

b.

can reliably measure the cost of the expected benefits at thetime of initial recognition.

c.

can exercise the entity’s right to, or control of, thebenefit.

d.

can obtain the future service potential and control others’access to it.

e.

all of the above

Clarion Realty

Clarion Realty has decided to construct its own office building.The construction will be partially financed through a constructionloan and any remainder will be financed from internally generatedfunds. The internal accountants have collected the followinginformation concerning the construction.

Average Balance

Construction

Other

Year

Construction Account

Debt @ 6%

Debt @ 10%

1

$2,000,000

$1,000,000

$500,000

2

$4,000,000

$1,000,000

$250,000

3

$3,000,000

$800,000

$200,000

22. The amount, if any, of capitalizedinterest cost for Year 1 is

a.

$0

b.

$50,000

c.

$60,000

d.

$110,000

e.

$170,000

23. The amount, if any, of capitalizedinterest cost for Year 2 is

a.

$0

b.

$50,000

c.

$60,000

d.

$180,000

e.

$230,000

33. When a firm constructs its ownbuildings or equipment:

a.

it recognizes the labor, material, and overhead costs incurredas an asset.

b.

U.S. GAAP and IFRS require firms to include, or capitalize,interest costs during construction in the cost of aself-constructed asset.

c.

it recognizes the labor, material, and overhead costs incurredas a period expense.

d.

U.S. GAAP and IFRS require firms to expense interest costsincurred during construction of a self-constructed asset.

e.

both choices a and b are correct.

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