......................N E E D E X P L A N A T I O N................. 1. Albertvi

Question

......................N E E D E X P L A N A T I O N.................

1. Albertville Inc produces leather handbags. The production budget for the next four months is: July 5,300 units, August 7,500 units, September 7,900 units, October 8,800 units. Each handbag requires 0.7 square meters of leather. Albertville Inc’s leather inventory policy is 20% of next month’s production needs. On July 1 leather inventory was expected to be 742 square meters. What will leather purchases be in july?

a. 3768 square meters

b. 4018 square meters

c. 5043 square meters

d. 4168 square meters

2. Brimson has forecast sales for the next three months as follows: July 4,900 units, August 6,400 units, September 7,600 units. Brimson's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,960 units. Monthly manufacturing overhead is budgeted to be $17,600 plus $13 per unit produced. What is budgeted manufacturing overhead for August?

a. 104,040

b. 89,440

c. 88,440

d. 107,040

3. Jasmine Company produces hand tools. A production budget for the next four months is as follows: March 10,500 units, April 13,845, May 16,800, and June 21,700. Jasmine Company’s ending finished goods inventory policy is 5% of the following month’s sales. Jasmine plans to sell 16,600 units in May. How many units will be sold in April?

a. 14,320

b. 14,270

c. 13,080

d. 13,700

4. Albertville Inc produces leather handbags. The production budget for the next four months is: July 5,300 units, August 7,500 units, September 7,600 units, October 8,400 units. Each handbag requires 0.4 square meters of leather. Albertville Inc’s leather inventory policy is 25% of next month’s production needs. On July 1 leather inventory was expected to be 1,300 square meters. What will leather purchases be in August?

a. 7450

b. 3010

c. 7525

d. 2860

5. Fleetwood Corp is trying to decide whether to lease or purchase a piece of equipment needed for the next five years. The equipment would cost $519,000 to purchase, and maintenance costs would be $21,200 per year. After five years, Fleetwood estimates it could sell the equipment for $100,200. If Fleetwood leases the equipment, it would pay $151,200 each year, which would include all maintenance costs. Fleetwood’s hurdle rate is 13%.

(Present value of $1: 0.5428, Present value of annuity of $1:3.5172)

a. Net present value of the cost of purchasing the equipment?

b. Net present value of the cost of leasing the equipment?

Explanation / Answer

1. b

Units needed this month: 5,300 units x .7 sqft/unit = 3,710

Add desired ending inventory: 1,500 units x .7 sqft/unit= 1,050

Total sqft required: 4,760

Less beginning inventory: 742

Purchases: 4,018

2. d

Units needed: 6,400

Desired ending inventory: 3,040 (.4 x 7,600)

Total units required: 9,440

Less beginning inventory: 2,560 (6,400 x .4)

Units to produce: 6,880

Manufacturing overhead= 17,600 + 6,880 x 13 = 107,040

3. d

Units sold: ?

Add Desired ending inventory: 830 (.05 x 16,600)

Total units required: x + 830

Less Beginning inventory: .05x

Units to produce: 13,845

13,845= 830 + x - .05x

13,015 = .95x

Units sold (x)= 13,700

4. b

Units needed: 3000 (7500 x .4)

Add desired ending inventory: 760 (7,600 x .4 x .25)

Total units needed: 3,760

Beginning inventory: 750 (3,000 x .25)

Purchases: 3010

5.

a) NPV= present value of cash flows - initial investment

NPV= present value of annuity + present value of lump sum - initial investment

NPV= -21,200 x 3.5172 + 100,200 x 0.5428 - 519,000

NPV= -74,564 +54,389 - 519,000

NPV= -539,175

b) NPV= present value of cash flows

NPV= -151,200 x 3.5172

NPV= -531,801

The company should lease the equipment since it will cost the company less.

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