Finance and Accounting (for non-Business majors) Assignment Second Questions 7.The human resources department of Consumer Cosmetics has responsibility for all aspects of payroll and ongoing management of the HR function, hiring new employees, and terminations. The departmental report for 2015 included the following: Average number of company employees in 2015 5,000 Number of new hires … Continue reading “Finance and Accounting | My Assignment Tutor”
Finance and Accounting (for non-Business majors) Assignment Second Questions 7.The human resources department of Consumer Cosmetics has responsibility for all aspects of payroll and ongoing management of the HR function, hiring new employees, and terminations. The departmental report for 2015 included the following: Average number of company employees in 2015 5,000 Number of new hires 500 Number of terminations 50 Number of HR employees 100 HR department costs Salaries $5,000,000 Employee-related overhead (25% of HR salaries) 1,250,000 Office expenses 5,000,000 Travel & interview costs 1,000,000 Advertising 500,000 Total actual cost $12,750,000 In 2016 it is expected that the number of employees will rise to 5,500, there will be 500 new employees hired and no terminations Inflation will run at 2% for all costs. Required (a) What assumptions do you have to make before you can plan your budget for 2016? (b) Using those assumptions, prepare a budget for 2016. 8. Minim Co. wants a cash budget for March. On March 31, a $100,000 note payable will become due, together with $250 of accumulated interest. Accounts payable on March 1 were $400,000, and accounts receivable were $600,000. All accounts payable are paid after 30 days. Typically, 60% of customers are cash customers or debit transactions, which are effectively cash sales, and 40% are credit sales. Of the credit sales, half are with credit cards, and the company receives the money about a week after the sale; the other half are on the Minim Co.’s own card, which are all collected after one month. The company sells jeans and similar leisurewear. The cost of the products is marked up by 75% to get the selling price. Each month Minim Co. plans to have enough inventory to cope with the following month’s sales demand. One month’s credit is taken on all goods purchased. Expenses are all fixed and amount to $70,000 per month, of which $10,000 is depreciation. Sales are expected to be $500,000 per month for January, February, and March. The owner of the company will withdraw $5,000 per month for living expenses. In February, the company expects to purchase a new delivery van for $100,000. The cash balance at the beginning of March will be $2,500. Required Prepare a cash budget for March. 3. The human resources department at Eros Company has the following budget and actual results for 2015, and you are the manager of that operations: Eros Co. Human Resources Department Budgetary Control Report of 2015 Details Budget Actual Variance Salaries $250,000 $275,000 $25,000 U Salary-Related costs (20% of base salaries) 50,000 55,000 5,000 U Travel 100,000 125,000 25,000 U Office expenses 200,000 220,000 20,000 U Training programs 500,000 400,000 100,000 F Total $1,100,000 $1,075,000 $25,000 F Required (a) Based only on the bottom line (i.e., total expenditure), is the HR department in control or out of control? (b) Based on the individual line budgets, is the HR department in control or out of control? (c) Do you think the HR department has carried out the HR activities that it was expected to do? (d) Some organizations have “loose” control systems, and some have “tight” control systems. Does this matter in respect of how we look at the above data? 9. Arnprior Academics runs courses in Human Resource Management. Each course can accommodate up to 25 students. The costs for a recent course with 25 trainees were as follows: Instructor’s fees $2,000 Refreshments $250 Photocopying $750 Room rental $1,000 Computer hire ($10/workstation plus $50 one-time setup fee) $300 Software license ($20 per student plus $200 per course) $700 Sales revenue is $500 per trainee. Required Answer the following using trainees as the measure of activity: (a) Classify each cost line as variable, fixed, or mixed. (b) Separate each mixed cost into its variable and fixed components. (c) Calculate the total variable cost per trainee. (d) Calculate the total fixed cost per course. (e) Calculate the contribution margin per trainee. (f) Calculate the number of trainees at which the course will break even. (g) Calculate the profit for a course with 10 trainees. (h) Calculate the profit for a course with 25 trainees. (i) Course 2015 X3 is full. It has 25 trainees registered. One of Arnprior Academic’s own employees is to go on the course in addition to the existing 25 trainees. By agreement, the Arnprior HR department is going to be charged “cost”, instead of the $500 normally charged to outside customers. How much will that be? (j) Is the break-even model a good description of Arnprior Academic’s course activities? 10. Personal Planners provides financial advice to their clients on investment, retirement planning, and tax management. Based on last year’s client list of 100 clients, the cost of providing retirement planning is $594 per client, itemized as follows: Textbook: Personal Financial Planning (Ho & Robinson) $57 Photocopying 10 Advisor’s time (2 hours @ $90) 180 Computer simulation fee 50 Direct costs $297 Overhead (100% of direct costs) 297 Total $594 The 100% markup to cover overheads is typical in this business. Overhead is thought to consist of 40% variable costs and 60% fixed Costs. Professor Robinson (himself the author of the textbook and a very smart person) has offered to service all the clients with retirement planning (but not investment advice of tax planning) for a fee. This would include not only his time but also the textbook, the photocopying, and the computer simulation fee. Required (a) If Robinson’s fee is $500 per client, should the offer be accepted? (b) If Robinson’s fee is a lump sum of $50000, for which he would provide advice for up to 120 clients, should the offer he accepted? 5. Sutherland has $100 million of equity capital, which has a required rate of return of 10%. The company tax rate is 40%. Required Calculate the weighted average cost of capital under each of the following (independent) alternatives, assuming that the size of the company does not change: (a) No change (b) Borrowing $5 million at 8% interest and using it to pay a dividend of $5 million. (c) Borrowing $50 million at 8% interest and using it to pay a dividend of $50 million (d) Borrowing $98 million at 8% interest and using it to pay a dividend of $98 million 14. Pedro’s Plumbing has evaluated three projects: • Project A: Buy a new fleet of delivery vehicles Investment, $750,000; n.p.v., $200,000, payback, 5 years Project B: Re-equip the warehouse for greater efficiency Investment, $1,000,000; np.y. $250,000, payback, 4 years • Project C: Launch a new line of products Investment, $1,500,000; n.p.v., $300,000; payback, 6 years All three projects are acceptable as they have positive net present values, but the company is short of cash and cannot invest in all of them. Required If the company can only invest in one of the projects, which one would you recommend? Discussion Question: DQ9. Why are budgets of such great importance for NFPOs and governments?
