Problem 1
Break-Even Analysis and Profit Planning
The Farm Fresh Food Market is a merchandiser of organic food items. The company is considering the possibility of selling pomegranates that would sell for $0.50 each. Pomegranates can be acquired in unlimited quantities for $0.30 each. There are no additional variable costs associated with acquiring and selling pomegranates since labor is on a salaried basis. However, in order to acquire pomegranates at this price, Farm Fresh must pay $4,000 per year for membership in an International co-op.
Required:
a. How many pomegranates would Farm Fresh need to sell annually to justify joining the co-op (break-even)?
b. What would be the total revenue at the breakeven point?
c. How many pomegranates would the company need to sell to earn a profit of $6,000?
Problem 2
Matthew is considering several possible investment alternatives:
Option A: Matthew could receive $10,000 today.
Option B: Matthew could receive $3,000 at the end of each of the next four years.
Option C: Matthew could receive $15,000 five years from now.
Required:
1. Calculate the net present value for each option assuming that Matthew can earn 6 percent on any investment funds.
2. Which option results in the greatest financial benefit to Matthew?
3. If Matthew earns 8 percent, will that change your answer to # 2 above? Please explain.
Problem 3
Cash Budgeting
Landis Company has the following sales forecasts for the selected three-month period in the current year:
|
Month
|
Sales
|
|
April
|
$12,000
|
|
May
|
7,000
|
|
June
|
8,000
|
|
|
|
Seventy percent of sales are collected in the month of the sale, and the remaining balance is collected in the following month.
|
Accounts Receivable balance (April 1)
|
$10,000
|
|
Cash balance (April 1)
|
5,000
|
|
|
|
Minimum cash balance is $5,000. Cash can be borrowed in $1,000 increments from the local bank (assume no interest charges). Calculate the expected cash balance at the end of April, assuming that cash is received only from customers and that $20,000 is paid out during April?
Problem 4: Essay
Do you agree or disagree with the following statement? "Budgeting is an unnecessary burden on many managers and employees. It takes time away from important day to day activities." Please explain.
Problem 5: Essay
What are the expected benefits of the implementation of an effective system of internal controls for an organization?