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[answered] AC 710 Budget exercise First, decide how many soccer balls


As a team, complete Periods eleven and twelve decisions. Using period 11, make a decision on investing in new equipment as directed in the following attachment:(This part of the assignment is completed please view attachment) I am team Athens in the spreadsheet

After you make a decision about this investment, use this information and create a budget for next year based on period 11 results and your strategic plans. Use the following final budget template for the next year's budget:?:(This part of the assignment is completed please view attachment)

This is what I came up with: Please tell me if you think this is good way to go

The cost of the machine probably needs to be around $1,000,000 or less for this to be a good investment, as going too much higher invalidates the investment.To begin, I assumed we would continue to sell around 120K units every month for the next 4 years. I first used the payback method, which showed that the investment was a good opportunity at the purchase price of $900,000 for the machine. However, there are many things wrong with the payback method as an accurate guide to investment.

So I then used NPV analysis, which produced a slight loss. I went with the textbook's recommendation on setting the present value factor at 11%. It was very close to breaking even, but definitely a loss using the assumed figures. NPV analysis would not recommend the investment, as those funds would be better spent elsewhere.

To test the NPV analysis, I performed an IRR analysis in order to find out the exact breakeven point of the present value factor. Sure enough, the IRR breakeven point was slightly below the 11% figure I used in the NPV, verifying the NPV results. In short, IRR analysis also is against the purchase of the machine.

These are just the three analyses I used. You can use any of the analyses you want to show that this is probably not a good investment for the company.

The qualitative factors that I closed with were product quality and company reputation. We have been selling ourselves as the quality choice. Machine stitching is associated with lower to middle quality products, while hand stitching (what we currently do) is considered top quality. To switch to machine stitching would mean that we no longer wanted to be the quality option. It just does not fit in with our current MVV.

So the machine stitching would be a financial loss in the long run, as well as against our company ethos. You can probably tell that I am very much against buying the machine.

Then write a one-page executive summary of your new annual budget and the assumptions you used to create it (Please help with this portion one page executive summary)





AC 710 Budget exercise First, decide how many soccer balls you'll sell and make

 

then complete below: Use periods 1-11 as your base, and budget next year. Step 1: Calculation of next period's average inventory cost

 

Costs:

 

of beginning inventory

 

direct materials in new manufacturing

 

direct labor in new manufacturing

 

fixed overhead in new manufacturing

 

Total costs

 

Units:

 

of beginning inventory

 

of new manufacturing

 

Total units

 

Average cost per unit Amount

 

budgeted for

 

next period 200,000

 

500,000

 

100,000

 

100,000

 

900,000

 

30,000

 

125,000

 

155,000

 

5.81 Step 2 - Estimate an Income statement (per GAAP)

 

Sales

 

Cost of goods sold at average cost

 

Gross margin

 

Sales commissions

 

Marketing expense

 

Administrative expense

 

Interest revenue ( - = expense)

 

Net income 1,470,000

 

697,200

 

772,800

 

120,000

 

350,000

 

100,000

 

3,600

 

206,400 Step 3: Estimate a statement of cash flows

 

Collections from customers 1,470,000 Paid for direct materials

 

Paid for direct labor

 

Paid for factory overhead

 

Paid for sales commissions

 

Paid for marketing costs

 

Paid for administrative costs

 

Received as interest revenue (- paid expense)

 

Cash produced (-used)

 

Predict the period ending Balance sheet:

 

Assets:

 

Cash

 

Inventory

 

Liabilities- Debt

 

Shareholders' equity-beginning

 

Earnings to date -500,000

 

-100,000

 

-100,000

 

-120,000

 

-350,000

 

-100,000

 

3,600

 

203,600 1,370,405

 

174,194

 

0

 

550,000

 

994,599 Remember - your assets total (cash and Inventory) must equal your debt, equity, and earnings to date

 


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