## [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

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

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 sales commissions

Paid for marketing 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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