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# Flexible Budget / capital budgeting

See the attached file.

1. Viking Inc., produces photo books. The company's operating budget for May 2008 included the following data:

Number of yearbooks 15,000
Selling price per book \$20
Variable costs per book \$8
Fixed costs for the month \$145,000

The actual results for May 2007 were:

Number of yearbooks produced and sold 12,000
Average selling price per book \$21
Variable costs per book \$7
Fixed costs for the month \$150,000

Required: Prepare a performance report that uses a flexible budget and static budget. Classify variances as favorable (F) or unfavorable (U).

Actual
Results
Flexible Budget Variances F/U Flexible Budget Sales Volume Variances F/U Static
Budget
Units
Sold

Revenue

Variable costs
Contri-bution Margin

Fixed costs

Operating income

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2. J-Byrd Inc. manufactures an executive cabinet. His accounting students (cheap labor but very smart workers) gathered following data to prepare budgets for 2007:
Projected sales
35,000 units at a price of \$4,500 each

2007 Finished Goods Inventory targets

January 1, 2007 10,000 units

December 31, 2007 8,000 units

Direct Materials used on the desk

Material A 8 pounds

Material B 12 feet

Material C 2 quarts

Projected data for 2007 with respect to direct materials

Material Purchase Price Inventory 1/1/07 Inventory 12/31/07

A \$15 per pound 40,000 pounds 75,000 pounds

B \$75 per foot 35,000 feet 64,000 feet

C \$5 per quart 2,000 quarts 7,000 quarts
Projected direst manufacturing labor and rates for 2007 is 16 hours per unit at \$25 per hour.

Manufacturing overhead is allocated at the rate of \$18 per direct manufacturing labor hour.

Required:
Based on the preceding information, prepare the following budgets for 2007.

1. Revenues Budget (in dollars)
2. Production budget (in units)
3. Direct materials purchases budget (in quantities)
4. Direct materials purchases budget (in dollars)
5. Direct manufacturing labor budget (in dollars)
6. Manufacturing overhead budget (in dollars)

3. Project June-bug has a cost of \$150,000, and its expected net cash inflows are \$ 28,000 per year for 10 years.

a. What is the projects net cash flow?

b. What is the project's payback period?

c. The required rate of return for the project is 4 percent. What is the project's NPV?

d. What is the project's IRR?

e. What is the project's discounted payback period, assuming a 4 percent required rate of return?

#### Solution Summary

The solution explains how to prepare a flexible budget, calculate cash flows and the IRR and NPV for a project

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