Reference no: EM131291107

?PROBLEM 1

Vanhorn Company sells tennis racquets; variable costs for each are $75, and each is sold for $105. Vanhorn incurs $ 270,000 of fixed operating expenses annually.

1. Determine the sales volume in units and dollars required to attain a $ 120,000 profit. Verify your answer by preparing the income statement using the contribution margin format

2. Vanhorn is considering establishing a quality improvement process that will require a $ 10 increase in the variable cost per unit. To inform its customers of the quality improvements, the company plan to spend an additional $ 60,000 for advertising. Assuming that the improvement programme will increase sales to a level that is 5,000 above the amount computed in question 1, should Vanhorn proceeds with plans to improve product quality? Support your answer by preparing a budgeted income statement

3. Determine the new break-even point (units and $ sales) assuming Vanhorn adopts the quality improvement programme

4. At the end of the year, the actual results are :
a. Units sales are 15,000, with a selling price per unit of $ 104
b. The variable costs per unit are $ 72 and the fixed operating expenses amount to $ 270,000
Prepare the actual income statement and compare it to the one prepared in question 1. Compute the sales variance and its components, the profit variance and its components.

PROBLEM 2

INCOME STATEMENT	2002		2003
Sales Cost of Goods Sold	500'000 350'000		550'000 410'000
Gross Margin	150'000		140'000
Selling expenses Administrative expenses Depreciation	60'000 30'000 15'000		61'000 32'000 15'000
Operating Income ( EBIT	45'000		32'000
Interest expense	13'000		11'000
Income before Tax Tax	32'000 11'200		21'000 7'350
Net Income	20'800		13'650
BALANCE SHEET	2002		2003
Cash & Banks Account Receivable Inventory	5'000 100'000 80'000		13'000 106'000 89'000
Current assets	185'000		208'000
Building & Equipment Allowance for Depreciation	200'000 (120'000)		220'000 (135'000)
Fixed Assets	80'000		85'000
Total Assets	265'000		293'000
Accounts Payables Accruals	70'000 18'000		84'000 15'350
Current Liabilities	88'000		99'350
Long term Debt	80'000		78'000
Common Stock Retained earnings	50'000 47'000		60'000 55'650
Equity	97'000		115'650
Total Liabilities & Equity	265'000		293'000

1. Using the income statement analysis tools (common sized, variances), how do you evaluate the 2003 results versus 2002. Management has also indicated that price, on average, has deteriorated by 5% during 2003.

As a banker looking for granting a loan to the Company, how do you evaluate the situation of the company in 2003? Use financial ratios to justify your comments and decision

2. How would you comment the asset management performance in 2003 versus 2002? Justify your comments with all related ratios

3. Calculate the ROI and ROE for the 2 years

4. Prepare the Cash Flow statement (indirect method) with the following additional information:
a. the Company purchased equipment for $ 20,000, 50% of which were paid in exchange of shares issued
b. Dividends declared and paid in 2003 amounted to $ 5,000 What can you conclude from the Cash generated/used by activity?

Do the assignment. all numbers must be done. Slides FSA is to help you.