COMM 294 - Final #1

COMM 294 - Final #1 - Sauder School of Business Practice...

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1 Sauder School of Business Practice Final Examination Comm 294 Name: ....................................................... Signature: . ....................................................... Student number: ...................................... Time: 180 minutes Total Marks: 141 This examination booklet contains fourteen pages (including this page). Check to ensure this paper is complete. No programmable calculators are permitted. Please show all your calculations in an orderly format for part marks. Time management is crucial. Be sure to answer each question and don’t spend too much time on one question. No questions regarding interpretation will be permitted during this examination. If you need to make an assumption, state it and continue. Read the questions carefully before making any assumptions. TURN YOUR CELL PHONES OFF AND PUT THEM AWAY (IN YOUR BAG OR COAT). CELL PHONES ARE NOT PERMITTED ON THE TABLE.
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2 Question 1 (8 marks; suggested time 10 minutes) Budgeting ±In the midst of all of the scandals and mistrust of accounting, it is nice to have a basic tool such as a budget so that a company can always get an accurate assessment of how it is performing². Provide a thoughtful response. Identify and fully discuss two ideas/issues. (8 marks) Question 2 (14 marks; suggested time 17 minutes) Cash Collection Budget Royland Enterprises sells on credit and for cash. Cash sales account for 25% of its total sales. Royland³s collection pattern for credit sales is as follows: 40% are collected in the month of sale, 36% are collected in the month following the sale, 24% are collected in the second month following the sale. Sales for March are expected to be $330,000. The accounts receivable balance at February 28 is $190,350. Of that amount, $141,750 represents the balance due on February credit sales. There are no receivables from months prior to January. Required: a. What were January's total sales? (5 marks) b. Calculate February's cash sales. (4 marks) c. Estimate March's total cash collections. (5 marks) Question 3 (18 marks, suggested time 21 minutes) ROI and Residual Income The Montross Corporation is organized into three separate divisions. Each division manager is responsible for controlling working capital and net fixed assets. Currently, the company evaluates managers based on return on investment. Information for each of the three divisions is as follows: Division A Division B Division C Sales revenue Variable costs Fixed costs Average Current assets Average Net fixed assets $400,000 225,000 150,000 75,000 125,000 $800,000 370,000 330,000 435,000 650,000 $600,000 360,000 175,000 310,000 685,000 The minimum required rate of return is 10%. Required: a. Which division is performing best based on return on investment? (5 marks) b. Which division is performing best based on residual income? (5 marks) c. When calculating either ROI or RI, operating income (EBIT) is used as the starting figure for determining the measure of income. If a division is to be evaluated fairly by either the ROI or residual income performance measures, why should operating income (EBIT) be used as the basis for the income measure. (3 marks)
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3 d. Residual income is sometimes called EVA (Economic Value Added) or wealth creation.
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COMM 294 - Final #1 - Sauder School of Business Practice...

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