Homework Problems for Final Exam
Both problems must be completed in order to receive any partial credit. Your work must be done individually. No hints will be given and no questions will be answered. Due Date: At the beginning of the Final Exam.
Problem 1 (15 pts).
GoodBuy Inc. is a small electronics company that manufactures cell phones and digital recorders. The per-unit labor costs, raw material costs, and selling price of each product are given below. On December 1, 2008, GoodBuy has available raw material that is sufficient to manufacture 100 cell phones and 100 recorders. On the same date, the company’s balance sheet is as shown in the table below. GoodBuy’s asset/liability ratio (called the current ratio) is 20,000/10,000 = 2.
GoodBuy must determine how many cell phones and recorders should be produced during December. Demand is large enough to ensure that all goods produced will be sold. All sales are on credit, however, and payment for goods produced in December will not be received until February 1, 2009. During December, GoodBuy will collect $2000 in accounts receivable, and GoodBuy must pay off $1000 of the outstanding loan and a monthly rent of $1000. On January 1, 2009, GoodBuy will receive a shipment of raw material worth $2000, which will be paid for on February 1, 2009.
GoodBuy’s management has decided that the cash balance on January 1, 2009 must be at least $4000. To maintain its current favorable credit status, GoodBuy’s bank requires that the current ratio at the beginning of January be at least 2. To maximize the contribution to profit from December production, (revenues to be received – variable production costs), what should GoodBuy produce during December?
Cost Information for GoodBuy
Cell Phones
Recorders
Selling Price
$100
$90
Labor Cost
$50
$35
Raw Material Cost
$30
$40
Balance Sheet for GoodBuy
Assets
Liabilities
Cash
$10,000
Accounts Receivable1
$3,000
Inventory Outstanding2
$7,000
Bank Loan
$10,000
1 –…