To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER 16 DISCUSSION QUESTIONS Q16-1 A capital expenditure is an expenditure intended to benefit future periods It is normally associated with the acquisition or improvement of plant assets The real distinction between a capital and revenue expenditure is not the immediate charging of the expenditure to income, as opposed to its gradual amortization, but the length of time required for its recovery in cash Recoveries of revenue expenditures, such as product costs, are expected to take place in a matter of weeks or, at the most, months The financial recovery of capital expenditures is measured in terms of years Q16-2 Purposes of a research and development program are: (a) A planned search for new knowledge pertaining to the industry without reference to a specific application (b) Creation of a new product or improvement of an existing product (c) Invention of a new or improved process or machinery to make a finished product or component Reasons for a research and development program are: (a) To protect the sales dollar, that is, to meet competition Improving the quality of performance of products or achieving cost savings in either operating or capital expenditures falls into this category (b) To research to promote new sales dollars, either by entering a new market or by significantly expanding an existing market (c) To investigate problems with respect to environmental protection, safety, working conditions, etc Q16-3 Budgetary procedures for research and development expenditures are designed to: (a) force management to think about planned expenditures; (b) coordinate research and development plans with the immediate and long-range plans of the company; Q16-4 Q16-5 Q16-6 Q16-7 16-1 (c) force the research and development staff to consider major nonfinancial aspects of the program, such as personnel, equipment, and facilities requirements A cash budget involves detailed estimates of anticipated cash receipts and disbursements for a specified period of time It is designed to assist management in coordinating cash flow from operations as a basis for financial plans and control The cash budget provides a systematic approach to the synchronization of cash resources with needs It assists management in making intelligent decisions concerning capital expenditures, dividend policies, investments, and other financial matters, and often exerts a cautionary influence on any of the above plans Periodic reports comparing actual with planned receipts and disbursements permit effective and continuous control of cash by signaling significant deviations from the financial plans for the period (a) Nonmanufacturing businesses must plan for the future just as carefully as manufacturing concerns Seasonal patterns in revenues and expenditures must be provided for, and required equipment replacement and expansions must be budgeted (b) Not-for-profit organizations generally operate on relatively fixed incomes that are received at one time Such receipt patterns are common for organizations that rely on tax dollars for support These funds must be allocated throughout the year in order to maintain operations Careful budget plans are a necessity for such allocations PPBS stands for Planning, Programming, Budgeting System, and is an analytical tool focused on the output or final results rather than input or initial dollars expended The output is directly relatable to planned goals or objectives Zero-base budgeting (ZBB) is a planning and budgeting tool using cost-benefit analysis of To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 16-2 projects and functions to improve an organization’s resource allocation Budget requests consist of decision packages that are analyzed, evaluated, and ranked in a priority order based on cost-benefit analysis Management can then evaluate possible activities for the coming period, selecting those that will best achieve organizational goals Traditional budgeting tends to concentrate on the differential change from the prior year, assuming that existing activities are essential, must be continued, are currently performed in a cost-efficient and optimum manner, and will be cost-effective in the coming year Costs are developed more on a line-item rather than an activity basis ZBB organizes all budget costs in the form of activities and/or operations (decision packages) and evaluates the effectiveness of each decision package as if it were a new activity Q16-8 (a) Zero-base budgeting requires managers to justify their entire budget requests It places the burden of proof on the manager to justify why any money at all should be budgeted It does this by starting with the assumption that zero will be spent on each activity, so the budgeting process begins with a base of zero (b) The two kinds of alternatives considered for each activity are (1) different ways of performing the activity and (2) different levels of effort in performing the activity (c) A decision package includes an analysis of an activity’s cost and purpose, alternative courses of action, measures of performance of the activity, consequences of not performing the activity, and the activity’s benefits (d) A package identifies and describes one activity in sufficient detail so that it can be evaluated and compared with other activities (e) Success in the implementation of zerobase budgeting requires the following: Linkage of zero-base budgeting with short- and long-range planning Sustained support and commitment from executive management Innovation by managers in developing decision packages Acceptance of zero-base budgeting by persons who must perform the budgeting work Chapter 16 Q16-9 Prospective information should be provided in external financial statements when it will enhance the reliability of the user’s predictions Q16-10 PERT is particularly appropriate as a scheduling and controlling technique for projects consisting of a large number of tasks, some of which cannot be started until others are complete, and some of which can be undertaken concurrently Conceptually, the reference is to a network of interdependent activities which, as a group, require considerable time to complete There is usually substantial set-up time (and cost) associated with analyzing, defining, and estimating each discrete project activity; thus, the benefit is in projects requiring a considerable amount of time and consisting of a relatively complex network PERT allows the user to update and revise scheduled activities and thereby determine the effects of changes on the overall project It is particularly appropriate when the timing of individual activities and the project completion date are critical to success Q16-11 Slack is computed by subtracting the earliest expected time from the latest allowable time The earliest expected time is the earliest time that an activity can be expected to start, because of its relationship to pending activities The latest allowable time is the latest time that an activity may begin and not delay completion of the project Slack is determinable only in relation to an entire path through the network Q16-12 PERT/cost is really an extension of PERT With time-options available, it seems advisable to assign cost to time and activities, thereby providing total financial planning and control by functional responsibility Q16-13 Computer support offers distinct advantages to PERT users PERT is a mathematicallyoriented technique and is therefore ideally suited to the high-speed response of computers for deriving the critical path, slack times, and costs, and for storing and reporting results to management Revisions to all schedule elements, whether during the initial estimating phase or during the active project phase, can be updated and the revised results promptly reported Computer support is helpful in dealing with large, complex networks of interdependencies To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 16 and when project control requires timely progress reporting against the updated plan Most program packages offer a variety of reporting features and formats, including graphic network display as well as printed reports at various summary levels Current reporting provides information to project managers, enabling quick reaction to deviations 16-3 Q16-14 The traditional budget focuses on one set of assumptions The probabilistic budget provides for evaluating several sets of assumptions, including the probability of each and a composite expected value, range, and standard deviation for each budget element To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 16-4 Chapter 16 EXERCISES E16-1 Beginning cash balance Budgeted cash receipts: Collect accounts receivable: November credit sales: ($60,000 × 10%) December credit sales: ($70,000 × 60%) ($70,000 × 10%) January credit sales: ($50,000 × 25%) ($50,000 × 60%) ($50,000 × 10%) February credit sales: ($60,000 × 25%) ($60,000 × 60%) March credit sales: ($70,000 × 25%) Total cash receipts Cash available during month Budgeted cash disbursements: Pay accounts payable: December purchases: ($20,000 × 80%) January purchases: ($15,000 × 20%) ($15,000 × 80%) February purchases: ($25,000 × 20%) ($25,000 × 80%) March purchases: ($20,000 × 20%) Payroll Miscellaneous cash expenses Debt retirement Total cash disbursements Ending cash balance January $ 6,000 February March $20,500 $26,500 $ 6,000 42,000 $ 7,000 12,500 30,000 $ 5,000 15,000 36,000 $60,500 $66,500 $52,000 $72,500 17,500 $58,500 $85,000 $16,000 3,000 $12,000 5,000 $20,000 21,000 6,000 22,000 7,000 $46,000 $20,500 $46,000 $26,500 4,000 23,000 6,000 26,000 $79,000 $ 6,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 16 E16-2 16-5 Finished Goods Units required to meet sales budget Add desired ending inventory (20% of following month’s sales) Total units required Less estimated beginning inventory (20% of current month’s sales) Planned production April 9,000 May 10,000 June 12,000 2,000 11,000 2,400 12,400 2,200 14,200 1,800 9,200 2,000 10,400 2,400 11,800 April May June 27,600 31,200 35,400 12,480 40,080 14,160 45,360 11,040 29,040 12,480 32,880 Materials Units required to meet planned production (planned production × 3) Add desired ending inventory (40% of following month’s production requirements) Total materials required Less estimated beginning inventory (40% of current month’s requirements) Planned purchases Cash disbursements during May for payment of accounts payable for material purchases: 1/3 × 29,040 × $20 × 98 = $189,728 2/3 × 32,880 × $20 × 98 = 429,632 $619,360 CGA-Canada (adapted) Reprint with permission To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 16-6 Chapter 16 E16-3 Par production budget: Units required to meet sales budget Add desired ending inventory Total units required Less beginning inventory Planned production June 50,000 3,000 53,000 5,000 48,000 July 30,000 3,000 33,000 3,000 30,000 June July Tee purchases budget: Units required for production: 48,000 × 30,000 × Add desired ending inventory Less beginning inventory Units to be purchased 144,000 14,000 158,000 20,000 138,000 90,000 11,000 101,000 14,000 87,000 Cash disbursements in July for purchases of Tee: 138,000 × $5 × 1/3 × 98 = 87,000 × $5 × 2/3 × 98 = $225,400 284,200 $509,600 CGA-Canada (adapted) Reprint with permission To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 16 E16-4 (1) Cash Cash Cash Cash Cash 16-7 JAMESTOWN COMPANY Cash Budget For July balance, July receipts: June sales ($30,000 × 48%) July sales ($40,000 × 50%) available disbursements: June purchases ($10,000 × 75%) July purchases ($15,000 × 25%) Other marketing and administrative expenses Income tax Dividends balance, July 31 *Calculation of June income tax: Sales Cost of goods sold Gross profit Commercial expenses: Depreciation $5,000 Other marketing and administrative 9,000 Taxable income Income tax ($4,000 × 40%) (2) $ 5,000 $14,400 20,000 $ 7,500 3,750 10,000 1,600 15,000 34,400 $39,400 37,850 $1,550 $30,000 12,000 $18,000 14,000 $4,000 $1,600 Since the desired minimum cash balance is $5,000, arrangements should be made to borrow $3,450 ($5,000 – $1,550) CGA-Canada (adapted) Reprint with permission To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 16-8 Chapter 16 E16-5 (1) PERT network: Start Finish (2) Alternate paths and times and the critical path and the expected project time: 1-2-5-6-7 = 11 weeks critical path 1-2-3-5-6-7 = 10 weeks 1-2-3-4-5-6-7 = 10 weeks (3) The two activities in question are 3-4 and 4-5 If these activities were eliminated, there would be no effect on the critical path or the expected completion time because 3-4 and 4-5 are not on the critical path To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 16 16-9 E16-6 (1) (2) Activity 1-2 1-3 1-4 2-6 3-5 4-5 5-6 Path 1-2-6 1-4-5-6 1-3-5-6 (to 2 4 + tm(4) 2(4) 6(4) 4(4) 11(4) 6(4) 4(4) 5(4) tes + 10.67 3.83 + + 5.83 + + + tp) 18 = Total 12 35 23 64 36 24 30 Total te 12.67 12.83 16.83 ÷ 6 6 6 6 = te 2.00 5.83 3.83 10.67 6.00 4.00 5.00 critical path CGA-Canada (adapted) Reprint with permission To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 16-10 Chapter 16 E16-7 (1) 6 6 6 6 10 10 10 (2) Event + + + + + + + + + + + 11 11 8 0 3 + + + + + + + + + + + 5 9 13 3 9 13 + + + + + + + + + + + Earliest Expected Time 10 14 17 23 27 27 30 4 + + + + = 29 = 25 = 30 critical path = 26 9 13 = 29 + + + + + + + = 25 = 21 = 24 = 29 = 25 = 28 Latest Allowable Time 11 14 18 23 27 28 30 Slack Time 0 1 0 CGA-Canada (adapted) Reprint with permission To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 16 16-11 E16-8 (1) te = (to + 4tm + tp) ÷ = (1 + (4 × 2) + 9) ÷ = days (2) 3 6 4 6 (3) Path 0-1-2-6-7 0-1-3-4-6-7 0-1-3-4-7 0-1-3-5-7 = = = = Time Required 4+3+6+5 4+4+3+3+5 4+4+3+6 4+4+6+6 = = = = 18 19 17 20 days days days days The critical path is 0-1-3-5-7, because it requires the greatest total time (20 days) (4) Critical path time Less time required after event 2: Activity 2-6 Activity 6-7 Maximum time to event Estimated time to event 2: Activity 0-1 Activity 1-2 Slack time at event 20 days days days days days 11 days days days days To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 16-12 Chapter 16 PROBLEMS P16-1 (1) Budgeted cash disbursements during June: Purchase of materials: $103,500 May (11,2501 × $20 × 46%) 131,544 June (12,180 × $20 × 54%) Marketing, general, and administrative expenses: May ($51,5503 × 46%) $23,713 26,622 June ($49,300 × 54%) Wages and salaries Total 50,335 37,9005 $323,279 May 14,820 units 11,900 26,720 units 15,470 11,250 units June 15,600 units 11,400 27,000 units 14,820 12,180 units 31 ending inventory (11,400 × 130%) May production Materials needed in May April 30 ending inventory ($309,400 ÷ $20) May purchases 30 ending inventory (12,000 × 130%) June production Materials needed in June May 31 ending inventory June purchases ($357,000 May sales × 15%) – $2,000 depreciation = $51,550 ($342,000 June sales × 15%) – $2,000 depreciation = $49,300 Accrued payroll on June $ 3,300 Payroll earned during June 38,000 $41,300 Accrued payroll on June 30 3,400 Cash paid out for payroll $37,900 (2) $235,044 Budgeted cash collections during May: March sales ($354,000 × 9%) April sales ($363,000 × 97% × 60%) April sales ($363,000 × 25%) Total $ 31,860 211,266 90,750 $333,876 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 16 P16-1 (Concluded) (3) Budgeted units of inventory to be purchased during July: July 31 ending inventory (12,200 × 130%) 15,860 units July production 12,000 Materials needed in July: 27,860 units June 30 ending inventory (12,000 × 130%) 15,600 July purchases 12,260 units 16-13 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 16-14 Chapter 16 P16-2 April $ 100,000 May $ 100,000 June $ 100,000 Beginning cash balance Cash receipts during month: Collections of accounts receivable: February sales: ($2,000,000 × 40%) March sales: ($1,800,000 × 60%) ($1,800,000 × 40%) April sales: ($2,200,000 × 60%) ($2,200,000 × 40%) May sales: ($2,500,000 × 60%) Total cash collections Cash available for use during month Cash disbursements during month: Accounts payable for purchases: February purchases: ($2,000,000 February sales × 50% × 40% × 20%) ($1,800,000 March sales × 50% × 60% × 20%) March purchases: ($1,800,000 March sales × 50% × 40% × 80%) ($2,200,000 April sales × 50% × 60% × 80%) ($1,800,000 March sales × 50% × 40% × 20%) ($2,200,000 April sales × 50% × 60% × 20%) April purchases: ($2,200,000 April sales × 50% × 40% × 80%) ($2,500,000 May sales × 50% × 60% × 80%) ($2,200,000 April sales × 50% × 40% × 20%) ($2,500,000 May sales × 50% × 60% × 20%) May purchases: ($2,500,000 May sales × 50% × 40% × 80%) ($2,800,000 June sales × 50% × 60% × 80%) Wages (20% of current sales): April ($2,200,000 × 20%) May ($2,500,000 × 20%) June ($2,800,000 × 20%) General and administrative expenses: Salaries (1/12 × $480,000) Promotion (1/12 × $660,000) Property taxes (1/4 × $240,000) Insurance (1/12 × $360,000) Utilities (1/12 × $300,000) Income taxes ($1,020,000 income × 40% tax rate) Total cash disbursements Cash balance before borrowing or investment Cash to be borrowed (or invested) 40,000 55,000 30,000 25,000 408,000 $2,002,000 $ (22,000) 122,000 40,000 55,000 30,000 25,000 $1,806,000 $ 334,000 (234,000) 40,000 55,000 60,000 30,000 25,000 $2,080,000 $ 400,000 (300,000) Ending cash balance $ 100,000 $ 100,000 $ 100,000 $ 800,000 1,080,000 $ 720,000 1,320,000 $ 880,000 $1,880,000 $1,980,000 $ $2,040,000 $2,140,000 1,500,000 $2,380,000 $2,480,000 80,000 108,000 288,000 528,000 $ 72,000 132,000 352,000 600,000 $ 88,000 150,000 400,000 672,000 440,000 500,000 560,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 16 16-15 P16-3 MAYNE MANUFACTURING COMPANY Cash Budget For the Years Ending March 31 20B 20C $ 75,000 Balance of cash at beginning Cash generated from operations: Collections from customers— Schedule A $825,000 $1,065,000 Disbursements: Direct materials—Schedule B $220,000 $ 245,000 Direct labor 300,000 360,000 Variable overhead 100,000 120,000 Fixed costs 130,000 130,000 Total disbursements $750,000 $ 855,000 Excess of cash collections over cash disbursements from operations $ 75,000 210,000 Cash available from operations $ 75,000 $285,000 Cash received from liquidation of existing accounts receivable and inventories 90,000 Total cash available $165,000 $285,000 Payments to general creditors (liquidation proceeds) 90,000 270,0002 Balance of cash at end $ 75,0001 $ 15,000 1This amount could have been used to pay general creditors or carried forward to the beginning of the next year 2($600,000 × 60%) – $90,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 16-16 Chapter 16 P16-3 (Concluded) Schedule A—Collections from customers: Sales Beginning accounts receivable Total Less ending accounts receivable Collections from customers 20B 20C $900,000 $1,080,000 75,000 $900,000 $1,155,000 75,000 90,000 $825,000 $1,065,000 Schedule B—Disbursements for direct materials: Direct materials required for production Required ending inventory Total Less beginning inventory Purchases Beginning accounts payable Total Less ending accounts payable Disbursements for direct materials 312,000 415,000 20B $200,000 40,0003 $240,000 $240,000 $240,000 20,000 $220,000 20C $240,000 50,0004 $290,000 40,000 $250,000 20,000 $270,000 25,000 $245,000 units × 2/12 = 2,000; 2,000 × $20 per unit = $40,000 units × 2/12 = 2,500; 2,500 × $20 per unit = $50,000 P16-4 Production Budget: Required to meet sales forecast: January ($360,000 sales ÷ $150 per unit) 2,400 February ($450,000 sales ÷ $150 per unit) 3,000 March ($480,000 sales ÷ $150 per unit) 3,200 Desired finished goods ending inventory: ((($600,000 April sales ÷ $150 per unit) × 10%) + 100) Total quantity of product to produce Direct Materials Purchases Budget: Materials required for production (9,100 units × $20) Desired materials ending inventory Total direct materials purchases during first quarter 8,600 500 9,100 $182,000 2,000 $ 184,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 16 16-17 P16-4 (Concluded) Cash Budget for First Quarter Ending March 31, 20A: January 1, cash balance Cash receipts: Investment by owner Mortgage taken out Collections of accounts receivable: January sales: ($360,000 × 30% × 80% × 98%) ($360,000 × 30% × 20%) ($360,00 × 30%) ($360,000 × 38%) February sales: ($450,000 × 30% × 80% × 98%) ($450,000 × 30% × 20%) ($450,000 × 30%) March sales: ($480,000 × 30% × 80% × 98%) ($480,000 × 30% × 20%) Total cash available for use during quarter Cash disbursements: Accounts payable Direct labor ((9,100 × $30) - $7,500) Variable overhead (9,100 × $15) Factory rent ($10 × 5,000 capacity × 3) Sales commissions (8,600 units × $8) Office rentals ($12,000 × 3) Interest payment ($150,000 × 2% × 3) Payment of principal on long-term note Equipment purchases March cash balance before current financing Current financing required Desired March 31 cash balance $ $50,000 150,000 84,672 21,600 108,000 136,800 105,840 27,000 135,000 112,896 28,800 $184,000 265,500 136,500 150,000 68,800 36,000 9,000 30,000 150,000 960,608 $ 960,608 1,029,800 $ (69,162) 84,162 $ 15,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 16-18 Chapter 16 P16-5 (1) TRIPLE-F HEALTH CLUB Budgeted Statement of Income (Cash Basis) For the Year Ending October 31, 20C (000s omitted) Cash revenue: Annual membership fees, $355 × 1.1 × 1.03 Lesson and class fees, $234 × $234 $180 Miscellaneous, $2.0 × $2 $1.5 Total cash revenue Cash expenses: Manager’s salary and benefits, $36 × 1.15 Regular employees’ wages and benefits, $190 × 1.15 Lesson and class employee wages and benefits, $195 × 1.3 × 1.15 Towels and supplies, $16 × 1.25 Utilities (heat and light), $22 × 1.25 Mortgage interest, $360 ×.09 Miscellaneous, $2 × 1.25 Total cash expenses Cash income Cash payments: Mortgage payment Accounts payable balance at 10/31/B Accounts payable on equipment at 10/31/B Planned new equipment purchase Total cash payments Cash surplus Beginning cash balance Cash available for working capital and to acquire property (2) $402.2 304.2 2.7 $709.1 $ 41.4 218.5 291.5 20.0 27.5 32.4 2.5 $633.8 $ 75.3 $ 30.0 2.5 15.0 25.0 $ 72.5 $ 2.8 8.3 10.1 Operating problems that Triple-F Health Club could experience in 20C include: (a) The lessons and classes contribution to cash will decrease because the projected wage increase for lesson and class employees is not made up by the increased volume of lessons and classes (b) Operating expenses are increasing faster than revenues from membership fees (c) Triple-F seems to have a cash management problem Although there appears to be enough cash generated for the club to meet its obligations, past due amounts occur Perhaps the cash balance may not be large enough for day-to-day operating purposes To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 16 16-19 P16-5 (Concluded) (3) Jane Crowe’s concern with regard to the board’s expansion goals are justified The 20C budget projections show only a minimal increase of $2.8 in the cash balance The total cash available is well short of the $60.0 annual additional cash needed for the land purchase over and above the club’s working capital needs; however, it appears that the new equipment purchases can be made on an annual basis If the board desires to purchase the adjoining property, it is going to have to consider significant increases in fees or other methods of financing, such as membership bonds or additional mortgage debt P16-6 (1) Schedule of budgeted cash receipts by month for the third quarter of 20A (000s omitted): Billings Receipts Actual/ Percentages Estimated Amount Class Timing Month May $5,000 90% 20% May 5,000 10 40 June 5,000 90 50 June 5,000 10 40 June 5,000 90 20 June 5,000 10 40 July 4,500 90 20 July 4,500 10 10 July 4,500 90 50 July 4,500 10 40 July 4,500 90 20 July 4,500 10 40 August 5,000 90 20 August 5,000 10 10 August 5,000 90 50 August 5,000 10 40 September 5,500 90 20 September 5,500 10 10 Total receipts from billings Endowment fund income Total cash receipts July $ 900 200 2,250 200 August September $ 900 200 810 45 2,025 180 $ 810 180 900 50 $4,405 175 $4,580 $4,255 175 $4,430 2,250 200 990 55 $4,485 175 $4,660 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 16-20 Chapter 16 P16-6 (Concluded) (2) Schedule of budgeted cash disbursements by month for the third quarter of 20A (000s omitted): Disbursements July August September Salaries Variable: $4,500 × 20% $ 900 $5,000 × 20% $1,000 $5,500 × 20% $ 1,100 Total variable $ 900 $1,000 $ 1,100 Fixed 1,500 1,500 1,500 Total salaries $2,400 $2,500 $ 2,600 Purchases of previous month 1,200 1,250 1,500 Interest — — 450 Depreciation (not relevant) — — — Total cash disbursements $3,600 $3,750 $ 4,550 (3) (000 omitted) Cash balance—July 1, 20A Cash receipts in third quarter: July August September Total cash available Cash disbursements in third quarter: July August September Projected cash balance—September 30, 20A Minimum end-of-month cash balance required ($1,850 × 10%) Cash available to acquire capital items Capital expenditures planned for October 1, 20A Amount of borrowing necessary on October 1, 20A $ $4,580 4,430 4,660 $3,600 3,750 4,550 300 13,670 $13,970 11,900 $ 2,070 185 $ 1,885 (3,700) $(1,815) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 16 16-21 P16-7 (1) 1 1 (2) Day 10 11 12 13 14 15 16 17 18 19 20 21 22 + + 10 ——— ——— ——— ——— + + + ——— 10 ——— ——— ——— + + + ——— ——— ——— 10 ——— Activities A, B A, B A, B A, B A, B F, C, D, E F, C, D, E F, C, D, E F, C, D, E F, C, D, E F, C, D, I F, C, D, I H, C, I H, C, I H, C, I H, G, I H, G, I H, G, I H, G, I H, G, I H H = 22 critical path = 20 = 17 = 20 7 7 Cost $ 800 $ 800 $ 800 $ 800 $ 800 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 + + + + + + + + + + + + + + + + + + + + $ 800 $ 800 $ 800 $ 800 $ 800 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,000 $1,000 $1,000 $1,000 $1,000 + $ 500 + $ 500 + $ 500 + $ 500 + $ 500 + $ 500 + $ 500 + $3,000 + $3,000 + $3,000 + $3,000 + $3,000 + $3,000 + $3,000 + $3,000 + + + + + + + $2,000 $2,000 $2,000 $2,000 $2,000 $3,000 $3,000 = = = = = = = = = = = = = = = = = = = = = = $1,600 $1,600 $1,600 $1,600 $1,600 $6,000 $6,000 $6,000 $6,000 $6,000 $7,000 $7,000 $6,500 $6,500 $6,500 $6,000 $6,000 $6,000 $6,000 $6,000 $2,000 $2,000 CGA-Canada (adapted) Reprint with permission To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 16-22 Chapter 16 P16-8 (1) G w $1 ee ,2 ks 00 00 s A D week $600 E w $2 ee ,5 k s 00 s ek we ,700 $1 ek we 00 $8 w $1 ee ,4 k s 00 Path A-B-E-G-H A-B-E-F-H A-B-D-E-G-H A-B-D-E-F-H A-C-D-E-G-H A-C-D-E-F-H Finish H C (2) s ek we ,300 $1 eek ks ,5 $1 e we Start 5w 2 w $1 ee ,0 ks 00 B F = = = = = = 2 2 1 Time Required +5+3+3 +5+4+3 +2+1+3+3 +2+1+4+3 +4+1+3+3 +4+1+4+3 = = = = = = 13 14 11 12 12 13 weeks weeks weeks weeks weeks weeks The critical path is A-B-E-F-H, because it is the longest path (3) The total cost of the project as planned is: Activity A-B A-C B-D B-E C-D D-E E-F E-G F-H G-H Total normal cost Normal Cost $ 1,000 800 1,500 5,100 2,500 600 1,700 1,200 1,400 1,300 $17,100 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 16 16-23 P16-8 (Concluded) (4) Since the critical path requires 14 weeks, at least weeks must be cut from the project in order to complete it in 12 weeks As originally planned (determined from requirement (2)), the following three paths require more than 12 weeks: Path A-B-E-G-H A-B-E-F-H A-C-D-E-F-H = = = Time Required 2+5+3+3 2+5+4+3 1+4+1+4+3 = = = 13 weeks 14 weeks 13 weeks The first place to start reducing time is the critical path, A-B-E-F-H, because the largest amount of time must be cut from this path In this project, each activity on the critical path can be crashed, so the first activity to crash should be the one that has the smallest crash cost per week By crashing activity F-H, which costs $2,800, path A-B-E-F-H is shortened by one week to 13 weeks In addition, since activity F-H is on path A-C-D-E-F-H, it is shortened to the required 12 weeks Now one more week must be cut from activity A-B-E-F-H and from activity A-B-E-G-H to bring each path and the total project down to 12 weeks The activity that costs the least to crash and that is common to both paths is activity B-E, which will cost $5,200 to crash one week The only other way to reduce both paths by one week would be to crash one activity on each path (activity EG for $4,600 or G-H for $2,300 on path A-B-E-G-H and also activity E-F on path A-B-E-F-H for $3,700), which will result in a minimum additional cost of $6,000 Therefore, the minimum cost to reduce the total project time from 14 weeks to 12 weeks is $8,000, resulting from reducing activity B-E and F-H by one week each for costs of $2,800 and $5,200, respectively Since the minimum additional cost of cutting two weeks off of the total time required to complete the project is $8,000, the minimum total cost of completing the project in 12 weeks is $25,100 ($17,100 normal cost from requirement (3) plus $8,000 additional cost) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 16-24 Chapter 16 P16-9 (1) The normal critical path is: + + + + = 11 weeks A — B — E — H — K — L The normal cost to be incurred in opening the store is the sum of the normal cost of all 14 activities—$85,000 (2) The minimum time in which the store could be opened is weeks at an additional cost of $11,500, or a total cost of $96,500 ($85,000 + $11,500) Potential Alternative Expected Time New Paths Time Reduction Time A-B-E-H-K-L 11 weeks (A-B, B-E) weeks A-C-F-I-K-L — A-C-F-J-K-L 10 (F-J, J-K) A-D-G-J-K-L (D-G, J-K) The new critical path becomes A-C-F-J-K-L Reduced-time programs would be initiated on the following activities: Activities A-B B-E F-J J-K Reduced Time week Reduced Cost $ 4,500 3,500 2,000 1,500 $11,500 The activity D-G reduction is excluded because it would not contribute to reducing the total project time (3) The store should be opened on the normal schedule because the cost ($11,500) exceeds the benefit ($6,000) The reduced program would save weeks at a cost of $11,500, while the earlier opening can be expected to yield an operating income of $2,000 per week, or a total of $6,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 16 16-25 C16-1 (1) (2) (3) (4) Network analysis forces the company to plan ahead and develop a detailed plan for project completion It presents a visualization of all individual tasks and their interrelationships Network analysis provides management with timely information for controlling schedules, shows the effects on the entire project of changes made to individual activities, and allows for the continual updating of project progress Disadvantages of network analysis as a means of organizing and coordinating projects include the use of probabilistic schedules that may be highly subjective, a bias toward overly optimistic time estimates often based on management expectations, and the need for cooperation among a large number of units to establish consistent priorities A disproportionate amount of management time and effort may be required for planning for the benefit received; there may be other alternatives that could be more effective Norm Robertson would be concerned with the delay in activity A-D because it would shift the critical path from Start-B-C-F-I-J-Finish Shiela Neil’s estimate of the time for activity A-D (10 to 12 weeks) results in Start-A-D-G-J-Finish requiring 23 to 25 weeks Furthermore, Neil’s comment that activity A-D cannot start until after activity B-E means that B-E becomes part of this new critical path, making the critical path Start-B-E-A-D-G-J-Finish with a time requirement of 28 to 30 weeks Thus, the change in the relationship of the activities would change the critical path even more, so that the project will be completed to 10 weeks later than the original estimate Norm Robertson developed the PERT diagram for the Vector-12 project with inadequate input Robertson should have consulted all the departments involved in the project to ensure that the expected times required to complete the activities were attainable Because Neil was not consulted, the time required for activity A-D was incorrect, and the relationship between activities A-D and B-E was missing from the network The behavior problems that could arise within Caltron Inc as a consequence of the planning of the Vector-12 project include: (a) A lack of commitment to the project on the part of the department directors, particularly Neil, because of their exclusion from the planning process (b) Conflict among the department directors that could affect future working relationships (c) A lack of goal congruence among the departments involved  ... performed in a cost- efficient and optimum manner, and will be cost- effective in the coming year Costs are developed more on a line-item rather than an activity basis ZBB organizes all budget costs in... Q16-12 PERT /cost is really an extension of PERT With time-options available, it seems advisable to assign cost to time and activities, thereby providing total financial planning and control by functional... crash should be the one that has the smallest crash cost per week By crashing activity F-H, which costs $2,800, path A-B-E-F-H is shortened by one week to 13 weeks In addition, since activity