31. “McKenzie’s Complete Cook makes and sales mixers and bread makers. In November 2009, McKenzie’s began the budgetary process. Project sales for 2010 are 60,000 mixers at $50 each and 40,000 bread makers at $120 each. Management gathered the following data (which is what I sent you in word doc for part a) to begn the 2010 budget process:
A: Prepare a sales budget (in dollars) for 2010:
The following purchased components are needed to produce one unit of product:
Component Mixer Bread Maker
Plastic Housing 1#531B@ $8 1#648C@ $24
Motor 1#KMU@ $15 1#KBU @ $17.80
Beaters 2#BU6@ $2.20 4#BU6 @ $2.20
B: Prepare a production budget (in units) for 2010:
Expected and desired inventories are as follows:
Expected EI Dec. 31, 2009 Desired EI Dec. 31, 2010
Mixers 3,000 2,000
Bread Makers 6,000 2,800
#531B Plastic Housing 500 700
#648C Plastic Housing 620 800
#KMU motors 1,100 2,400
#KBU motors 1,380 1,200
#BU6 beaters 5,000 4,000
C: Prepare a components purchases budget (in units AND dollars) for 2010:
Projected direct labor requirements for 2010 and rates are as follows:
Product Class A Labor ($10 per hour) Class B Labor ($12 per hour)
Mixer 1.3 hours per unit 1.5 hours per unit
Bread Maker 1.6 hours per unit 2.2 hours per unit
D: Prepare a direct labor budget (by class in hours and dollars) for 2010.
E: What types of item would be included in production overhead for this company?
F: The Company is thinking of manufacturing its plastic housing rather than buying them from suppliers. What times of costs would such insourcing create? What Types of costs would such insourcing eliminate? How would you suggest that company management assess such a decision?
The khan Academy
Review the video and financial model shown in the links above. Play with the model and change the values.
Calculate net present value of future cash flows for both of the alternatives based on your adjusted financial model.
Write a 1,000 – 1,200 word paper. Include the following:
• Change the model variables. The changes should include the assumptions below.
• Assume the bank interest rate would be prime + 2%. (as of first day of class)
• Assume the mortgage interest rate will be 10-year US Treasury rate +2.5% (as of first day of class)
• Assume that 10% of the inventory has become a write-off due to obsolecense.
• Describe the cost of capital in your own words, in plain English.
• Describe how the cost of capital affected the attractiveness of each alternative.
• Present your NPV calculations for each alternative.
Format your paper consistent with APA guidelines.