Clems Antiques Project 2 and Clems Antiques Project 3

| November 24, 2016

Question
Clems Antiques Project 2 – Group
Any observed or reported instance of academic dishonesty, as defined in the
UniversityofFindlaysStudentHandbook,willbeprosecutedtothefullestextent
possible. Groups who violate the ethical standards of the course will receive a
failinggrade(0%)onthisassignment,andtheassignmentcannotberesubmitted.
Clems Antiques reproduces just three types of antiques. Those products are clocks,
dinette sets, and bedroom suites. Although customers often ask Clem, the owner, to make
other products, Clem does not intend to expand the product line. The planning group is
developing its operating budget for the upcoming year.
At the beginning of the year, Clems Antiques will employ 40 people who will work in
the following areas: 15 in administration, sales and shipping; 2 in manufacturing
supervision; 9 carpenters in manufacturing; and 14 manufacturing helpers. Carpenter
hours required to make one Clock is 0.40 hours; one Dinette Set is 2.5 hours; and one
Bedroom Suite is 6.5 hours. Production personnel have organized the work so that for
each carpenter hour worked would require the support of 1.5 helper hours.
Clems Antiques guarantees all employees their pay based upon 40 hours per week,
regardless of the actual hours of work available that month. When employees are not
doing their regular jobs, they undertake maintenance, training, community service, and
customer relation activities. Each worker is expected to work up to 172 hours per month
(based on approximately 4.3 weeks per month). If the company requires the workers to
work overtime, they will be paid an overtime bonus of 50% of wages, meaning that the
overtime wages are 150% of the regular hourly wage. For simplification purposes, place
your idle time and overtime premiums in your direct labor budget.

Clems Antiques Project 2
REQUIRED ELEMENTS FOR SUBMISSION:
Prepare the following for the upcoming year on a monthly basis AND for the entire year
for each of the following:
(1) Sales budget
(2) Production budget
(3) Direct materials usage budget
(4) Direct labor budget
(5) Factory overhead budget
(6) Administrative and marketing budget
(7) Budgeted income statement using the Contribution Margin approach
One of the purposes of the budgeting process is to encourage management to consider
ways to improve profitability next year. Prepare a proposal for improving profits that:
(1) Describe a proposed change in operations (sales, production, or etc)
(2) Describe how the firm would realistically accomplish this change
(3) Describe the impact of the proposal on the firms income statement
(4) Describe the potential drawbacks to the proposal
(5) Describe the overall recommendation as to whether management should implement
the proposal

Clems Antiques Project 2
Other financial and sales data for Clems Antiques consists of the following:
Production Schedule for the upcoming year:
Assume that the company follows a just-in-time philosophy and therefore the number of
units sold each month is equal to the number of units produced. There is no change in
inventory from month-to-month.
Fixed Annual expenses for the upcoming year:
Warehouse rent
Other fixed manufacturing costs, including supervisory salaries
Sales and administrative salaries
Advertising

$600,000
$840,000
$660,000
$600,000

Variable Annual expenses for the upcoming year:
Direct Materials costs
Clocks
Dinette Sets
Bedroom Suites

$200 per unit
$900 per unit
$1,300 per unit

Direct Labor costs
Carpenters
Helpers

$24
$14

per hour
per hour

Packaging and Shipping costs
Clocks
Dinette Suites
Bedroom Suites

$15
$65
$135

per unit
per unit
per unit

Variable Overhead
Supplies, utilities and other

$35

per carpenter hour (production only)

Clems Antiques Project 2
Other financial and sales data for Clems Antiques consists of the following:
Sales Forecast for the upcoming year:
Month
January
February
March
April
May
June
July
August
September
October
November
December

Clocks
1,020
1,191
1,179
1,195
1,200
1,204
1,194
1,199
1,222
1,219
1,207
1,192

Expected
Selling Price $700

Dinette Sets
200
237
243
250
252
255
242
253
243
248
244
255

Bedroom Suites
109
110
109
126
122
125
123
121
127
126
126
119

$3,700

$6,500

Clems Antiques Project 3 – Group
Any observed or reported instance of academic dishonesty, as defined in the
UniversityofFindlaysStudentHandbook,willbeprosecutedtothefullestextent
possible. Groups who violate the ethical standards of the course will receive a
failinggrade(0%)onthisassignment,andtheassignmentcannotberesubmitted.
Clems Antiques is now considering expanding into new market areas. It is considering
opening two new warehouse locations in order to serve its customers in the north and
west. Unfortunately, the company only has sufficient amount of funds to invest into only
one warehouse location. The warehouses will require that a new building be constructed.
Clems Antiques expects to use the warehouse for five (5) years before building a new
production facility in that area. Outside market research revealed the following:
North
Estimated first year revenue
Estimated annual revenue growth
Estimated variable costs
Estimated contribution margin
Estimated annual fixed costs
Investment in facility
Estimated salvage value in year 6

West

$650,000
7%
45%
55%
$100,000
$1,000,000
$125,000

$900,000
5%
55%
45%
$120,000
$1,200,000
$120,000

Assume that the cost of capital is 10%. You can ignore depreciation and taxes for this
problem. You should round ALL of your computations to 0 decimal places, with the
exception of your TVM (time value of money) factors from the tables located in the
appendix. Compute the Net Present Value (NPV) for each warehouse consideration.
Include the cash flows from the salvage value that will be received in year 6 into your
analysis. Evaluate the cash flow. Incorporate your research findings, graphs or charts
into your document for support of your recommendation on which warehouse to
construct. Then perform a sensitivity analysis for both warehouses by changing your cost
of capital and your contribution margin percents. Report the results of your sensitivity
analysis

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