ECO602 - Forecasting & Budgeting

SEMESTER FALL 2019 FORECASTING & BUDGETING (ECO602) ASSIGNMENT NO. 01 DUE DATE: NOVEMBER 26, 2019 MARKS: 15 Case 1: Nishat Linen is a famous clothing brand in Pakistan selling ready to wear, unstitched clothes and home accessories. Pakistan’s premier textile house Nishat Mills Limited opened its first outlet of Nishat Linen in Lahore in 1992. Now it has more than 70 outlets in 26 cities of Pakistan. This brand has become a pioneer in Pakistan fashion industry by focusing on quality of products range. The brand also has its presence in international markets. Suppose you have been hired to perform break-even analysis for this company to analyze its performance. The required data is given below. I. Total fixed cost incurred by the company in production period is Rs. 25,00,000 and variable cost per unit is Rs. 1500. Sale price per unit is Rs. 3500. Calculate the breakeven level of output (units) required to get the desired income of Rs. 800,000 by using the information given in this part. II. If value of actual sales is Rs. 59, 00,000 and the amount of break-even sales is Rs. 5,775,000 then find the value of margin of safety for the company (only use the information given in part 2 for calculation of margin of safety). (Marks: 2+2) Case 2: Adam Milk & Foods (Pvt.) Ltd. is the largest local brand of dairy products particularly cheese in Pakistan. The company started its business in early 1990s in Sahiwal. Pure milk is collected directly from the farmers in order to deliver best products. It produces a wide variety of cheese and is competing successfully with imported cheese brands. The company prepares its components budgets and master budget to evaluate its performance. You have been given a task to prepare quarterly components budgets of this company for three quarters of year 2019 using the given data. Q1 Q2 Q3 Expected Sales - units 25,000 30,000 35,000 Desired Inventories - Finished goods Opening 18,000 15,000 10,000 Ending 15,000 10,000 8,000 Desired Inventories - Raw material Opening 15,000 10,000 9,000 Ending 10,000 9,000 5,000 a) Unit sale price is Rs.380. b) Company needs 2 pounds of material to produce one final unit at purchase price of Rs. 30 per unit. c) Production of each unit requires 0.20 direct labor-hours at an hourly labor rate of Rs. 20 each. Requirements: Keeping in view the above information, you are required to prepare the following budgets. I. Sales Budget II. Production Budget III. Direct material purchases budget IV. Direct labor budget (Marks: 2+3+3+3) IMPORTANT: 24 hours extra / grace period after the due date is usually available to overcome uploading difficulties. This extra time should only be used to meet the emergencies and above mentioned due dates should always be treated as final to avoid any inconvenience. OTHER IMPORTANT INSTRUCTIONS: DEADLINE: • Make sure to upload the solution file before the due date on VULMS. • Any submission made via email after the due date will not be accepted. FORMATTING GUIDELINES: • Use the font style “Times New Roman” or “Arial” and font size “12”. • It is advised to compose your document in MS-Word format. • You may also compose your assignment in Open Office format. • Use black and blue font colors only. RULES FOR MARKING Please note that your assignment will not be graded or graded as Zero (0), if: • It is submitted after the due date. • The file you uploaded does not open or is corrupt. • It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint, PDF etc. • It is cheated or copied from other students, internet, books, journals etc. Note related to load shedding: Please be proactive Dear students! As you know that Pre Mid-Term semester activities have started and load shedding problem is also prevailing in our country. Keeping in view the fact, you all are advised to post your activities as early as possible without waiting for the due date. For your convenience; activity schedule has already been uploaded on VULMS for the current semester, therefore no excuse will be entertained after due date of assignments, quizzes or GDBs.

SEMESTER FALL 2019 FORECASTING & BUDGETING (ECO602) MARKS: 15 ASSIGNMENT: Question 1 ASSIGNMENT NO. 2 Suppose MAC Estate & Builders Company is considering an investment project which requires initial investment of Rs.950,000. Annual cash inflows of this project from year 2019 to year 2024 are given in the following table. Years Annual cash Inflows (Rs.) 2019 150,000 2020 180,000 2021 200,000 2022 250,000 2023 270,000 2024 280,000 Calculate net present value using 5% discount rate. Also suggest whether the project is acceptable or not. Question 2: Suppose PAIR Investment Company limited is working on a project whose profitability index value is 5. The present value of cash inflows of this project is Rs. 20,00,000. Calculate the present value of cash outflows of this project from given information. Question 3: Suppose a firm has two investment projects, A and B, under consideration. Data on Accounting Rate of Return (ARR) and Required Rate of Return of both projects is given in the table below: Projects Accounting Rate of Return (ARR) Required Rate of Return A 75% 60% B 55% 60% Consider the given data and logically discuss the firm’s decision about investment in projects A and B. (Marks: 5+5+5) IMPORTANT: 24 hours extra / grace period after the due date is usually available to overcome uploading difficulties. This extra time should only be used to meet the emergencies and above mentioned due dates should always be treated as final to avoid any inconvenience. OTHER IMPORTANT INSTRUCTIONS: DEADLINE: • Make sure to upload the solution file before the due date on VULMS. • Any submission made via email after the due date will not be accepted. FORMATTING GUIDELINES: • Use the font style “Times New Roman” or “Arial” and font size “12”. • It is advised to compose your document in MS-Word format. • You may also compose your assignment in Open Office format. • Use black and blue font colors only. RULES FOR MARKING Please note that your assignment will not be graded or graded as Zero (0), if: • It is submitted after the due date. • The file you uploaded does not open or is corrupt. • It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint, PDF etc. • It is cheated or copied from other students, internet, books, journals etc. Note related to load shedding: Please be proactive Dear students! As you know that Post Mid-Term semester activities have started and load shedding problem is also prevailing in our country. Keeping in view the fact, you all are advised to post your activities as early as possible without waiting for the due date. For your convenience; activity schedule has already been uploaded on VULMS for the current semester, therefore no excuse will be entertained after due date of assignments, quizzes or GDBs.