Blondia Rocks Inc

A Master Budget Case

Blondia Rocks Inc (BRI) is a manufacturing company in Southwestern Ontario that
manufactures and sells a single product, a pet rock affectionately named Rocky! The
company produces a rolling 12 month master budget several months in advance of the
end of the year. The fiscal year end is December 31.

Unfortunately last month, BRI's controller unexpectedly left the company for a large
multi-national pet rock distributor. She provided no notice and had not even started the
budget process when she left. Time is quickly running out and you have been retained
by the CEO of Blondia Rocks Inc., Carter Blondia, to prepare the master budget for the
coming 2011 fiscal year. He has provided you with an Excel file with information
compiled by the staff accountant and sales manager. He believes everything you will
need to prepare the master budget for the first quarter of 2011 is included in the
document (refer to the "Accountant Data File" tab).

Required:
1. The CEO has requested you prepare a master budget (month by month) for the first
quarter of the 2011 fiscal year. He would like to see the following Operating Budgets
included in the package:
Sales Budget
Schedule of Cash Receipts
Production Budget
Direct Materials Budget
Schedule of Cash Disbursements
Direct Labour Budget
Manufacturing Overhead Budget
Selling and Administrative Budget
Ending Finished Goods Inventory Budget (including COGS calculation)
Budgeted Income Statement

2. He would also like to see the following Financial Budgets included in the package:
Cash Budget
Budgeted Balance Sheet
3. A capital expenditure budget is required to analyze the three possible projects
identified by management. Mr. Blondia would like you to analyze each project utilizing
the net present value method and provide your recommendation of which project
should be undertaken along with rationale. BRI has limited funds to invest in these
capital expenditures and thus only one project can be chosen. It is management's
intention to move forward with the project sometime in late July and thus the decision
of which project to choose should not impact your operating or financial budgets for
the first quarter.

Mr. Blondia has also made it clear he does not want to reinvent the wheel each year
during the budgeting process. He would like you to submit an electronic version of the
budget file to use as a template in future years. Since he is a whiz at Excel he knows this
is best accomplished by using one Excel workbook with multiple tabs and linking
numbers as much as possible across tabs.

Schedule of Deliverables

1. Budget completion schedule - Should show when each budget is to be completed by

to make sure you complete the budget on time. You should also have a group
member sign up to complete each budget. How you break the budgets up is your
choice. Some will be easier than others.

Due: Week 4: Friday, Sept. 28, 2018 @11:59

Deliverables:
1. Electronic copy submitted to the appropriate group submission folder in FOL

2. Submit a soft copy of the completed budget you prepared. You will be required to
submit an electronic copy of the project to the FOL dropbox at the end of Week 13.
Put effort into the presentation of the budget (i.e. how it looks). Look at the grading
rubric and you will notice there are several marks assigned to the asthetics and
professionalism of the project. How does it look? Did you use colour? Graphs? Charts?
Was your formatting consistent etc. Also note several marks are assigned to linking
the electronic file together properly. This is an important part of any electronic file.

Due: Week 13: Friday November 30, 2018

Deliverables:
1. Electronic copy (presentation quality) submitted to the dropbox on FOL

3. Submit a soft copy of the Group Member Evaluation Form for each of your group members;
you can submit this form either on FOL drop box OR for confidentiality purposes you can e-mail the for

Due: Week 13: Friday November 30, 2018

Deliverables:
1. Electronic copy on FOL OR e-mail the form to your professor
4. Project Test - individual in-class test - 15% of the final grade

Due: Week 14: Wednesday, December 5, 2018

Additional Notes:

You have been provided with an Excel file in which to complete the Master Budget.
The "Instructions" and "Accountant Data File" tabs contain all the information you need to
complete the project. The "Data" tab is where you can enter key information from the
aforementioned tabs and do much of your rough work. Make sure you organize your
rough work logically on this tab and label your work spaces (in case I have to peruse it
for part marks).

What follows after that is a number of blank worksheets already labeled for each of
your individual budgets. These tabs should be used to present your final budgets as you
would present them to a budget committee. No rough work should appear on these
tabs and each budget should be properly formatted as to look professional in every
manner. Use dollar signs and underlining where you feel is appropriate (think back to
your accounting courses and financial statement presentation). Show decimals only
where appropriate (per unit costs and in smaller numbers). For all larger dollar figures
allow Excel to round up to the largest dollar for you (show no decimals).

When preparing your individual budgets use the textbook to determine the proper
format and layout to use. If you feel that additional notes to a specific budget are
required these may be displayed below the budget and properly identified. Do not
comment on information that is obvious from the budget. If you have made any
assumptions this would be the place to present those assumptions.
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 Blondia Rocks
1
Inc
Accountant Data File
Below is a list of account balances from the company's general ledger projected for the
year end December 31, 2010:
Cash 96,245.00
Accounts receivable 1,550,000.00
Allowance for Doubtful Accounts 20,000.00
Inventory - raw materials 8,599.50
Inventory - finished goods 153,928.83
Property, plant and equipment 1,275,000.00
Accumulated depreciation - PPE 305,000.00
Accounts payable 41,483.00
Income tax payable 32,250.00
Non interest bearing loan payable 1,150,000.00
Dividends payable 75,000.00
Common shares 750,000.00
Preferred shares 250,000.00
Retained earnings 460,040.33

2 In conversations with the auditors it is believed that Blondia Rocks Inc. will be required to
make monthly income tax installments during 2011 of $ 4,500 . The outstanding
income tax liability from 2010 will be paid in March 2011 and the projected income tax rate
on net income for 2011 is expected to be 30%

3 Management has experienced stock outs in prior years and the response from the
merchandisers who purchase BRI's pet rocks has not been good when this happens. The
senior purchasing manager has concluded that to prevent future stock outs BRI should
maintain an ending inventory equivalent to 30% of the next month's sales.

4 Annual sales forecasts for the current year and 2011 are as follows:
31-Dec-10 1,000,000 units at $ 5.00 each (actual + projected volume)
31-Dec-11 1,350,000 units at $ 5.00 each (projected volume)

BRI does not earn it's revenue evenly across the year. Sales are strongest in the months
leading up to Christmas because of Rocky's appeal as a unique gift idea. Summer also
tends to have stronger sales as the nice weather allows consumers to take Rocky for long
walks in the summer sun. Below is the breakdown of the projected sales allocation:
January 10% May 3% September 3%
February 7% June 4% October 5%
March 6% July 10% November 10%
April 2% August 10% December 30%
Management believes this trend will continue into the foreseeable future.
5 The closing accounts payable on the projected 2010 balance sheet comes from the
following direct materials purchases

Nov-10 $ 20,800
Dec-10 $ 47,580

The accounting department policy for payment of raw materials is as follows:

Paid in the month of purchase 15%
Paid one month after purchase 80%
Paid two months after purchase 5%

6 Rocky is sold as a smoothly polished rock with no discerning features. BRI has entered into
a joint venture with a party supply manufacturer who provides "Mod Kits" that allow a
consumer to customize their Rocky based on their individual tastes! Different facial
features are available as well as small leashes for taking Rocky for a walk. The joint
venture is outside the scope of this budget (meaning you don't need to incorporate it into
your analysis) and as such there is only one raw material used in production. Giant Boulder
(GB for short) is exactly what it sounds like… a giant boulder. BRI orders in these giant
boulders and then uses jack hammer like machines to chip away chunks of the rock. These
rock chunks are then transported inside the manufacturing facility where they are further
reduced in size and then shaped and polished before being packaged and shipped out.
Below are the details for the raw materials used in production:

GB required per unit (kg): 2

Cost of GB (per kg) $ 0.10

The senior purchasing manager has also requested that a minimum ending raw materials
inventory be maintained. The company policy is to maintain an ending raw materials
inventory equivalent to 35% of the following month's production needs.

7 Historical collection data shows that not all sales are collected in the month of sale.
Collections spread out over three full months and a small portion of all sales is shown to be
uncollectible. These bad debts are to be allowed for in the month of sale (i.e. use the
allowance for doubtful accounts account). Below is the forecasted collection allocation:
Collected in the month of sale 10.0%
Collected one month after sale 50.0%
Collected two months after sale 39.0%
Uncollectible 1.0%

8 Due to the nature of the work required to transform the GB raw material into the finished
Rocky product the process is highly automated. Thus the labour costs incurred by BRI are
relatively low. The payroll costs listed below include all employer payroll costs as well as
fringe benefits and are paid in the month incurred.
Average hourly labour rate $ 15.00
Labour time required per unit (min) 10 minutes
9 The closing accounts receivable on the projected 2010 balance sheet comes from the
following sales:

Nov-10 $ 500,000
Dec-10 $ 1,500,000

10 The staff accountant remembers the old controller mentioning something about
administrative expenses being a mixed cost. He is not sure what she meant but found
this information scribbled on a piece of paper on her desk regarding previous year's
performance

Lowest level of sales (units) 295,000 Total admin expenses $ 694,360

Highest level of sales (units) 800,000 Total admin expenses $ 972,110

The staff accountant does know that administrative costs are paid in the month in which
they are incurred and that the bad debts expense is recorded each month separate from
the above costs.

11 Manufacturing overhead is broken down into two categories, Variable and Fixed. The
information for each is presented below:

Variable overhead costs:

Indirect materials $ 0.10
Utilities $ 0.30
Maintenance (factory) $ 0.15
Purchasing costs $ 0.10
Other (miscellaneous) $ 0.03
Total variable overhead per unit $ 0.68

Fixed overhead costs (annual):

Training & development 23,500
Repairs and maintenance 32,000
Supervisors' salaries 75,000
Depreciation on the equipment 150,000
Insurance (factory) 100,000
Other (miscellaneous) 87,500
Total fixed overhead (annual) 468,000

Additional notes:
1. To avoid financing fees on the insurance policy it is paid in full at the beginning of the
fiscal year (January).
2. All other fixed overhead is incurred evenly across the year (including straight line
amortization) and all cash overhead is paid for in the month incurred.

12 The dividends payable at the end of last year are to be paid at the end of February.
13 Several years ago BRI management negotiated an arrangement with their bank that if
they maintained a minimum closing cash balance of $ 30,000 the bank would
provide them with an operating line of credit at a preferred rate of 7%

The operating line has a maximum borrowing limit of $ 250,000 . If, while preparing
the budget, you find that BRI will need funds in excess of this amount or is coming close to
exceeding it's limit the CEO has asked that you notify him immediately.

The arrangement with the bank stipulates that all borrowing is considered to happen on
the first day of the month and repayments occur on the last day of the month. Monthly
interest is calculated based on the balance at the end of the month. The monthly interest
payment is automatically withdrawn from the account on the first day of the next month.

14 The managers of BRI have identified three separate capital projects they would like to
move forward with. When analyzing the three options please keep in mind the following
assumptions:
1. All cash flows come at the end of the year
2. All cash flows are immediately reinvested in another project that has a similar return
3. All cash flows can be predicted with certainty

As mentioned by the CEO the three projects listed below are mutually exclusive. Therefore
only one project can be chosen for implementation.

The discount rate that should be used to analyze all three projects is 9%

Project 1: Purchase a new jack hammer machine that will increase efficiencies in reducing
the Giant Boulder raw material into manageable chunks.

Project 2: Install a conveyor belt from the GB yard directly into the facility to replace the
aging transport buggies used to get the chunks of raw materials into the factory for
processing

Project 3: Install a state of the art crane system for moving the GB materials around the
storage yard and transferring the chunks destined for production onto the transport
buggies
 The original investment required and cost savings from each project are listed below.

Project 1 Project 2 Project 3

Capital Investment $ 200,000 $ 235,000 $ 260,000
Annual net cost savings:
Year 1 $ 53,000 $ 65,000 $ 79,000
Year 2 $ 53,000 64,000 74,000
Year 3 $ 53,000 63,000 73,000
Year 4 $ 53,000 59,000 65,000
Year 5 $ 53,000 56,000 64,000
$ 265,000 $ 307,000 $ 355,000

15 The terms of the non interest bearing note require the full amount to be paid in the
following manner during 2011.

January 16th, 2011 50%

February 16th, 2011 50%

The loan is payable to a shareholder of the company who loaned the money to BRI a few
years ago to help the company through a tight cash flow period. The board of directors
has approved the repayment.
Blondia Rocks Inc

2011 Budget

Quarter 1

Grading Rubric
nc

c
 Blondia Rocks Inc.
Sales Budget
For the Quarter Ending March 31, 2011

January February March Total

Projected sales allocation 10% 7% 6% 23%
Expected Unit sales 135000 94500 81000 310500
Unit Selling Price 5 5 5 5
Total Sales $ 675000 $472500 $405000 $1,552,500

Blondia Rocks Inc Quarter 1 Budget 2011 Last Printed: 06/25/2020 18:28:49
 Reference
April May Year
2% 3%
27000 40500 1350000
5 5
135000 202500

Blondia Rocks Inc Quarter 1 Budget 2011 Last Printed: 06/25/2020 18:28:49
 Blondia Rocks Inc.
Schedule of cash receipts
For the Quarter Ending March 31, 2011

January February March Total

Accounts Receivable, Dec 31, 2010
January sales ($250,000) $67,500.00 $47,250.00 $40,500.00 $155,250.00
February sales ($500,000) $750,000.00 $337,500.00 $236,250.00 $1,323,750.00
March sales ($250,000) $195,000.00 $585,000.00 $263,250.00 $1,043,250.00
Total $1,012,500.00 $969,750.00 $540,000.00 $2,522,250.00

Working:
January February March Quarter 1
Sales in units 135000 94500 81000 310500
Sales in dollars $ 675000 $472500 $405000 $1,552,500

Month of sale 10% 67500 47250 40500 155250

One month after sale 50% 750000 337500 236250 1323750
two months after sale 39% 195000 585000 263250 1043250
Total $1,012,500.00 $969,750.00 $540,000.00 $2,522,250.00

Accounts receivable
Uncollectible 1%
$405000 50% 202500
$472500 39% 184275 Jan Feb Mar Total
$405000 39% 157950 6750 4725 4050 15525
Total 544725

Blondia Rocks Inc Quarter 1 Budget 2011 Last Printed: 06/25/2020 18:28:49
 Blondia Rocks Inc.
Production Budget
For the Quarter Ending March 31, 2011

Jan Feb Mar Quarter 1 April May

Expected unit sales 135000 94500 81000 310500 27000 40500
Add: Desired ending finished goods units 30% 28350 24300 8100 60750 12150
Total Required Units 163350 118800 89100 371250 39150
Less: Beginning finished goods units 40500 28350 24300 93150 8100
Required production units 122850 90450 64800 278100 31050

Blondia Rocks Inc Quarter 1 Budget 2011 Last Printed: 06/25/2020 18:28:49
 Blondia Rocks Inc.
Sales Budget
For the Quarter Ending March 31, 2011

January February March Quarter 1 April

Units to be produced 122,850 90,450 64,800 278,100 31050
Direct materials required per unit (kg) 2 2 2 2 2
Total kilograms needed for production 245700 180900 129600 556200 62100
Add: desired ending direct materials (kg) 35% 63315 45360 21735 130410
Total materials required (kg) 309,015 226,260 151,335 686,610
Less: Beginning direct materials (kg) 85,995 63,315 45,360 194,670
Direct materials purchases (kg) 223,020 162,945 105,975 491,940
Cost per kilogram 0.10 0.10 0.10 0.10
Total cost of direct materials purchases $22,302 $16,295 $10,598 $49,194

Blondia Rocks Inc Quarter 1 Budget 2011 Last Printed: 06/25/2020 18:28:49
 Blondia Rocks Inc.
Schedule of Cash disbursements
For the Quarter Ending March 31, 2011

January February March

Accounts Payable, Dec 31, 2010 $22,302.00 $16,294.50 $10,597.50
January direct materials purchases $3,345.30 $2,444.18 $1,589.63
February direct materials purchases $38,064.00 $17,841.60 $13,035.60
March direct materials purchases $1,040.00 $2,379.00 $1,115.10
Total $42,449.30 $22,664.78 $15,740.33

Working:
Month
January February March Quarter
Direct materials purchase 22,302 16,295 10,598 49,194
15% paid in the month of purchase 3,345.30 2,444.18 1,589.63 7,379.10
80% paid one month after purchase $ 38,064 17,841.60 13,035.60 $ 68,941
5% paid two months after purchase $ 1,040 2,379.00 1,115.10 $ 4,534
42,449 22,665 15,740 80,854

Nov-10 $ 20,800
Dec-10 $ 47,580

Accounts Payable
Feb Purchases 16,295
March Purchases 10,598
Total owed to suppliers 26,892

Feb purch paid in Feb 2444.175

Feb purch paid in Mar 13035.6
Mar purch paid in Mar 1589.625
Total Paid to suppliers 17069.4

Accounts Payable 9,823

Blondia Rocks Inc Quarter 1 Budget 2011 Last Printed: 06/25/2020 18:28:49
011

Total
$49,194.00
$7,379.10
$68,941.20
$4,534.10
$80,854.40

Blondia Rocks Inc Quarter 1 Budget 2011 Last Printed: 06/25/2020 18:28:49
 Blondia Rocks Inc.
Direct Labour Budget

January February March Total

Units to be produced 122850 90450 64800 278100
Direct labour time per unit (minutes) 10 10 10 10
Total required direct labour 1228500 904500 648000 2781000
Total required direct labour hours 20475 15075 10800 46350
Direct labour cost per hour ($) 15 15 15 15
Total direct labour cost $307,125.00 $226,125.00 $162,000.00 $ 695,250

Blondia Rocks Inc Quarter 1 Budget 2011 Last Printed: 06/25/2020 18:28:49
 Blondia Rocks Inc.
Manufacturing Overhead Budget

January February March Total

Number of Units 122850 90450 64800 278100
Variable costs Per unit
Indirect materials 0.10 $12,285.00 $9,045.00 $6,480.00 $27,810.00
Utilities 0.30 $36,855.00 $27,135.00 $19,440.00 $83,430.00
Maintenance (factory) 0.15 $18,427.50 $13,567.50 $9,720.00 $41,715.00
Purchasing costs 0.10 $12,285.00 $9,045.00 $6,480.00 $27,810.00
Other (miscellaneous) 0.03 $3,685.50 $2,713.50 $1,944.00 $8,343.00
Total variable costs 0.68 $83,538.00 $61,506.00 $44,064.00 $189,108.00
Fixed costs Annual cost Working: Total cost No. of months Per month
Training & development $23,500.00 $1,958.33 $1,958.33 $1,958.33 $5,875.00 $23,500.00 12 $1,958.33
Repairs and maintenance $32,000.00 $2,666.67 $2,666.67 $2,666.67 $8,000.00 $32,000.00 12 $2,666.67
Supervisors' salaries $75,000.00 $6,250.00 $6,250.00 $6,250.00 $18,750.00 $75,000.00 12 $6,250.00
Depreciation on the equipment $150,000.00 $12,500.00 $12,500.00 $12,500.00 $37,500.00 $150,000.00 12 $12,500.00
Insurance (factory) $100,000.00 $8,333.33 $8,333.33 $8,333.33 $25,000.00 $100,000.00 12 $8,333.33
Other (miscellaneous) $87,500.00 $7,291.67 $7,291.67 $7,291.67 $21,875.00 $87,500.00 12 $7,291.67
Total fixed costs $468,000.00 $39,000.00 $39,000.00 $39,000.00 $117,000.00 $468,000.00 12 $39,000.00
Total Manufacturing overhead $122,538.00 $100,506.00 $83,064.00 $306,108.00
Reconciliation to Cash:
subtract: amortization on equipment $12,500.00 $12,500.00 $12,500.00 $37,500.00
subtract: prepaid insurance $8,333.00 $8,333.00 $8,333.00 $24,999.00
add: Insurance payment $100,000.00 - - $100,000.00
Cash payments for manufacturing overhead $201,705.00 $79,673.00 $62,231.00 $ 343, 608

Working:
Manufacturing overhead rate per direct Total manufacturing overhead cost
labour Required production units

306108
278100

Result: $ 1.10

Blondia Rocks Inc Quarter 1 Budget 2011 Last Printed: 06/25/2020 18:28:49
 Blondia Rocks Inc.
Selling and Admin Budget

January February March Total

Budgeted sales in units 135,000 94,500 81,000 310,500
Variable selling and admin expense per unit 0.55 0.55 0.55 0.55
Total variable expenses $ 74,250 $ 51,975 $ 44,550 $ 170,775
Fixed selling and admin expenses $ 44,343 $ 44,343 $ 44,343 $ 44,343
Bad debts expense $ 6,750 $ 4,725 $ 4,050 $ 15,525
Total selling and administration expenses $ 125,343 $ 101,043 $ 92,943 $ 319,328

Reconciliation to Cash:
Subtract: bad debts expense $ 6,750 $ 4,725 $ 4,050 $ 15,525
Cash payments for selling and admin $ 118,593 $ 96,318 $ 88,893 $ 303,803

Blondia Rocks Inc Quarter 1 Budget 2011 Last Printed: 06/25/2020 18:28:49
 Blondia Rocks Inc.
Ending Finished Goods Budget

Per Unit manufacturing cost Quantity Cost/Unit Total

Direct Materials 2 kg $0.10 $0.20
Direct Labour 0.17 hr $15.00 $2.50
Manufacturing overhead 1 unit $1.10 $1.10
Unit product cost $ 3.80

Budgeted finished goods inventory:

Ending finished goods inventory in units 8100
Unit product costs (see above) $ 3.8
Ending finished goods inventory in dollars $ 30,786

Budgeted cost of goods sold:

Beginning finished goods inventory $ 153929
Plus: cost of goods manufactured $ 1056978
Cost of goods available for sale $ 1210907
Less: ending inventory $ 30786
Cost of goods sold $ 1,180,121

Blondia Rocks Inc Quarter 1 Budget 2011 Last Printed: 06/25/2020 18:28:49
Blondia Rocks Inc Quarter 1 Budget 2011 Last Printed: 06/25/2020 18:28:49
 Blondia Rocks Inc.
Cash Budget

January February March Total

Beginning cash balance $ 96,245 $ 30,000 $ 30,000 $ 96,245

Add: Receipts $ 1,012,500 $ 969,750 $ 540,000 $ 2,522,250
Collections from customers
Total available cash $ 1,108,745 $ 999,750 $ 570,000 $ 2,618,495
Less: Disbursements
Direct materials $ 42,449 $ 22,665 $ 15,740 $ 80,854
Direct labour $ 307,125 $ 226,125 $ 162,000 $ 695,250
Manufacturing overhead $ 201,705 $ 79,673 $ 62,231 $343, 608
Selling and administration $ 118,593 $ 96,318 $ 88,893 $ 303,803
Income tax installments $ 4,500 $ 4,500 $ 4,500 $ 13,500
Income tax payable for 2010 (final) - - $ 32,250 $ 32,250
Non interest bearing loan payment $ 575,000 $ 575,000 - $ 1,150,000
Dividends paid - - $ 75,000 $ 75,000
Total cash disbursements $ 1,249,372 $ 1,004,280 $ 440,614 $ 2,694,265
Excess (deficiency) of available
cash over disbursements $ (140,627) $ (4,530) $ 129,386 $ (75,770)
Financing
Borrowing $ 170,627 $ 206,152 $ 107,969 $ 484,748
Repayments $ 170,627 $ 206,152 $ 376,779
Interest expense $ 995 $ 1,203 $ 2,198
Ending cash balance $ 30,000 $ 30,000 $ 30,000 $ 30,000

Blondia Rocks Inc Quarter 1 Budget 2011 Last Printed: 06/25/2020 18:28:49
 Blondia Rocks Inc.
Budgeted Income Statement

Sales $ 1,552,500
Cost of goods sold $ 1,180,121
Gross profit $ 372,379
Selling and administrative expenses $ 319,328
Net operating income $ 53,052
Interest expense $ 2,198
Income before income taxes $ 50,854
Income tax expense $15,256.05
Net Income $ 35,597
 Blondia Rocks Inc.
Budgeted Balance Sheet
As at March 31, 2011

Assets
Cash
Accounts receivable
Allowance for doubtful accounts
Inventory - raw materials
Inventory - finished goods
Prepaid Insurance
Property, plant and equipment
Accumulated depreciation - PPE

Liabilities and Shareholders' Equity

Liabilities
Operating line of credit
AP
Income tax payable
Total liabilities
Shareholders' Equity
Common shares
Preferred shares
Retained earnings
Total shareholders' equity
Total liabilities and shareholders' equity

Working:
Retained earnings Given retained earnin 460,040.33
Net Income 35,597.00
Total retained earnings 495,637.33

Allowance for doubtful debts

Given -20000
Uncollectible -15525
 -35525

Accounts receivable
Uncollectible 15525
Allowance for doubtful debts 20000
Accounts receivable 544725
Total accounts receivable 580250

Accumulated depreciation
Depreciation on equipment -37500
Accumulated depreciation PPE -305000
Total accumulated depreciation PP -342500
 $30,000.00
$580,250.00
-$35,525.00
$2,174.00
$30,786.00
$75,000.00
$1,275,000.00
-$342,500.00
$1,615,185.00

$107,969.00
$9,822.60
$1,756.00
$119,546.00

$750,000.00
$250,000.00
$495,637.33
$1,495,638.00
$1,615,185.00
 Blondia Rocks Inc.
Capital Budget Analysis

Decision Criteria: The higher the NPV the more attractive the investment
Due to limited cash resources, we can select only one project
Thus we select the project with highest NPV

Cash payback technique

Project 1: New
Project 2: Conveyor Belt
Jackhammer

Capital Investment $200,000.00 $235,000.00

Annual Net cost savings

Year 1 53000 65000
Year 2 53000 64000
Year 3 53000 63000
Year 4 53000 59000
Year 5 53000 56000
Total 265000 307000
Total years 5 5
Average annual net income 53000 61400
Pay back years 3.773584906 3.82736156351792

Net Present Value Method

Project 1: New Jackhammer

Annual Net
Discount factor 9%
Cash Flow
Year 1 53000 0.91743
Year 2 53000 0.84168
Year 3 53000 0.77218
Year 4 53000 0.70843
Year 5 53000 0.64993
Total 265000
Capital Investment
Net Present Value
Profitability Index

Project 2: Conveyor Belt

Annual Net
Discount factor 9%
Cash Flow
Year 1 65000 0.91743
Year 2 64000 0.84168
 Year 3 63000 0.77218
Year 4 59000 0.70843
Year 5 56000 0.64993
Total 307000
Capital Investment
Net Present Value
Profitability Index

Project 3: Crane
Annual Net
Discount factor 9%
Cash Flow
Year 1 79000 0.91743
Year 2 74000 0.84168
Year 3 73000 0.77218
Year 4 65000 0.70843
Year 5 64000 0.64993
Total 355000
Capital Investment
Net Present Value
Profitability Index

Now that we have completed the analysis of each project we need to compare all three and select th

Project 3 is more reasonable

1. Cash payback period is the lowest one
2. NPV is the highest one
3. Profitability index is the highest one.
 Project 3:
Crane

$260,000.00

79000
74000
73000
65000
64000
355000
5
71000
3.661971831

Present Value
48623.79
44609.04
40925.54
37546.79
34446.29
206151.45
200000
6151.45
1.03075725

Present Value
59632.95
53867.52
 48647.34
41797.37
36396.08
240341.26
235000
5341.26
1.022728766

Present Value
72476.97
62284.32
56369.14
46047.95
41595.52
278773.9
260000
18773.9
1.072207308

pare all three and select the one with the higher