Booker Jones Case 1. Calculate the effect on the financial statements in Exhibits 1 and 2 if the accounting system were changed to incorporate the cost of barrels ($31.50 each) into the inventory accounts. a. What would pretax profit be in 1961? Booker Jones increased production by 20,000 barrels in 1961.
Savings in purchasing cost: Annual demand: 800, 11.89*800 = $9512 per year. Holding cost will be higher, Extra storage, FOB, LT= 4weeks vs. 2 weeks. Sourcing and Procurement Slide 3 © Hu Lot Sizing Analysis D=800 H=20% C=$108.2 S= $75 ? Q0 2* D * S 2*(Annual Demand)*(Ordering cost) H (Annual Unit Holding Cost) QO = {2 * 800 * 75/ (108.2*0.2)} = 74.46, round up to 80, Then You order 10 times a year, you have 360/10=36 days inventory Do all of the EOQ assumptions hold here? Sourcing and Procurement Slide 4 © Hu 2
Using the following calculation, we find: z= x- μ σ -1.96 = 10,000 – 20,000 σ σ=5102 Standard deviation σ = 5,102 μ = 20,000 mean 2. Stock outs were calculated by the four management numbers. Equation is: z = (x – μ)/ σ 15,000: Z = (15,000-20,000)/5102 z = -0.98 Then, reference the cumulative probabilities for standard deviation table in the beginning of the book to identify what -0.98 represents, which is .1635. Since stock outs are any quantity greater than what management suggested, they need to be subtracted from 1. 1 - .1635 = .8365 which = 83.65% Same logic/steps for the rest of the values: 18,000 24,000 28,000 Z = (18,000-20,000)/5102 z=(24,000-20,000)/5102 z=(28,000-20,000)/5102 z = -.39 z=.78 z= 1.57 1 - .3483 = .6517 1 - .7823 = .2177 1 –.9418 = .0582 which = 65.17% which = 21.77% which = 5.82% 3.
The Chinese exports are made from imported materials, so by pegging the value to the dollar, China checks its risk when it comes to foreign exchange. A cost of pegging the value is that the U.S. dollar’s movement will influence the Chinese economy either way.Moreover, another benefits of pegging the value of the yuan against the U.S. dollar is in which China expanded to own trade deficit to a record $160 billion in 2004 with United States. 2-) Over the last decade, many foreign firms have invested in China and used their Chinese factories to produce goods for export. If the yuan is allowed to float freely against the U.S. dollar on the foreign exchange markets and appreciates in value, how might this affect the fortunes of those enterprises? If the yuan is allowed to float freely against the U.S. dollar on the foreign exchange markets and appreciates the value, foreign enterprises would not benefit when trying to export out of China.
Finding the initial investment Answer: $20,000 Purchase price of new machinery $3,000 Installation costs $4,500 After-tax proceeds from sale of old machinery $18,500 Initial investment E11-4. Book value and recaptured depreciation $175,000 $124, 250 $110,000 $50,750 $50, 750 $59,250 Recaptured depreciation E11-5. Initial investment purchase price installation costs – after-tax proceeds from sale of old asset change in net working capital $55,000 $7,500 – $23,750 $2,000 $40,750 Answer: Book value Answer: Initial investment CAPITAL BUDGETING PROBLEMS: CHAPTER 11 Solutions to Problems Note: The MACRS depreciation percentages used in the following problems appear in Chapter 4, Table 4.2. The percentages are rounded to the nearest integer for ease in calculation. For simplification, 5-year-lived projects with 5 years of cash inflows are typically used throughout this chapter.
The manager cited the resulting high depreciation charges as the justification for the price boost. He asked the president of the company to instruct Division P to buy from S at the $220 price. He supplied the following information: P's annual purchases of component 2,000 units S's unit and batch-related costs per unit $190 S's capacity related costs per unit $20 S's required return on investment $10 Suppose there are no alternative uses of the S facilities. Required 1) Will the company as a whole benefit if P buys from the outside suppliers for $200 per unit? 2) Suppose the selling price of outsiders drops another $15 to $185.
Using the criteria above, we have chosen the best method of production for each requirement in order to help us make our final decision. Income - Level Production Based on income, level production is the best choice. Level production will eliminate overtime costs of $225K and direct labor costs of $265K, reducing the percentage of COGS from 70% to 65.1% of sales. A portion of these savings would be offset by higher storage costs of $115K, which will increase operating costs each month. However, even with these additional costs, net profit under level production is projected to be $520K, which is a 48% increase over the seasonal production estimate of $351K.
Silver Lake Cabinets is approached by Ms. Jenny Zhang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers: Direct materials $100 Direct labor 125 Variable manufacturing support 60 Fixed manufacturing support 75 Total manufacturing costs 360 Markup (60%) 216 Targeted selling price $576 Silver Lake Cabinets has excess capacity. Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit. Required: a. For Silver Lake Cabinets, what is the minimum acceptable price of this one-time-only special order?
Strategically relevant components of the global macro-environment now are more and more people pay attention to the alternative beverages. As forecasts, the dollar value and volume sales of the global market for alternative beverages will keep increase, and in 2014, the dollar value will be 53.5 billion and the volume will be 16.8 billion of liters. Now, Global beverage companies such as Coca-Cola and PepsiCo had relied on such beverages an important part of beverages to sustain volume growth in mature markets where consumers were reducing their consumption of carbonated soft drinks. What’s more, Coca-Cola, PepsiCo and other beverage companies were intent on expanding the market for alternative beverages by introducing energy drinks, sports drinks, and vitamin drinks in more and more emerging international markets. In the USA’s market, the development of the alternative beverages was hit by the lingering economic downturn.
What would be the impact on monthly sales cost, and income? Regular Selling Price Impact: Price $4,350 Quantity $3,000 Revenue $13,050,000 Variable Manufacturing Costs ($5,385,000) Variable Marketing Costs ($825,000) Contribution Margin $6,840,000 *Fixed Manufacturing Costs ($1,980,000) *Fixed Marketing Costs ($2,310,000) Income $2,550,000 Using the regular selling price Income = Revenues – Total costs = $13,050,000 - $10,500,000 = $2,550,000 * Continue to the next page New Selling Price Impact: Price $3,850 Quantity $3,500 Revenue $13,475,000 Variable Manufacturing Costs ($6,282,500) Variable Marketing Costs ($962,500) Contribution Margin $6,230,000 Fixed Manufacturing Costs ($1,980,000) Fixed Marketing Costs ($2,310,000) Income $1,940,000 2) After price reduction, income = $13,475,000 - $11,535,000 =