Public choice theory concludes that most government departments as well as other non-profits tend to waste money because:

October sales are estimated to be $300,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 20 percent per month. Prepare a sales budget.

The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts.

The cost of goods sold is 70 percent of sales. The company desires to maintain a minimum ending inventory equal to 20 percent of the next month’s cost of goods sold. However, ending inventory of December is expected to be $12,100. Assume that all purchases are made on account. Prepare an inventory purchases budget.

The company pays 80 percent of accounts payable in the month of purchase and the remaining 20 percent in the following month. Prepare a cash payments budget for inventory purchases.

Budgeted selling and administrative expenses per month follow:

*The capital expenditures budget indicates that Baird will spend $119,400 on October 1 for store fixtures, which are expected to have a $21,000 salvage value and a two-year (24-month) useful life.

Prepare a pro forma income statement for the quarter.

Prepare a pro forma balance sheet at the end of the quarter.

Prepare a pro forma statement of cash flows for the quarter.                                     

Required J

Prepare a pro forma statement of cash flows for the quarter. (Amounts to be deducted should be indicated by a minus sign.)

Prepare a pro forma balance sheet at the end of the quarter. (Amounts to be deducted should be indicated by a minus sign.)

Required H

Required I

Required J

Prepare a pro forma income statement for the quarter.

Your boss tells you that his investment lost 20% during the first quarter (from Jan 1st- March 31st), another 20% during the second quarter (from Apr 1st-June 30th) and then another 20% during the third quarter (from July 1st - Sept 30th). He then states "IO can't believe my investments lost 60% from Jan 1st- Sept 30th. What is wrong with this statement? What percent did he really lose?

Three years ago you bought 165 shares of Stock ABC, which was then selling at $12.25 per share. Today, you sold it for $11.85 per share. For the first year you held the stock, you received a dividend of $.18 per quarter. During the second year, you received a dividend of $.24 per quarter. Finally, during the last year, you have received a dividend of $.30 per quarter. What is your total dollar return?

Suppose a young couple deposits $600 at the end of each quarter in an account that earns 6.8%, compounded quarterly, for a period of 2 years. After the 2 years, they start a family and find they can contribute only $200 per quarter. If they leave the money from the first 2 years in the account and continue to contribute $200 at the end of each quarter for the next 18 1/2 years, how much will they have in the account (to help with their child's college expenses)? (Round your answer to the nearest cent.)

Wright Inc. has forecasted the following quarterly sales amounts for the upcoming year:

Q1 = $746; Q2 = $686; Q3 = $907; Q4 = $808

Wright’s purchases from suppliers in a quarter are equal to 70% of the next quarter's forecasted sales. The payables period is 60 days. Wages, taxes, and other expenses are 17% of sales, and interest and dividends are $62 per quarter. No capital expenditures are planned.

Sales in Q1 of the following year are expected to be 933. What are Wright’s cash disbursements in the first quarter?

Useful Art Inc. creates and manufactures objects that are characterized by both utility and artistry. One of its most popular products is the trivet (a 3-legged hot plate). The top of each trivet is a unique, handmade ceramic tile. Useful Art buys the tiles from artists and the trivet legs from a metal-working company, then assembles the trivets in-house. Towards the end of 2015, Useful Art prepares monthly budgets for 2016 using the following assumptions and data:

2015 actual sales:

Jan 300 u

Apr 350 u

Feb 325 u

May 345 u

Mar 275 u

Jun 370 u

Selling price per unit 50 $/u

Useful Art plans to launch a marketing campaign in 2016 that should increase sales (units) by 10% over 2015 sales as long as the selling price remains unchanged. Because each trivet is unique, management wants to have a substantial number of trivets on hand at all times so that customers can choose from among many options. So management plans to have 20% of next month's sales (units) on hand at the end of each month. The artists from whom Useful Art purchases the ceramic tiles do great work, but are sometimes a bit unreliable as to when they deliver the tiles. So management wants to have 30% of next month's production needs (tiles) on hand at the end of each month. The metal-working supplier is very reliable, so management wants to have just 15% of next month's production needs (legs) on hand at the end of each month Useful Art pays $35 per tile. • Useful Art pays $.45 per leg. • Useful Art has collected the following data related to cash inflows from sales: 20% of sales revenues are collected in the month of sale 70% of sales revenues are collected in the month after the sale 10% of sales revenues are collected two months after the sale

REQUIRED: Prepare the following budgets on a monthly basis for Useful Art for 2016: 1. Sales Budget (first two quarters of 2016) 2. Production Budget (first quarter of 2016) 3. Materials Purchases Budget (tiles) (first quarter of 2016) 4. Materials Purchases Budget (legs) (first quarter of 2016) 5. Cash Receipts (AKA Cash Collections) Budget (second quarter of 2016)

Business Cycles (Booms and Busts): Their Causes and Cure

Keynesian Approach to Business Cycle: If there is inflation, then the cause is supposed to be “excessive spending” on the part of the public. The alleged cure is for the government to step in and force people to spend less through increased taxation. If there is a recession, then the cause is insufficient spending on the part of the public. The cure is for the government to increase its spending, undoubtedly through deficit spending.

If it is true that business cycles are rooted deep within the free-market economy, per Keynes; some form of government planning is needed, if we wish to keep the economy within the stable bounds of the boom and bust. Right? However, “general economic theory” teach us that supply and demand always tends to be in equilibrium or strive for such a point.

The economic thought process that there is something wrong with a free-market economy, and this causes business cycles stems from Karl Marx. Marx saw that before the Industrial Revolution (late 18th Century) there were no regularly recurring booms and busts. However, with the start of the Industrial Revolution, there were recurring cycles. Marx concluded that business cycles were part of the free-market economy.

                David Ricardo and David Hume (early 19th Century) came forth with an analysis of the business cycle. Essentially, these economists saw that another crucial institution had developed in the mid-eighteenth century, along the industrial system. This was the institution of banking with its capacity to expand the money supply. The Ricardian analysis went something like this: Natural moneys of the free market are useful commodities like gold and silver. If the money were confined to gold and silver, then the economy would work in the aggregate as it does in any market through adjustment to demand and supply. However, these institutions issued certificates in amounts more than what was in deposit in the form of gold and silver. Therein lies the problem. Banks have issued more notes than the reserves backing these notes. Therefore, the Ricardian theory of the business cycles grasped the essentials of a correct cycle theory.   The cause of business cycles was due to excessive monetary expansion in lieu of the resources to support such expansion.

However, two problems were yet unexplained. Why the sudden “cluster of business errors,” which was a failure of the entrepreneurial function, and why the vastly greater fluctuation in producers’ goods than in consumers goods industries?

Mises expanded upon the Recardian theory to address the two remaining problems. According to Mises, bank credit expansion through the central bank artificially lowers the rate of interest in the economy. On the free and unhampered market, the interest rate is determined by the “time-preference of all the individuals who make up the market economy. People’s time preference determines the extent they save and invest, as compared to how much they consume. If one’s time preference falls, then, consumption falls and savings and investments increase. Economic growth comes about largely as the result of falling interest rates.  

But what happens when the interest rate falls, not because of lower time preferences, but from the Federal Reserve System that promotes bank credit expansion? Trouble. For businessmen, seeing the interest rate fall, react to such a change and invest more in capital goods as compared to their direct production of consumer goods, because they believe that one’s time preference has changed. They invest more in capital goods because as rates decline these long-term projects are more profitable than short-term projects that are closer to the consumer end. During this process, businesses bid-up prices of wages, raw materials, etc. Since the factors of production are limited in any given time period, there is a resource allocation away from the consumer end to the capital end because of the higher wages in the capital goods area.

                The problem comes as soon as the workers begin to spend the new bank money that they received in higher wages. For the time preference of the workers have not changed. So the workers spend most of their new income, in order to reestablish the old consumption/savings ratio.  

                Since the workers receive the increase money in the form of wages rapidly, how is it that booms can go on for years without having their unsound investments revealed? The answer is that booms would be very short lived if the bank credit expansion and subsequent pushing of the rate of interest below the free-market level were a one-shot affair. However, it proceeds on and on with the direct assistance of the Federal Reserve System trying to keep interest rates below the free-market level, never giving consumers the chance to reestablish their ratio and never allowing the rise in costs in the capital goods area to catch up to inflationary rise in prices. It is only when bank credit expansion must finally stop, either because the banks are getting into a shaky condition or the public begins to balk at inflation

                Mises (Austrian Economics) blames the cycle on inflationary bank credit expansion propelled by the Federal Reserve System.   What should be done? Nothing. What the economy needs is not more consumption but more savings, in order to validate some of the excessive investments of the boom. The Austrians maintain that we do not have a lack of consumption. We have a lack of savings/investments.

                Quantity Theory: Mises agreed with the classical quantity theorist that an increase in the supply of money would lead to a fall in its value (inflation). But he refined its approach. For one thing, he showed that this movement of increasing the money supply is not proportional. That is, a 10% increase in the supply of money does not increase prices by 10% at the same time. Mises showed that the great attraction of inflation is precisely that not everyone gets the new money at the same time. Therefore, inflation is a process of taxation and redistribution of wealth.

Now, after reading the attached article, what kind of policy would an Austrian economist recommend during a boom phase (inflationary gap)?

1. Sales Budget

   Assume that Stillwater Designs produces two automotive subwoofers: S12L7 and S12L5. The S12L7 sells for $637, and the S12L5 sells for $402. Projected sales (number of speakers) for the coming five quarters are as follows:

   	S12L7	S12L5
   First quarter, 20Y1	800	1,300
   Second quarter, 20Y1	2,200	1,400
   Third quarter, 20Y1	5,600	5,300
   Fourth quarter, 20Y1	4,600	3,900
   First quarter, 20Y2	900	1,200

   The vice president of sales believes that the projected sales are realistic and can be achieved by the company.

   Required:

   Prepare a sales budget for each quarter of 20Y1 and for the year in total. Show sales by product and in total for each time period. Do not include a multiplication symbol as part of your answer.

   Stillwater Designs
   Sales Budget
   For the Year Ended December 31, 20Y1
   	1st Qtr.	2nd Qtr.	3rd Qtr.	4th Qtr.	Year
   S12L7:
   Units
   Price	$	$	$	$	$
   Sales	$	$	$	$	$
   S12L5:
   Units
   Price	$	$	$	$	$
   Sales	$	$	$	$	$
   Total sales	$	$	$	$	$

   Feedback

   How will Stillwater Designs use this sales budget?

   1. Stillwater Designs will use the sales budget in planning as the basis for the production budget.
   2. The company can also compare actual sales against the budget to see if expectations were achieved.
   3. Both 1 and 2
   4. None of the above

WATER IS THE LIFEBLOOD OF THE EARTH, but by 2025, according to the U.N., two-thirds of the world’s population could face chronic shortages of water. In fact, some countries are already importing huge supertankers of freshwater from other countries. But one place that’s definitely not short of water is the state of Michigan, which has 11,000 lakes and is surrounded by Lakes Michigan, Huron, Superior, and Erie. So it came as a surprise to some that the Nestlé company’s new Ice Mountain bottled-water plant in Mecosta County, Michigan, dredged up so much controversy when it began pumping water from a local spring.80 Nestlé’s willingness to invest $100 million to build a new 410,000-square-foot bottling plant in Mecosta reflects the fact that bottled water is big business, with annual sales of $6 billion (up 35 percent since 1997). Many county residents, in fact, are thrilled about Nestlé’s being there. The Ice Mountain plant employs about a hundred people at $12 to $23 per hour, significantly more than many local jobs pay. And the company shells out hundreds of thousands of dollars in local taxes. Township supervisor Maxine McClellan says, “This is probably the best project we’ve ever brought into Mecosta County.” She adds that she wants “a diversified economy where our kids don’t have to move away to find jobs.” The problem, as some local residents see it, is that Nestlé has also built a 12-mile stainless steel pipeline from the plant to Sanctuary Spring, which sits on an 850-acre private deer-hunting ranch and is part of the headwaters of the Little Muskegon River, which flows into the Muskegon and then into Lake Michigan. The company started pumping 130 gallons of water every minute from the spring, with plans to increase that to 400 gallons per minute, or about 262 million gallons a year. But whose water is Nestlé pumping? That’s the question being asked by Michigan Citizens for Water Conservation (MCWC), a local Mecosta group that has filed suit contesting Nestlé’s right to the spring’s waters. Although the company has a ninety-nine-year lease on the land, MCWC contends that the water itself is a public resource. As Jim Olson, MCWC’s lawyer, explains it, under the doctrine of “reasonable use” the owners of a stream can use its water for drinking, boating, swimming, or anything else “as long as it’s in connection with their land.” But, he argues, “this does not include the right to transport water to some distant land for [some other] use. We’re arguing that the same is true with groundwater— you can’t sever it from the estate.” Michigan State Senator Ken Sikkema, who chaired a task force on Michigan water issues, rejects that argument: “A farmer pumps water out of the ground, waters potatoes, and sends the potatoes to Illinois—there’s no real difference. The water in those potatoes is gone.” This reasoning hasn’t assuaged the fears of three American Indian tribes who have joined the fray. Citing an 1836 treaty that protects their fishing and hunting rights in the Great Lakes region, they have brought a federal lawsuit against Nestlé and the state of Michigan to stop what they see as a massive water grab. “Our fear,” says a spokesperson for the Little Traverse Bay Bands of Odawa Indians, “is that the export could significantly and permanently damage the fishery.” However, David K. Ladd, head of the Office of Great Lakes, argues that bottled water is a special case. Legally, he contends, it’s a “food,” regulated by the Food and Drug Administration. “There’s no difference between Perrier bottling water, Gerber making baby food, or Miller brewing beer. When you incorporate water from the basin into a product, it’s no longer water per se.” And Brendan O’Rourke, an Ice Mountain plant manager, adds that the 262 million gallons it wants to pump are less than 1 percent of the annual recharge rate of the local watershed, equivalent to just 14 minutes of evaporation from the surface of Lake Michigan. For their part, scientists opposed to the project argue that Nestlé’s pumping has already lowered the local water table and that northern pike are having trouble spawning in a stream fed by Sanctuary Spring. Jim Olson argues that the Ice Mountain plant should reduce its water consumption to 100 gallons per minute or less, not increase it to 400 gallons. “Every gallon removed is needed for the stream to sustain itself,” he states. “The right to withdraw groundwater does not include the right to diminish … existing or future uses.” To the surprise of many, Michigan state court judge Lawrence Root bought that argument and upheld the MCWC’s lawsuit. Ruling that the environment is at risk no matter how much water Nestlé draws out, he ordered the pumps turned off. Two years later, an appellate court reversed Judge Root’s decision, and MCWC and Nestlé subsequently entered an agreement limiting Nestlé’s withdrawals from Sanctuary Spring to 250 gallons per minute—although there has been some legal skirmishing between the two antagonists since then. In the meantime, however, the political tide has turned against Nestlé. Small towns in Maine and California have opposed its building new bottled water plants in their jurisdictions; Congress has held hearings into the diversion of groundwater by bottled water companies and other businesses; and Michigan has passed legislation that, among other things, makes it virtually impossible for operations such as the Ice Mountain plant to remove more than 100,000 gallons of groundwater per day. (Shaw)

QUESTION:

Assess this case from the perspective of the Utilitarian , Libertarian and Rawlsian theories of justice. How would each address the case? Which theory's approach do you find the most helpful or illuminating?