Instruction for students:

Assume that you are the plant manager for Brice Company. The company is plan to implement a bonus system for purchasing and production managers that provides an annual 10 percent bonus for favorable direct materials variances (MPV and MQV).

Required:

Write a report for the CEO in which you explain the primary assumptions and considerations used in making your recommendation.

1. In your opinion, does having a favorable variances is better than unfavorable? In other words, does achieving favorable variances means that managers in charge have to be rewarded? Conversely, does unfavorable variances always reflect a poor performance by the manager in charge?
2. Explain the potential benefits associated with the new bonus system.
3. Elaborate the potential costs associated with the new bonus system.
4. Identify the potential ethical concerns on the new bonus system.
5. Finally, provide the CEO with a recommendation on whether to adopt or not to adopt the new bonus system.

Suppose that you are part of the Management team at Porsche. Suppose that it is the end of December 2019 and a novel coronavirus that causes a respiratory illness was identified in Wuhan City, Hubei Province, China. The illness was reported to the World Health Organization and there is heightened uncertainty around the Globe. You (as part of the management team) are reviewing Porsche’s hedging strategy for the cash flows it expects to obtain from vehicle sales in North America during the calendar year 2020. Assume that Porsche’s management entertains three scenarios: Scenario 1 (Expected): The expected volume of North American sales in 2020 is 35,000 vehicles. Scenario 2 (Pandemic): The low-sales scenario is 50% lower than the expected sales volume. Scenario 3 (High Growth): The high-sales scenario is 20% higher than the expected sales volume. Assume, in each scenario, that the average sales price per vehicle is $85,000 and that all sales are realised at the end of December 2020. All variable costs incurred by producing an additional vehicle to be sold in North America in 2020 are billed in euros (€) and amount to €55,000 per vehicle. Shipping an additional vehicle to be sold in North America in 2020 are billed in € and amount to €3,000 per vehicle. The current spot exchange rate is (bid-ask) $1.11/€ - $1.12/€ and forward bid-ask is $1.18/€ - $1.185/€. The option premium is €0.025, and option strike price is €0.922. Your finance team made the following forecasts about the exchange rates at the end of December 2020:

• bid-ask will be $1.45/€ - $1.465/€ if the investors (and speculators) consider the euro (€) a safe haven currency during the pandemic.

• bid-ask will be $0.88/€-$0.90/€ if the investors (and speculators) consider the U.S. dollar ($) a safe haven currency during the pandemic 1. You decided not to hedge Porsche’s currency exposure. If the expected final sales volume is 35,000, what are your total revenues

1. You decided not to hedge Porsche’s currency exposure. If the expected final sales volume is 35,000, what are your total revenues

a) if the exchange rate (bid-ask) remains at $1.11/€ - $1.12/€? Let’s call this the baseline scenario.

b) if the investors consider the euro a safe haven currency during the pandemic? How does this compare to the baseline case?

c) if the investors consider the U.S. dollar a safe haven currency during the pandemic? How does this compare to the baseline case?

The P Ltd acquires all issued capital of the S Ltd for a consideration of $1,000,000 cash and 800,000 shares each valued at $1.50. The summary statement of the financial position of the subsidiary company immediately following the acquisition is: Fair value of assets acquired $2,640,000 Fair value of liabilities acquired $720,000 Total shareholders’ equity of the subsidiary company $800,000 Retained earnings of the subsidiary company $1,120,000 Required:

(a) Pass the necessary journal entry to record the acquisition

(b) Determine the amount of goodwill (or bargain purchase) arising out of the acquisition

(c) Pass the necessary consolidation entry to eliminate the subsidiary by the parent company .

(d) Determine the amount of goodwill (or bargain purchase) arising out of the acquisition if the purchase consideration paid was $1,000,000 cash and 400,000 shares each valued at $1.50

The P Ltd acquires all issued capital of the S Ltd for a consideration of $1,000,000 cash and 800,000 shares each valued at $1.50. The summary statement of the financial position of the subsidiary company immediately following the acquisition is: Fair value of assets acquired $2,640,000 Fair value of liabilities acquired $720,000 Total shareholders’ equity of the subsidiary company $800,000 Retained earnings of the subsidiary company $1,120,000

Required: (a) Pass the necessary journal entry to record the acquisition (b) Determine the amount of goodwill (or bargain purchase) arising out of the acquisition (c) Pass the necessary consolidation entry to eliminate the subsidiary by the parent company (d) Determine the amount of goodwill (or bargain purchase) arising out of the acquisition if the purchase consideration paid was $1,000,000 cash and 400,000 shares each valued at $1.50

Amazonian Corporation has the following tax information:

A. In 2020, Amazonian incurred a net operating loss (NOL) of $350,000, which the company elected to carry back. The statutory corporate tax rate in 2020 and for all future years is 22%. Prepare Amazonian's journal entry to record the effect of the loss carry back.

B. Assume instead that in 2020 Amazonian incurred an NOL of $2,000,000 and that the company elected to carry back the loss. The statutory corporate tax rate in 2020 and for all future years is 22%. Prepare the journal entry to record the effects of the NOL.

Publicly-traded companies need to file their annual financial statements in the SEC’s repository called “EDGAR System”. The annual report file is called the 10-K. Find and open the latest annual financial statements 10-K (usually it’s a pdf file). Then, search for the pay-ratio disclosure (use a keyword search). Financial statements from 2018 have to disclose the following information that you will enter below for PSB HOLDINGS INC/WI (Ticker Symbol: 3PSBQ):

1. CEO Salary (Cash) compensation (in dollars), CEO Bonus (in dollars), CEO Stock awards (in dollars), CEO Options awards (in dollars), CEO Non-equity incentive plan compensation (in dollars), CEO Change in pension value and nonqualified deferred compensation earnings (in dollars), All other CEO compensation (in dollars).
2. Median Employee compensation
3. Pay Ratio

Question 1.Obaapa Fashions Ltd has budgeted to sell 100,000 pieces of face masks for April 2020. At the end of March 2020, the company had 20,000 pieces of face mask in inventory and would like to have an inventory of 30,000 pieces of face masks at the end of April. Each piece of face mask requires 2 square meters of treated fabric, the primary raw material. Inventory of the treated fabric at the beginning of April is 5,000 square meters. It is expected that each square meter of the treated fabric will cost GHS3. Assuming the sales budget is met, and the desired ending inventory of the face mask is achieved, how many square meters of the treated fabric need to be purchased in April 2020, in order to have an ending inventory of 8,000 square meters of the treated fabric? What will be the cost of purchases for April 2020? (show all workings clearly).

Question 2.

Ewuarbena & Co Manufacturing Ltd have budgeted to sell these quantities of its products, Chocomix, for the coming months in 2020: January – 160,000 sachets; February – 240,000 sachets; March – 200,000 sachets; April – 400,000 sachets; and May – 150,000 sachets. The company expects to sell each sachet for GHS20. The company has decided that to avoid losing customers arising from production hold-ups it would like to maintain a finished goods inventory in the future equal to one-fifth of the following month's budgeted sales. At the beginning of January 2020, the company had finished goods inventory of 10,000 sachets. What is total budgeted sales and production for the 2020 1^st quarter ended (January – March 2020)? (show all workings clearly)

Suppose that you are the executive manager of the manufacturing team for a clothing company that is located in the U.S. Your company is interested in expanding its international activities by producing two new products; jackets and sweaters. It considers two countries; China and/or Italy. China has 1200 units of labor available. It can produce two goods, jackets and sweaters. The unit labor requirement in jacket production is 3, while in sweater production it is 2. Italy has a labor force of 800. Italy’s unit labor requirement in jacket production is 5, while in sweater production it is 1.

You are asked by the CEO to report the following information:

1. Identify absolute advantage and comparative advantage of China and Italy.

2. Describe the pattern of trade in the free trade equilibrium. Please provide a brief explanation for your answer.

3. One of the following three numbers is the relative price of jackets in the free trade equilibrium. Which one is it?

(a) 2                      (b) 1                (c) 0.2             (d) any of them is possible.

Problem 2

Suppose that the information given in Problem 1 applies.

        a) Suppose now that you have to convince the Chinese government that your business will benefit their country. How would you prove this? (Hint: You can use a graph to support your answer).

b) Suppose now that you have to convince the Italian government that your business will benefit their country. How would you prove this? (Hint: You can use a graph to support your answer).