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dividually students will develop a formal response to the problem(s) posed in the case, addressing the following areas within the analysis, and using the same headings. (Numbers in brackets do not necessarily correspond to length but represent the weight that will be given to each section in the grading):

1. Issue Identification (5%): Identification of the problem/issue that must be resolved or decision that must be made. Phrase the problem/cause in the most succinct way possible. Think about:
   1. Differentiating the immediate from the basic problem
   2. The implications of the problem(s)
   3. Identifying the root cause of the problem(s)
   4. Determining the decision facing the key person(s)?
2. Identification of Key Success Factors (10%): Identify the company-specific factors in point form that are absolutely critical to the success of the organization. These are the factors that, if ignored, will mean the project will probably fail. Include the following considerations:
   1. What factors must be managed successfully for the company to prosper?
   2. Key success factors should reflect the top priorities of the organization in this particular case (eg., quality, productivity, low cost leader, etc.)
   3. These factors are part of the criteria against which you will evaluate solutions (along with basic criteria such as profit)
3. Identification of Alternatives (5%): Identify alternative solutions. Only deal with feasible alternatives. In the next three sections, analyse all alternatives against criteria set out in key success factors and basic requirements (eg., profitability).
4. Quantitative Analysis (40%): Push numbers in an analysis that is relevant to the issue at hand. Differentiate between what is relevant and what is irrelevant.
5. Qualitative Analysis (30%): Be sure to analyze qualitative issues – they need discussion in most cases. In particular, analyze alternatives in light of key success factors – will this alternative solve the problem and fit with our key success factors.
6. Recommendation on Course of Action (5%): State your recommendation. State briefly the justification for your recommended course of action. Make sure your recommendation flows out of your quantitative and qualitative analyses. Tie your recommendation back to the key success factors. The solution and implementation shout fit with problems and criteria identified above.
7. Circumvention of Potential Problems (5%): If there could be problems with your recommendations, state them. As well, suggest ways to overcome these problems – a contingency plan to address potential difficulties.

There is no set length to the report, but clear, succinct and concise language and organization will be considered favourably in the grade.

Students will submit the final report as a word document through the submission link below.

The Case

You are a Senior Consultant for the professional service firm, BUSI 2083 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. It is your final week on the job and a Manager asks you for some help prior to your departure. Eager to leaving a lasting impression, you start reading the background information provided by the Manager.

Lesley Donovan is the controller for the East division of Explorer Ltd. Jason Conner, head of plant engineering, has just left Donovan’s office after presenting three alternatives for submission in the capital expenditure budget for the fiscal year 2014. The budget is due to the CEO in two days and therefore Donovan realizes that time is of the essence.

Conner has outlined the following alternatives to replace an outdated milling machine:

1. build a general purpose milling machine;
2. buy a special purpose numerically controlled milling machine; or
3. buy a general purpose milling machine.

Explorer Ltd. is a well-established company. The company was set up about 30 years ago by two brothers Dan and Kevin Thompson, in Huntsville, Ontario, to produce accessories for the automobile industry. The Central division continues to serve the auto industry, and is the largest division in the company with sales of $35 million annually. Dan’s son is now head of this division. Kevin is still active in the company and is the Chief Executive Officer (CEO). His office is located in Toronto.

The parts division supplies seals to the mining and petrochemical industry from a plant in Toronto. This division is only ten years old and until 2010 was highly profitable. As a result of the downturn in the sector of the economy, sales in 2012 were only $12 million.

The East division, located in Scarborough, is the engineering division. Full-time employees tend to work approximately 2,000 hours in the division. Regular product lines include industrial fans, industrial cooling units, and refrigeration units for industrial users. The division is highly capital-intensive and sales tend to be directly related to general economic conditions.

Each division runs independently and performance is based upon budgeted return on investment. Bonuses are paid if the budget target is achieved. Annually, each division prepares a detailed budget submission to Kevin, outlining expected profit performance and capital expenditure requests. The milling machine proposal is part of the capital expenditure request.

The 2013 pro forma income statement for East division is set out below:

Jason Connor has pointed out to Donovan that the existing machine is not only outdated but maintenance costs are becoming prohibitive. Jason also noted that maintenance costs of new general purpose machines are only $26,000 while special purpose machines can save an additional $14,000 in maintenance. Also there would be a significant savings in insurance as the price for a general purpose machine would drop to $3,000 while a special purpose machine would be 67% higher than the general purpose machine. The machine has no market or salvage value and he is sure that its book value is now zero. The trouble is that he doesn’t know which proposal is best for the company. In addition to the cost and revenue date provided, Connor provided comments on each alternative below:

1. Build a general purpose machine:
   • This machine can be built by East division. The division is below capacity at present as a major contract has just been completed. The division could thus produce the machine without affecting revenue-producing activity, but it will take six months to complete. The machine is expected to last five years and have no salvage value because removal costs will probably equal selling price.
   • Connor believes that the division has the technical expertise to undertake the work. In 2012, the division produced a specialized drilling machine that has proven very successful. Connor pointed out that David Williams, chief engineer, loves the design challenge of new machines. Donovan sat down with Connor and produced the following cost estimates:

   Material and parts	$55,000
   Direct labour (DL$)	$90,000
   Variable overhead (50% of DL$)	$45,000
   Fixed overhead (25% of DL$)	$22,500
   TOTAL	$212,500

   • Donovan argues that this job should also bear a proportion of administrative costs; she suggests $12,000.
2. Buy a special purpose machine:
   
   The advantage of this special purpose machine is that only one operator is required and output per hour could increase by 25%. In addition, maintenance costs are significantly reduced because microchip circuitry is employed.
   
   Connor points out that this machine is state-of-the-art and would probably mean that new work could be taken on. A numerically controlled machine required extensive training of operators. In total, 26 weeks are spent in the supplier’s factory located in Florida. While the training is going on, the supplier provides an operator to work the machine without charge. Expected costs of this training period including hotel, per diem, and travel will cost $3,000 per week, excluding the operator’s labour which is set at $15 per hour.
   
   The machine costs $625,000, and the supplier guarantees the salvage value of $25,000 at the end of five years. It is available immediately. It is estimated the machine can generate sales of $243,750 annually at full capacity and require $19,500 in direct materials cost. While the direct material costs are equivalent, the level of sales for the general purpose machine are $48,000 lower than the special purpose machine.
3. Buy a general purpose machine:
   
   The purchase price of this machine is $295,000 and cost levels associated with the machine are expected to be the same as the general purpose machine built by the company because the technology is similar. The salvage value of the machine net of removal costs, is estimated to be $5,000 in five years. It can be delivered immediately.

General comments

The required rate of return for this investment class has been set at 8% by Kevin Thompson.

Required

Prepare the budget submission to Kevin. Show your answers.

dividually students will develop a formal response to the problem(s) posed in the case, addressing the following areas within the analysis, and using the same headings. (Numbers in brackets do not necessarily correspond to length but represent the weight that will be given to each section in the grading):

1. Issue Identification (5%): Identification of the problem/issue that must be resolved or decision that must be made. Phrase the problem/cause in the most succinct way possible. Think about:
   1. Differentiating the immediate from the basic problem
   2. The implications of the problem(s)
   3. Identifying the root cause of the problem(s)
   4. Determining the decision facing the key person(s)?
2. Identification of Key Success Factors (10%): Identify the company-specific factors in point form that are absolutely critical to the success of the organization. These are the factors that, if ignored, will mean the project will probably fail. Include the following considerations:
   1. What factors must be managed successfully for the company to prosper?
   2. Key success factors should reflect the top priorities of the organization in this particular case (eg., quality, productivity, low cost leader, etc.)
   3. These factors are part of the criteria against which you will evaluate solutions (along with basic criteria such as profit)
3. Identification of Alternatives (5%): Identify alternative solutions. Only deal with feasible alternatives. In the next three sections, analyse all alternatives against criteria set out in key success factors and basic requirements (eg., profitability).
4. Quantitative Analysis (40%): Push numbers in an analysis that is relevant to the issue at hand. Differentiate between what is relevant and what is irrelevant.
5. Qualitative Analysis (30%): Be sure to analyze qualitative issues – they need discussion in most cases. In particular, analyze alternatives in light of key success factors – will this alternative solve the problem and fit with our key success factors.
6. Recommendation on Course of Action (5%): State your recommendation. State briefly the justification for your recommended course of action. Make sure your recommendation flows out of your quantitative and qualitative analyses. Tie your recommendation back to the key success factors. The solution and implementation shout fit with problems and criteria identified above.
7. Circumvention of Potential Problems (5%): If there could be problems with your recommendations, state them. As well, suggest ways to overcome these problems – a contingency plan to address potential difficulties.

There is no set length to the report, but clear, succinct and concise language and organization will be considered favourably in the grade.

Students will submit the final report as a word document through the submission link below.

The Case

You are a Senior Consultant for the professional service firm, BUSI 2083 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. It is your final week on the job and a Manager asks you for some help prior to your departure. Eager to leaving a lasting impression, you start reading the background information provided by the Manager.

Lesley Donovan is the controller for the East division of Explorer Ltd. Jason Conner, head of plant engineering, has just left Donovan’s office after presenting three alternatives for submission in the capital expenditure budget for the fiscal year 2014. The budget is due to the CEO in two days and therefore Donovan realizes that time is of the essence.

Conner has outlined the following alternatives to replace an outdated milling machine:

1. build a general purpose milling machine;
2. buy a special purpose numerically controlled milling machine; or
3. buy a general purpose milling machine.

Explorer Ltd. is a well-established company. The company was set up about 30 years ago by two brothers Dan and Kevin Thompson, in Huntsville, Ontario, to produce accessories for the automobile industry. The Central division continues to serve the auto industry, and is the largest division in the company with sales of $35 million annually. Dan’s son is now head of this division. Kevin is still active in the company and is the Chief Executive Officer (CEO). His office is located in Toronto.

The parts division supplies seals to the mining and petrochemical industry from a plant in Toronto. This division is only ten years old and until 2010 was highly profitable. As a result of the downturn in the sector of the economy, sales in 2012 were only $12 million.

The East division, located in Scarborough, is the engineering division. Full-time employees tend to work approximately 2,000 hours in the division. Regular product lines include industrial fans, industrial cooling units, and refrigeration units for industrial users. The division is highly capital-intensive and sales tend to be directly related to general economic conditions.

Each division runs independently and performance is based upon budgeted return on investment. Bonuses are paid if the budget target is achieved. Annually, each division prepares a detailed budget submission to Kevin, outlining expected profit performance and capital expenditure requests. The milling machine proposal is part of the capital expenditure request.

The 2013 pro forma income statement for East division is set out below:

Jason Connor has pointed out to Donovan that the existing machine is not only outdated but maintenance costs are becoming prohibitive. Jason also noted that maintenance costs of new general purpose machines are only $26,000 while special purpose machines can save an additional $14,000 in maintenance. Also there would be a significant savings in insurance as the price for a general purpose machine would drop to $3,000 while a special purpose machine would be 67% higher than the general purpose machine. The machine has no market or salvage value and he is sure that its book value is now zero. The trouble is that he doesn’t know which proposal is best for the company. In addition to the cost and revenue date provided, Connor provided comments on each alternative below:

1. Build a general purpose machine:
   • This machine can be built by East division. The division is below capacity at present as a major contract has just been completed. The division could thus produce the machine without affecting revenue-producing activity, but it will take six months to complete. The machine is expected to last five years and have no salvage value because removal costs will probably equal selling price.
   • Connor believes that the division has the technical expertise to undertake the work. In 2012, the division produced a specialized drilling machine that has proven very successful. Connor pointed out that David Williams, chief engineer, loves the design challenge of new machines. Donovan sat down with Connor and produced the following cost estimates:

   Material and parts	$55,000
   Direct labour (DL$)	$90,000
   Variable overhead (50% of DL$)	$45,000
   Fixed overhead (25% of DL$)	$22,500
   TOTAL	$212,500

   • Donovan argues that this job should also bear a proportion of administrative costs; she suggests $12,000.
2. Buy a special purpose machine:
   
   The advantage of this special purpose machine is that only one operator is required and output per hour could increase by 25%. In addition, maintenance costs are significantly reduced because microchip circuitry is employed.
   
   Connor points out that this machine is state-of-the-art and would probably mean that new work could be taken on. A numerically controlled machine required extensive training of operators. In total, 26 weeks are spent in the supplier’s factory located in Florida. While the training is going on, the supplier provides an operator to work the machine without charge. Expected costs of this training period including hotel, per diem, and travel will cost $3,000 per week, excluding the operator’s labour which is set at $15 per hour.
   
   The machine costs $625,000, and the supplier guarantees the salvage value of $25,000 at the end of five years. It is available immediately. It is estimated the machine can generate sales of $243,750 annually at full capacity and require $19,500 in direct materials cost. While the direct material costs are equivalent, the level of sales for the general purpose machine are $48,000 lower than the special purpose machine.
3. Buy a general purpose machine:
   
   The purchase price of this machine is $295,000 and cost levels associated with the machine are expected to be the same as the general purpose machine built by the company because the technology is similar. The salvage value of the machine net of removal costs, is estimated to be $5,000 in five years. It can be delivered immediately.

General comments

The required rate of return for this investment class has been set at 8% by Kevin Thompson.

Required

Prepare the budget submission to Kevin. .

dividually students will develop a formal response to the problem(s) posed in the case, addressing the following areas within the analysis, and using the same headings. (Numbers in brackets do not necessarily correspond to length but represent the weight that will be given to each section in the grading):

1. Issue Identification (5%): Identification of the problem/issue that must be resolved or decision that must be made. Phrase the problem/cause in the most succinct way possible. Think about:
   1. Differentiating the immediate from the basic problem
   2. The implications of the problem(s)
   3. Identifying the root cause of the problem(s)
   4. Determining the decision facing the key person(s)?
2. Identification of Key Success Factors (10%): Identify the company-specific factors in point form that are absolutely critical to the success of the organization. These are the factors that, if ignored, will mean the project will probably fail. Include the following considerations:
   1. What factors must be managed successfully for the company to prosper?
   2. Key success factors should reflect the top priorities of the organization in this particular case (eg., quality, productivity, low cost leader, etc.)
   3. These factors are part of the criteria against which you will evaluate solutions (along with basic criteria such as profit)
3. Identification of Alternatives (5%): Identify alternative solutions. Only deal with feasible alternatives. In the next three sections, analyse all alternatives against criteria set out in key success factors and basic requirements (eg., profitability).
4. Quantitative Analysis (40%): Push numbers in an analysis that is relevant to the issue at hand. Differentiate between what is relevant and what is irrelevant.
5. Qualitative Analysis (30%): Be sure to analyze qualitative issues – they need discussion in most cases. In particular, analyze alternatives in light of key success factors – will this alternative solve the problem and fit with our key success factors.
6. Recommendation on Course of Action (5%): State your recommendation. State briefly the justification for your recommended course of action. Make sure your recommendation flows out of your quantitative and qualitative analyses. Tie your recommendation back to the key success factors. The solution and implementation shout fit with problems and criteria identified above.
7. Circumvention of Potential Problems (5%): If there could be problems with your recommendations, state them. As well, suggest ways to overcome these problems – a contingency plan to address potential difficulties.

There is no set length to the report, but clear, succinct and concise language and organization will be considered favourably in the grade.

Students will submit the final report as a word document through the submission link below.

The Case

You are a Senior Consultant for the professional service firm, BUSI 2083 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. It is your final week on the job and a Manager asks you for some help prior to your departure. Eager to leaving a lasting impression, you start reading the background information provided by the Manager.

Lesley Donovan is the controller for the East division of Explorer Ltd. Jason Conner, head of plant engineering, has just left Donovan’s office after presenting three alternatives for submission in the capital expenditure budget for the fiscal year 2014. The budget is due to the CEO in two days and therefore Donovan realizes that time is of the essence.

Conner has outlined the following alternatives to replace an outdated milling machine:

1. build a general purpose milling machine;
2. buy a special purpose numerically controlled milling machine; or
3. buy a general purpose milling machine.

Explorer Ltd. is a well-established company. The company was set up about 30 years ago by two brothers Dan and Kevin Thompson, in Huntsville, Ontario, to produce accessories for the automobile industry. The Central division continues to serve the auto industry, and is the largest division in the company with sales of $35 million annually. Dan’s son is now head of this division. Kevin is still active in the company and is the Chief Executive Officer (CEO). His office is located in Toronto.

The parts division supplies seals to the mining and petrochemical industry from a plant in Toronto. This division is only ten years old and until 2010 was highly profitable. As a result of the downturn in the sector of the economy, sales in 2012 were only $12 million.

The East division, located in Scarborough, is the engineering division. Full-time employees tend to work approximately 2,000 hours in the division. Regular product lines include industrial fans, industrial cooling units, and refrigeration units for industrial users. The division is highly capital-intensive and sales tend to be directly related to general economic conditions.

Each division runs independently and performance is based upon budgeted return on investment. Bonuses are paid if the budget target is achieved. Annually, each division prepares a detailed budget submission to Kevin, outlining expected profit performance and capital expenditure requests. The milling machine proposal is part of the capital expenditure request.

The 2013 pro forma income statement for East division is set out below:

Jason Connor has pointed out to Donovan that the existing machine is not only outdated but maintenance costs are becoming prohibitive. Jason also noted that maintenance costs of new general purpose machines are only $26,000 while special purpose machines can save an additional $14,000 in maintenance. Also there would be a significant savings in insurance as the price for a general purpose machine would drop to $3,000 while a special purpose machine would be 67% higher than the general purpose machine. The machine has no market or salvage value and he is sure that its book value is now zero. The trouble is that he doesn’t know which proposal is best for the company. In addition to the cost and revenue date provided, Connor provided comments on each alternative below:

1. Build a general purpose machine:
   • This machine can be built by East division. The division is below capacity at present as a major contract has just been completed. The division could thus produce the machine without affecting revenue-producing activity, but it will take six months to complete. The machine is expected to last five years and have no salvage value because removal costs will probably equal selling price.
   • Connor believes that the division has the technical expertise to undertake the work. In 2012, the division produced a specialized drilling machine that has proven very successful. Connor pointed out that David Williams, chief engineer, loves the design challenge of new machines. Donovan sat down with Connor and produced the following cost estimates:

   Material and parts	$55,000
   Direct labour (DL$)	$90,000
   Variable overhead (50% of DL$)	$45,000
   Fixed overhead (25% of DL$)	$22,500
   TOTAL	$212,500

   • Donovan argues that this job should also bear a proportion of administrative costs; she suggests $12,000.
2. Buy a special purpose machine:
   
   The advantage of this special purpose machine is that only one operator is required and output per hour could increase by 25%. In addition, maintenance costs are significantly reduced because microchip circuitry is employed.
   
   Connor points out that this machine is state-of-the-art and would probably mean that new work could be taken on. A numerically controlled machine required extensive training of operators. In total, 26 weeks are spent in the supplier’s factory located in Florida. While the training is going on, the supplier provides an operator to work the machine without charge. Expected costs of this training period including hotel, per diem, and travel will cost $3,000 per week, excluding the operator’s labour which is set at $15 per hour.
   
   The machine costs $625,000, and the supplier guarantees the salvage value of $25,000 at the end of five years. It is available immediately. It is estimated the machine can generate sales of $243,750 annually at full capacity and require $19,500 in direct materials cost. While the direct material costs are equivalent, the level of sales for the general purpose machine are $48,000 lower than the special purpose machine.
3. Buy a general purpose machine:
   
   The purchase price of this machine is $295,000 and cost levels associated with the machine are expected to be the same as the general purpose machine built by the company because the technology is similar. The salvage value of the machine net of removal costs, is estimated to be $5,000 in five years. It can be delivered immediately.

General comments

The required rate of return for this investment class has been set at 8% by Kevin Thompson.

Required

Prepare the budget submission to Kevin. Show your answers.

dividually students will develop a formal response to the problem(s) posed in the case, addressing the following areas within the analysis, and using the same headings. (Numbers in brackets do not necessarily correspond to length but represent the weight that will be given to each section in the grading):

1. Issue Identification (5%): Identification of the problem/issue that must be resolved or decision that must be made. Phrase the problem/cause in the most succinct way possible. Think about:
   1. Differentiating the immediate from the basic problem
   2. The implications of the problem(s)
   3. Identifying the root cause of the problem(s)
   4. Determining the decision facing the key person(s)?
2. Identification of Key Success Factors (10%): Identify the company-specific factors in point form that are absolutely critical to the success of the organization. These are the factors that, if ignored, will mean the project will probably fail. Include the following considerations:
   1. What factors must be managed successfully for the company to prosper?
   2. Key success factors should reflect the top priorities of the organization in this particular case (eg., quality, productivity, low cost leader, etc.)
   3. These factors are part of the criteria against which you will evaluate solutions (along with basic criteria such as profit)
3. Identification of Alternatives (5%): Identify alternative solutions. Only deal with feasible alternatives. In the next three sections, analyse all alternatives against criteria set out in key success factors and basic requirements (eg., profitability).
4. Quantitative Analysis (40%): Push numbers in an analysis that is relevant to the issue at hand. Differentiate between what is relevant and what is irrelevant.
5. Qualitative Analysis (30%): Be sure to analyze qualitative issues – they need discussion in most cases. In particular, analyze alternatives in light of key success factors – will this alternative solve the problem and fit with our key success factors.
6. Recommendation on Course of Action (5%): State your recommendation. State briefly the justification for your recommended course of action. Make sure your recommendation flows out of your quantitative and qualitative analyses. Tie your recommendation back to the key success factors. The solution and implementation shout fit with problems and criteria identified above.
7. Circumvention of Potential Problems (5%): If there could be problems with your recommendations, state them. As well, suggest ways to overcome these problems – a contingency plan to address potential difficulties.

There is no set length to the report, but clear, succinct and concise language and organization will be considered favourably in the grade.

Students will submit the final report as a word document through the submission link below.

The Case

You are a Senior Consultant for the professional service firm, BUSI 2083 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. It is your final week on the job and a Manager asks you for some help prior to your departure. Eager to leaving a lasting impression, you start reading the background information provided by the Manager.

Lesley Donovan is the controller for the East division of Explorer Ltd. Jason Conner, head of plant engineering, has just left Donovan’s office after presenting three alternatives for submission in the capital expenditure budget for the fiscal year 2014. The budget is due to the CEO in two days and therefore Donovan realizes that time is of the essence.

Conner has outlined the following alternatives to replace an outdated milling machine:

1. build a general purpose milling machine;
2. buy a special purpose numerically controlled milling machine; or
3. buy a general purpose milling machine.

Explorer Ltd. is a well-established company. The company was set up about 30 years ago by two brothers Dan and Kevin Thompson, in Huntsville, Ontario, to produce accessories for the automobile industry. The Central division continues to serve the auto industry, and is the largest division in the company with sales of $35 million annually. Dan’s son is now head of this division. Kevin is still active in the company and is the Chief Executive Officer (CEO). His office is located in Toronto.

The parts division supplies seals to the mining and petrochemical industry from a plant in Toronto. This division is only ten years old and until 2010 was highly profitable. As a result of the downturn in the sector of the economy, sales in 2012 were only $12 million.

The East division, located in Scarborough, is the engineering division. Full-time employees tend to work approximately 2,000 hours in the division. Regular product lines include industrial fans, industrial cooling units, and refrigeration units for industrial users. The division is highly capital-intensive and sales tend to be directly related to general economic conditions.

Each division runs independently and performance is based upon budgeted return on investment. Bonuses are paid if the budget target is achieved. Annually, each division prepares a detailed budget submission to Kevin, outlining expected profit performance and capital expenditure requests. The milling machine proposal is part of the capital expenditure request.

The 2013 pro forma income statement for East division is set out below:

Jason Connor has pointed out to Donovan that the existing machine is not only outdated but maintenance costs are becoming prohibitive. Jason also noted that maintenance costs of new general purpose machines are only $26,000 while special purpose machines can save an additional $14,000 in maintenance. Also there would be a significant savings in insurance as the price for a general purpose machine would drop to $3,000 while a special purpose machine would be 67% higher than the general purpose machine. The machine has no market or salvage value and he is sure that its book value is now zero. The trouble is that he doesn’t know which proposal is best for the company. In addition to the cost and revenue date provided, Connor provided comments on each alternative below:

1. Build a general purpose machine:
   • This machine can be built by East division. The division is below capacity at present as a major contract has just been completed. The division could thus produce the machine without affecting revenue-producing activity, but it will take six months to complete. The machine is expected to last five years and have no salvage value because removal costs will probably equal selling price.
   • Connor believes that the division has the technical expertise to undertake the work. In 2012, the division produced a specialized drilling machine that has proven very successful. Connor pointed out that David Williams, chief engineer, loves the design challenge of new machines. Donovan sat down with Connor and produced the following cost estimates:

   Material and parts	$55,000
   Direct labour (DL$)	$90,000
   Variable overhead (50% of DL$)	$45,000
   Fixed overhead (25% of DL$)	$22,500
   TOTAL	$212,500

   • Donovan argues that this job should also bear a proportion of administrative costs; she suggests $12,000.
2. Buy a special purpose machine:
   
   The advantage of this special purpose machine is that only one operator is required and output per hour could increase by 25%. In addition, maintenance costs are significantly reduced because microchip circuitry is employed.
   
   Connor points out that this machine is state-of-the-art and would probably mean that new work could be taken on. A numerically controlled machine required extensive training of operators. In total, 26 weeks are spent in the supplier’s factory located in Florida. While the training is going on, the supplier provides an operator to work the machine without charge. Expected costs of this training period including hotel, per diem, and travel will cost $3,000 per week, excluding the operator’s labour which is set at $15 per hour.
   
   The machine costs $625,000, and the supplier guarantees the salvage value of $25,000 at the end of five years. It is available immediately. It is estimated the machine can generate sales of $243,750 annually at full capacity and require $19,500 in direct materials cost. While the direct material costs are equivalent, the level of sales for the general purpose machine are $48,000 lower than the special purpose machine.
3. Buy a general purpose machine:
   
   The purchase price of this machine is $295,000 and cost levels associated with the machine are expected to be the same as the general purpose machine built by the company because the technology is similar. The salvage value of the machine net of removal costs, is estimated to be $5,000 in five years. It can be delivered immediately.

General comments

The required rate of return for this investment class has been set at 8% by Kevin Thompson.

Required

Prepare the budget submission to Kevin. Show your answers.

1. Issue Identification (5%): Identification of the problem/issue that must be resolved or decision that must be made. Phrase the problem/cause in the most succinct way possible. Think about:
   1. Differentiating the immediate from the basic problem
   2. The implications of the problem(s)
   3. Identifying the root cause of the problem(s)
   4. Determining the decision facing the key person(s)?
      
2. Identification of Key Success Factors (10%): Identify the company-specific factors in point form that are absolutely critical to the success of the organization. These are the factors that, if ignored, will mean the project will probably fail. Include the following considerations:
   1. What factors must be managed successfully for the company to prosper?
   2. Key success factors should reflect the top priorities of the organization in this particular case (eg., quality, productivity, low cost leader, etc.)
   3. These factors are part of the criteria against which you will evaluate solutions (along with basic criteria such as profit)
      
3. Identification of Alternatives (5%): Identify alternative solutions. Only deal with feasible alternatives. In the next three sections, analyse all alternatives against criteria set out in key success factors and basic requirements (eg., profitability).
   
4. Quantitative Analysis (40%): Push numbers in an analysis that is relevant to the issue at hand. Differentiate between what is relevant and what is irrelevant.
   
5. Qualitative Analysis (30%): Be sure to analyze qualitative issues – they need discussion in most cases. In particular, analyze alternatives in light of key success factors – will this alternative solve the problem and fit with our key success factors.
   
6. Recommendation on Course of Action (5%): State your recommendation. State briefly the justification for your recommended course of action. Make sure your recommendation flows out of your quantitative and qualitative analyses. Tie your recommendation back to the key success factors. The solution and implementation shout fit with problems and criteria identified above.
   
7. Circumvention of Potential Problems (5%): If there could be problems with your recommendations, state them. As well, suggest ways to overcome these problems – a contingency plan to address potential difficulties.

The Case

You are a Senior Consultant for the professional service firm, BUSI 2083 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. It is your final week on the job and a Manager asks you for some help prior to your departure. Eager to leaving a lasting impression, you start reading the background information provided by the Manager.

Lesley Donovan is the controller for the East division of Explorer Ltd. Jason Conner, head of plant engineering, has just left Donovan’s office after presenting three alternatives for submission in the capital expenditure budget for the fiscal year 2014. The budget is due to the CEO in two days and therefore Donovan realizes that time is of the essence.

Conner has outlined the following alternatives to replace an outdated milling machine:

1. build a general purpose milling machine;
2. buy a special purpose numerically controlled milling machine; or
3. buy a general purpose milling machine.
   

Explorer Ltd. is a well-established company. The company was set up about 30 years ago by two brothers Dan and Kevin Thompson, in Huntsville, Ontario, to produce accessories for the automobile industry. The Central division continues to serve the auto industry, and is the largest division in the company with sales of $35 million annually. Dan’s son is now head of this division. Kevin is still active in the company and is the Chief Executive Officer (CEO). His office is located in Toronto.

The parts division supplies seals to the mining and petrochemical industry from a plant in Toronto. This division is only ten years old and until 2010 was highly profitable. As a result of the downturn in the sector of the economy, sales in 2012 were only $12 million.

The East division, located in Scarborough, is the engineering division. Full-time employees tend to work approximately 2,000 hours in the division. Regular product lines include industrial fans, industrial cooling units, and refrigeration units for industrial users. The division is highly capital-intensive and sales tend to be directly related to general economic conditions.

Each division runs independently and performance is based upon budgeted return on investment. Bonuses are paid if the budget target is achieved. Annually, each division prepares a detailed budget submission to Kevin, outlining expected profit performance and capital expenditure requests. The milling machine proposal is part of the capital expenditure request.

The 2013 pro forma income statement for East division is set out below:

Jason Connor has pointed out to Donovan that the existing machine is not only outdated but maintenance costs are becoming prohibitive. Jason also noted that maintenance costs of new general purpose machines are only $26,000 while special purpose machines can save an additional $14,000 in maintenance. Also there would be a significant savings in insurance as the price for a general purpose machine would drop to $3,000 while a special purpose machine would be 67% higher than the general purpose machine. The machine has no market or salvage value and he is sure that its book value is now zero. The trouble is that he doesn’t know which proposal is best for the company. In addition to the cost and revenue date provided, Connor provided comments on each alternative below:

1. Build a general purpose machine:
   • This machine can be built by East division. The division is below capacity at present as a major contract has just been completed. The division could thus produce the machine without affecting revenue-producing activity, but it will take six months to complete. The machine is expected to last five years and have no salvage value because removal costs will probably equal selling price.
   • Connor believes that the division has the technical expertise to undertake the work. In 2012, the division produced a specialized drilling machine that has proven very successful. Connor pointed out that David Williams, chief engineer, loves the design challenge of new machines. Donovan sat down with Connor and produced the following cost estimates:
     

   Material and parts	$55,000
   Direct labour (DL$)	$90,000
   Variable overhead (50% of DL$)	$45,000
   Fixed overhead (25% of DL$)	$22,500
   TOTAL	$212,500

   • Donovan argues that this job should also bear a proportion of administrative costs; she suggests $12,000.
     
2. Buy a special purpose machine:
   
   The advantage of this special purpose machine is that only one operator is required and output per hour could increase by 25%. In addition, maintenance costs are significantly reduced because microchip circuitry is employed.
   
   Connor points out that this machine is state-of-the-art and would probably mean that new work could be taken on. A numerically controlled machine required extensive training of operators. In total, 26 weeks are spent in the supplier’s factory located in Florida. While the training is going on, the supplier provides an operator to work the machine without charge. Expected costs of this training period including hotel, per diem, and travel will cost $3,000 per week, excluding the operator’s labour which is set at $15 per hour.
   
   The machine costs $625,000, and the supplier guarantees the salvage value of $25,000 at the end of five years. It is available immediately. It is estimated the machine can generate sales of $243,750 annually at full capacity and require $19,500 in direct materials cost. While the direct material costs are equivalent, the level of sales for the general purpose machine are $48,000 lower than the special purpose machine.
   
3. Buy a general purpose machine:
   
   The purchase price of this machine is $295,000 and cost levels associated with the machine are expected to be the same as the general purpose machine built by the company because the technology is similar. The salvage value of the machine net of removal costs, is estimated to be $5,000 in five years. It can be delivered immediately.
   

General comments

The required rate of return for this investment class has been set at 8% by Kevin Thompson.

Required

Prepare the budget submission to Kevin.

dividually students will develop a formal response to the problem(s) posed in the case, addressing the following areas within the analysis, and using the same headings. (Numbers in brackets do not necessarily correspond to length but represent the weight that will be given to each section in the grading):

1. Issue Identification (5%): Identification of the problem/issue that must be resolved or decision that must be made. Phrase the problem/cause in the most succinct way possible. Think about:
   1. Differentiating the immediate from the basic problem
   2. The implications of the problem(s)
   3. Identifying the root cause of the problem(s)
   4. Determining the decision facing the key person(s)?
2. Identification of Key Success Factors (10%): Identify the company-specific factors in point form that are absolutely critical to the success of the organization. These are the factors that, if ignored, will mean the project will probably fail. Include the following considerations:
   1. What factors must be managed successfully for the company to prosper?
   2. Key success factors should reflect the top priorities of the organization in this particular case (eg., quality, productivity, low cost leader, etc.)
   3. These factors are part of the criteria against which you will evaluate solutions (along with basic criteria such as profit)
3. Identification of Alternatives (5%): Identify alternative solutions. Only deal with feasible alternatives. In the next three sections, analyse all alternatives against criteria set out in key success factors and basic requirements (eg., profitability).
4. Quantitative Analysis (40%): Push numbers in an analysis that is relevant to the issue at hand. Differentiate between what is relevant and what is irrelevant.
5. Qualitative Analysis (30%): Be sure to analyze qualitative issues – they need discussion in most cases. In particular, analyze alternatives in light of key success factors – will this alternative solve the problem and fit with our key success factors.
6. Recommendation on Course of Action (5%): State your recommendation. State briefly the justification for your recommended course of action. Make sure your recommendation flows out of your quantitative and qualitative analyses. Tie your recommendation back to the key success factors. The solution and implementation shout fit with problems and criteria identified above.
7. Circumvention of Potential Problems (5%): If there could be problems with your recommendations, state them. As well, suggest ways to overcome these problems – a contingency plan to address potential difficulties.

There is no set length to the report, but clear, succinct and concise language and organization will be considered favourably in the grade.

Students will submit the final report as a word document through the submission link below.

The Case

You are a Senior Consultant for the professional service firm, BUSI 2083 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. It is your final week on the job and a Manager asks you for some help prior to your departure. Eager to leaving a lasting impression, you start reading the background information provided by the Manager.

Lesley Donovan is the controller for the East division of Explorer Ltd. Jason Conner, head of plant engineering, has just left Donovan’s office after presenting three alternatives for submission in the capital expenditure budget for the fiscal year 2014. The budget is due to the CEO in two days and therefore Donovan realizes that time is of the essence.

Conner has outlined the following alternatives to replace an outdated milling machine:

1. build a general purpose milling machine;
2. buy a special purpose numerically controlled milling machine; or
3. buy a general purpose milling machine.

Explorer Ltd. is a well-established company. The company was set up about 30 years ago by two brothers Dan and Kevin Thompson, in Huntsville, Ontario, to produce accessories for the automobile industry. The Central division continues to serve the auto industry, and is the largest division in the company with sales of $35 million annually. Dan’s son is now head of this division. Kevin is still active in the company and is the Chief Executive Officer (CEO). His office is located in Toronto.

The parts division supplies seals to the mining and petrochemical industry from a plant in Toronto. This division is only ten years old and until 2010 was highly profitable. As a result of the downturn in the sector of the economy, sales in 2012 were only $12 million.

The East division, located in Scarborough, is the engineering division. Full-time employees tend to work approximately 2,000 hours in the division. Regular product lines include industrial fans, industrial cooling units, and refrigeration units for industrial users. The division is highly capital-intensive and sales tend to be directly related to general economic conditions.

Each division runs independently and performance is based upon budgeted return on investment. Bonuses are paid if the budget target is achieved. Annually, each division prepares a detailed budget submission to Kevin, outlining expected profit performance and capital expenditure requests. The milling machine proposal is part of the capital expenditure request.

The 2013 pro forma income statement for East division is set out below:

Jason Connor has pointed out to Donovan that the existing machine is not only outdated but maintenance costs are becoming prohibitive. Jason also noted that maintenance costs of new general purpose machines are only $26,000 while special purpose machines can save an additional $14,000 in maintenance. Also there would be a significant savings in insurance as the price for a general purpose machine would drop to $3,000 while a special purpose machine would be 67% higher than the general purpose machine. The machine has no market or salvage value and he is sure that its book value is now zero. The trouble is that he doesn’t know which proposal is best for the company. In addition to the cost and revenue date provided, Connor provided comments on each alternative below:

1. Build a general purpose machine:
   • This machine can be built by East division. The division is below capacity at present as a major contract has just been completed. The division could thus produce the machine without affecting revenue-producing activity, but it will take six months to complete. The machine is expected to last five years and have no salvage value because removal costs will probably equal selling price.
   • Connor believes that the division has the technical expertise to undertake the work. In 2012, the division produced a specialized drilling machine that has proven very successful. Connor pointed out that David Williams, chief engineer, loves the design challenge of new machines. Donovan sat down with Connor and produced the following cost estimates:

   Material and parts	$55,000
   Direct labour (DL$)	$90,000
   Variable overhead (50% of DL$)	$45,000
   Fixed overhead (25% of DL$)	$22,500
   TOTAL	$212,500

   • Donovan argues that this job should also bear a proportion of administrative costs; she suggests $12,000.
2. Buy a special purpose machine:
   
   The advantage of this special purpose machine is that only one operator is required and output per hour could increase by 25%. In addition, maintenance costs are significantly reduced because microchip circuitry is employed.
   
   Connor points out that this machine is state-of-the-art and would probably mean that new work could be taken on. A numerically controlled machine required extensive training of operators. In total, 26 weeks are spent in the supplier’s factory located in Florida. While the training is going on, the supplier provides an operator to work the machine without charge. Expected costs of this training period including hotel, per diem, and travel will cost $3,000 per week, excluding the operator’s labour which is set at $15 per hour.
   
   The machine costs $625,000, and the supplier guarantees the salvage value of $25,000 at the end of five years. It is available immediately. It is estimated the machine can generate sales of $243,750 annually at full capacity and require $19,500 in direct materials cost. While the direct material costs are equivalent, the level of sales for the general purpose machine are $48,000 lower than the special purpose machine.
3. Buy a general purpose machine:
   
   The purchase price of this machine is $295,000 and cost levels associated with the machine are expected to be the same as the general purpose machine built by the company because the technology is similar. The salvage value of the machine net of removal costs, is estimated to be $5,000 in five years. It can be delivered immediately.

General comments

The required rate of return for this investment class has been set at 8% by Kevin Thompson.

Required

Prepare the budget submission to Kevin. .

Primatologists are interested in the topic of altruism in order to determine where the human behavior arises. Altruism is defined as actions that benefit another individual but at some potential risk or cost to oneself. The act of ‘doing a good deed’ for others in humans counts as altruism, because there is some level of sacrifice in effort or resources from the individual that helps the other. Scientists argue that there are ulterior motives on the part of primates that they study. The good deed will be returned at a later date. We can test the importance of altruism among humans with this small science project.

Goal: Assess the degree of altruism among humans. Does it is exist? Method: Groom someone or do something altruistic to help someone who you will see in the near future for several days. Then assess whether they feel compelled to return the favor. For example, you may actually groom someone by pretending to pick something off of their clothes or buying them coffee. Then put them in the same but opposite situation later on. You could leave something on your clothes to see if they pick it off. You can try other forms of social grooming such as complementing someone as well. Will they return the favor later on? Try to devise new and original ways to test this idea of altruism through grooming.

Write up: Does this act bring you closer? What does it say about the grooming among humans? Is this evidence that it was selected for as a behavioral trait? Also try to explain WHY it came about as a behavioral trait (or WHY it didn’t if the data comes out negative).

You as manager have just returned from vacation and your assistant relates this to you:

As you know our senior salesperson, Carla (C), retired last month. Carla’s hobby is fly-fishing. Tamar, our administrative assistant in HR, was in charge of the retirement gifts. Tamar selected a fishing rod, tackle and fishnet along with a week’s stay at a fishing lodge in LaFluer, Canada. As part of the package, Tamar went to a Julia's Gourmet Food Store (J) and asked the clerk for suggestions for a fishing enthusiast. The clerk suggested a box of smoked salmon (as a joke) which was packed by S LLC (S). Tamara liked the idea and checked with the clerk about the salt amount in the preserved fish. She knew that Carla had extremely high blood pressure. The clerk assured her that it would do no harm to such a person. Tamar bought the salmon. Two days after the retirement party and a one month before Carla was to go on the Canadian fishing trip, she tried the salmon. After an hour and eating one portion, she had a near stroke.   The emergency room doctor commented on the high salt level in Carla's blood. She was unable to go on the trip. The cost of the trip was $6,000 and non-refundable. Carla’s hospital and doctor bills totaled $8,800.

Carla had the salmon examined at the University of Massachusetts culinary lab and the results indicated that the salt amount was “in excess of industry standard” for that type of processed fish.

What legal actions exist and what theories support any legal actions in this scenario?

HINT-many warranties

Question 1

Mark is a commission based sales person. His primary work is away from the head office. Mark's employers signed a T2200 form certifying that no reimbursements are paid for any expenses Mark incurs to earn commissions. Mark incurs the following expenses, exclusively for business use: Meals and Entertainment 15,000 Fuel 5,000 Insurance 1,000 Repairs 1,500 Lease on Car 500/month What are Mark's deductible employment expenses? options:

1) 10,000

2) 15,250

3) 28,500

Question 2

Which one of the following would be considered employment income for Canadian income tax purposes?

1) A private health services plan premium paid by your employer.

2) An all-expense-paid trip to Europe provided to you by a supplier of your company for reaching a sales quota.

3) Amounts paid by your employer for counselling services in respect of mental and physical health.

4) Benefits paid by your employer to a deferred profit sharing plan that does not pay out until 2024.

Question 3

Bill is the CEO of ABC Ltd. Bill takes his wife, Mary, on a three-day convention. Mary represents ABC Ltd. at the convention, and hands out brochures and gives a talk on motivational speeches, but she is not an employee of Bill's company. Which of the following statements is true for 2018?

1) No employee benefits will be added to either Bill's or Mary's income since Mary was primarily engaged in business activities on behalf of Connection Ltd.

2) Fifty per cent of the trip's cost for Mary would be added to Bill's employment income because she is not an employee of the company.

3) The cost of the hotel for Bill's wife would be added to Bill's employment income because she is not an employee of the company; thus, a personal benefit was received.

4) The cost of the trip for Mary would be added to her personal tax return as employment income even though she is not a regular employee of the company.

Question 4

Sandy is given the choice to receive a pay raise, either as a salary increase of $7,200 or as a benefit of a company leased car that will cost her employer $600 per month to rent, including HST. Sandy has come to you for advice so that she can minimize her employment income and thereby minimize her taxes. Which of the following statements is true?

1) Sandy should accept the salary.

2) Sandy should be indifferent between the two choices.

3) Sandy should ask her employer to lease a cheaper car and then pay the difference between the monthly leasing costs as part of her salary.

4) Sandy should accept the leased automobile.

Question 5

Which of the following statements is true regarding employment income?

1) All allowances and reimbursements received are taxable.

2) Some allowances are taxable but no reimbursements received are taxable.

3) All allowances and some reimbursements are taxable.

4) Some allowances and some reimbursements are taxable.

**Government activities may be less “profitable” than they appear**

A city prepares its budget in traditional format, classifying expenditures by fund and object. In 2010, amid considerable controversy, the city authorized the sale of $20 million in bonds to finance construction of a new sports and special events arena. Critics charged that, contrary to the predictions of arena proponents, the arena could not be fiscally self‐sustaining. Five years later, the arena was completed and began to be used. After its first year of operations, its general managers submitted the following condensed statement of revenues and expenses (in millions):

At the city council meeting, when the report was submitted, the council member who had championed the center glowingly boasted that his prophecy was proving correct; the arena was “profitable.” Assume that the following information came to your attention:

• The arena is accounted for in a separate enterprise fund.

• The arena increased the number of overnight visitors to the city. City administrators and economists calculated that the additional visitors generated approximately $0.1 million in hotel occupancy tax revenues. These taxes are dedicated to promoting tourism in the city. In addition, they estimated that the ticket and concession sales, plus the economic activity generated by the arena, increased general sales tax revenues by $0.4 million.

• The city had to improve roads, highways, and utilities in the area surrounding the arena. These improvements, which cost $6 million, were financed with general obligation debt (not reported in the enterprise fund). Principal and interest on the debt, paid out of general funds, were $0.5 million. The cost of maintaining the facilities was approximately $0.1 million.

• On evenings when events were held in the arena, the city had to increase police protection in the arena’s neighborhood. Whereas the arena compensated the police department for police officers who served within the arena itself, those who patrolled outside were paid out of police department funds. The police department estimated its additional costs at $0.1 million.

• The city provided various administrative services (including legal, accounting, and personnel) to the arena at no charge at an estimated cost of $0.1 million.

• The city estimates the cost of additional sanitation, fire, and medical services due to events at the center to be approximately $0.2 million.

1. Would you agree with the council member that the arena was fiscally self‐sustaining?

2. In which funds would the additional revenues and expenditures be budgeted and accounted for?

3. Comment on the limitations of both the traditional object classification budget and fund accounting system in assessing the economic costs and benefits of a project—such as the sports and special events arena.

4. What changes in the city’s budgeting and accounting structure would overcome these limitations? What additional problems might these changes cause?