A city maintains the following funds:

1. General

2.Special Revenue

3.Capital projects

4.Debt service

5.Enterprise

6.Internal service

7. Permanent (trust)

8. Agency

For each of the following transactions, indicate the fund in which each transaction would most likely be recorded:

a.The city collects $3million of taxes on behalf of the country in which it is located

b.It spends $4 million to pave city streets, using the proceeds of a city gasoline tax dedicated for road and highway improvements

c. It receives a contribution of $5 million. Per the stipulation of the donor, the money is to be invested in marketable securities, and the interest from the securities is to be used to maintain a city park.

d.It collects $800,000 in landing fees at the city airport

e.It earns $200,000 on investments set aside to make principal payments on the city's outstanding bonds. The bonds were issued to finance improvements to the city's tunnels and bridges.

f.It pays $4 million to a contractor for work on one of the bridges

g.It pays $80,000 in wages and salaries to police officers

h. It purchases from an outside supplier $40,000 of stationary that it will sell to its various operating departments

Njenge is a special purpose vehicle set up by the Football Association of Zambia (FAZ) and the National Sports Council of Zambia (NSCZ) to undertake a project to manufacture an innovative muscle toning device (Muleza) that will be used in the treatment of sporting injuries. It is expected that the commercial life of the Muleza will be four years after which technological advances will bring more sophisticated devices to the market and the sales will fall to virtually zero. K8, 000,000 has been spent in developing and testing the device over the past year. Initial market research has been conducted at a cost of K2, 500,000 and is due to be paid shortly. The market research indicates the following demand and selling price per unit: Year (from now) 2 3 4 5 Units demand 2,000 70,000 125,000 20,000 Selling Price K2, 000 K2,200 K1,600 K1,400 A factory will be built for the production of the Muleza for K30, 000,000 and will take a year to complete. Payment will be made in two instalments; the first instalment of K18, 000,000 is payable immediately and the remainder in a year’s time. The factory building is expected to be sold for K25, 000,000 when the production and sales cease. Machinery costing K16, 000,000 will be installed at the end of the first year. The machinery will be depreciated on a straight-line basis over the next four years and is expected to have a nil value at the end of the four years. At present the materials cost of making one Muleza unit is K700. Njenge has enough materials in stock to make 1,500 units, which it had purchased a year ago for K450 per Muleza unit. If the project does not go ahead then these materials will be sold for an equivalent of K120 per Muleza unit. Labour that will be used to make the Muleza is to be made redundant immediately at a cost of K2,000,000 if the project does not go ahead. Labour costs per unit are K250. It is expected that once the project is completed, the labour will be made redundant at a cost of K3, 500,000. Fixed production overheads relating specifically to the production of the Muleza are expected to be K13,000,000 per annum and variable production overheads are expected to be K150 per Muleza unit produced and sold. Administrative costs are expected to be K17, 000,000 per annum of which K5,500,000 is allocated from the head office and the remainder relates directly to the production of the Muleza. Working capital of K10,000,000 will be required at the beginning of the second year once the production and sales have commenced. This will be released when the production and sales cease. The relevant cost of capital for the project is 9%. Assume that all cash flows occur at the year- end unless stated otherwise. All workings should be in K’000s to the nearest K’000. Ignore tax and inflation. Required: (a) Calculate the net present value and internal rate of return of the project and recommend whether the Muleza should be produced. Provide a brief justification of the cash flows included and excluded in the calculations.

Njenge is a special purpose vehicle set up by the Football Association of Zambia (FAZ) and the National Sports Council of Zambia (NSCZ) to undertake a project to manufacture an innovative muscle toning

device (Muleza) that will be used in the treatment of sporting injuries. It is expected that the commercial life of the Muleza will be four years after which technological advances will bring more sophisticated devices to the market and the sales will fall to virtually zero. K8, 000,000 has been spent in developing and testing the device over the past year. Initial market research has been conducted at a cost of K2, 500,000 and is due to be paid shortly. The market research indicates the following demand and selling price per unit:

Year (from now)                        2                     3                      4                      5

Units demand                            2,000                70,000              125,000             20,000

Selling Price                              K2, 000             K2,200              K1,600              K1,400

A factory will be built for the production of the Muleza for K30, 000,000 and will take a year to complete. Payment will be made in two installments; the first installment of K18, 000,000 is payable immediately and the remainder in a year’s time. The factory building is expected to be sold for K25, 000,000 when the production and sales cease.

Machinery costing K16, 000,000 will be installed at the end of the first year. The machinery will be depreciated on a straight-line basis over the next four years and is expected to have a nil value at the end of the four years.

At present the materials cost of making one Muleza unit is K700. Njenge has enough materials in stock to make 1,500 units, which it had purchased a year ago for K450 per Muleza unit. If the project does not go ahead then these materials will be sold for an equivalent of K120 per Muleza unit.

Labour that will be used to make the Muleza is to be made redundant immediately at a cost of K2,000,000 if the project does not go ahead. Labour costs per unit are K250. It is expected that once the project is completed, the labour will be made redundant at a cost of K3, 500,000.

Fixed production overheads relating specifically to the production of the Muleza are expected to be K13,000,000 per annum and variable production overheads are expected to be K150 per Muleza unit produced and sold. Administrative costs are expected to be K17, 000,000 per annum of which K5,500,000 is allocated from the head office and the remainder relates directly to the production of the Muleza.

Working capital of K10,000,000 will be required at the beginning of the second year once the production and sales have commenced. This will be released when the production and sales cease.

The relevant cost of capital for the project is 9%.

Assume that all cash flows occur at the year- end unless stated otherwise. All workings should be in K’000s to the nearest K’000. Ignore tax and inflation.

Required:

(a) Calculate the net present value and internal rate of return of the project and recommend whether the Muleza should be produced. Provide a brief justification of the cash flows included and excluded in the calculations.                                                                   

Integrated Case of Hope Steel, Inc.

A Brief Profile of Hope STEEL works, inc.

Hope Steel Works, Inc. – also known to the local market as ‘Hope Steel’ - is one of the largest producers of concrete-reinforcement steel bars. It was established in December of 1964 by Mr. John Long, an industry pioneer whose work in the steel industry began in 1948, the company has built up a solid reputation for superior quality, good service, and fair prices.

Hope Steel supplies to a wide range of construction projects. Its bars are found in low-cost housing, private residences, luxury condominiums, commercial and industrial projects, high-rise buildings, schools, hospitals, bridges, highway over-passes and viaducts, dams and power stations, tunnels, airports, seaports, aqueducts, telecommunication sites, and other public infrastructure.

Certified under ISO-9001:2000, Hope Steel regularly sample, test and analyze its products to ensure that only superior quality reaches its customers.

Rebar Sizes   

The standard Rebar sizes that the Company manufactures and sells are as follows: 10mm, 12mm, 16mm, 20mm, 25mm, 28mm, 32mm, and 36mm. For special orders, it can also make 40mm and 50mm bars.

Case 1 Introduction

Over the past years, the demand for 25mm rebars have fluctuated with a seasonal pattern being observed.   Since rebars are manufactured on a “made to order” basis, the VP for Production wanted an accurate forecast for the second half of this year 2015, to enable them to plan and schedule the ordering and the storage of the raw materials needed for the production. Demand for the 25 mm rebars for last year (2014) were as follows:

Demand for the year 2014

Based on the data above, using simple linear regression with seasonality, compute the forecasts for the months of July, August, September, October, November and December of 2015.

Case 2 Introduction

In the production of rebars, carbon steel is melted down through a furnace, is molded and elongated into very hot rods, and are then pushed through the rolling mills which determines the sizes and lengths of the bars as appropriate.

The annual demand for Carbon steel is 40,000 pounds. Its ordering cost is $ 30.00 while it’s holding cost is 20% per unit per year of the price of Carbon Steel. Carbon steel are sold at discounted prices as follows:

Which quantity should be ordered and at what cost?

Annotate: Summarize for each paragraph - write down brief notes or highlight words that are important. As you read -what questions do you ask yourself? What words would you underline? What comments would you make?

Write down the candle's ignition steps?
1.A candle’s flame heats air near the wick

2. ..............................................................

3. ...............................................................

4. ...............................................................

5. ...............................................................

6. .................................................................

Physics of Scale: How Are Candle Flames, Lake Flow,
and Continental Drift Related?

by Professor Andrew Spakowitz

(1) Our everyday experiences offer us innumerable opportunities to observe how physical

forces lead to unexpected and intriguing phenomena. The foundational principles
that govern our physical world are developed to a point where we are able to establish
connections between seemingly disparate observations. Such connections serve to
strengthen our fundamental understanding of nature and provide a roadmap for
predicting the behavior in other areas where our basic understanding has not been
established. In this regard, there is value in stepping away from those problems that
have immediate or personal significance to consider the range of related problems that
may inform us of basic governing principles.

(2) While watching a candle flame, for example, you may be mesmerized by the natural

beauty of the glow and the dancing flicker of the flame. Upon closer inspection, you
may notice that the air within the flame forms a smooth jet near the wick, and farther
above the wick, the flow pattern breaks down into a chaotic, swirling pattern that
causes the flame to flicker. The air rises above the flame. You can move your hand next
to it without being burned, but placing your hand above would be painful. Tilting the

candle leads to the flame reorienting itself in the direction away from the floor.
(3) All of these observations point

to physical principles that are responsible for the behavior of the candle. The fact that the
flame always orients away from the floor and that the hot air rises above the flame suggests that gravity is a critical
contributor. You are probably familiar with the experience of pushing a ball below the surface

of pool water, leading to the ball pushing back against your hand. The air within the
ball has a lower density (or mass per volume of the ball) than the water in the pool.
Therefore, the gravitational force on the air is smaller than the force on the water,
Since the ball is displacing the water, there is a net physical force that drives the ball
upward to replace the volume of air with water. This same effect causes a hot-air
balloon to rise, but in this case, the higher temperature air within the balloon has a

lower density than the cooler air surrounding the balloon.

(4) A candle flame heats up the air near the wick, which reduces the density of that air

relative to the density of the surrounding air. In this regard, the candle flame is akin
to a hot-air balloon without the balloon. The hot air in the flame rises, and cooler air
above and to the sides of the flame circulates downward and back into the flame. This
spontaneous flow pattern results in the hot air that rises being replenished with cooler
air, and the candle continues to burn.

Wendy Keating, marketing manager of consumer products for Wire Solutions, is trying to set a price for her most promising new product: a space-saving shoe rack suitable for small homes or apartments.

Wire Solutions—located in Ft. Worth, Texas—is a custom producer of industrial wire products. The company has a lot of experience bending wire into many shapes and also can chrome- or gold-plate finished products. The company was started 16 years ago and has slowly built its sales volume to $3.6 million a year. Just one year ago, Keating was appointed marketing manager of the consumer products division. It is her responsibility to develop this division as a producer and marketer of the company’s own branded products—as distinguished from custom orders, which the industrial division produces for others.

Keating has been working on a number of different product ideas for almost a year now and has developed several designs for DVD holders, racks for soft-drink cans, plate holders, doll stands, collapsible book ends, laptop stands, and other such products. Her most promising product is a shoe rack for crowded homes and apartments. The wire rack attaches to the inside of a closet door and holds eight pairs of shoes.

The shoe rack is very similar to one the industrial division produced for a number of years for another company. That company sold the shoe rack and hundreds of other related items out of its “products for organizing and storing” mail-order catalog. Managers at Wire Solutions were surprised by the high sales volume the catalog company achieved with the rack. In fact, that is what interested Wire Solutions in the consumer market and led to the development of the separate consumer products division.

Keating has sold hundreds of the shoe racks to various local hardware, grocery and general merchandise stores, and wholesalers on a trial basis, but each time she has negotiated a price—and no firm policy has been set. Now she must determine what price to set on the shoe rack, which she plans to push aggressively wherever she can. Actually, she hasn’t decided on exactly which channels of distribution to use. But trials in the local area have been encouraging, and as noted earlier, the experience in the industrial division suggests that there is a large market for this type of product. Further, she has noticed that a Walmart store in her local area is selling a similar rack made of plastic. When she talked casually about her product with the store manager, he suggested that she contact the chain’s houseware buyers in the home office in Arkansas.

The manufacturing cost of her rack—when made in reasonable quantities—is approximately $2.80 if it is painted black and $3.60 if it is chromed. Similar products have been selling at retail in the $9.95 to $19.95 range. The sales and administrative overhead to be charged to the division will amount to $95,000 a year. This will include Keating’s salary and some travel and office expenses. She expects that a number of other products will be developed in the near future. But for the coming year, she hopes the shoe rack will account for about half the consumer products division’s sales volume.

Evaluate Wendy Keating’s strategy planning so far. What should she do now? What price should she set for the shoe rack?

1. If wire solution took a 30% markup on the black shoe rack and a 35% markup on the chrome shoe rack what would the selling prices be for each? Is it correct with $3.64 and $4.86. respectively.

2. In this scenario, Wal-Mart elected to purchase the shoe racks and they took a 40% markup on each shoe rack what would final customers (Wal-Mart consumers) pay for each shoe rack?

3. Since they are just starting the consumer division, Wire Solutions may decide to focus on just the chrome shoe rack because it appears to be a better quality product. Let’s assume a variable cost of $2.20 per chrome rack, and taking the current 35% markup to calculate selling price outlined in question #1, how many chrome shoe racks would they need to sell to break even?

4. If wire solution wanted the chrome shoe rack to sell for $9.99 in retail stores, what should they sell it to retailers for assuming the retailers will take 45% markup? Calculate wire Solution markup percentage based this selling price.

2. Cost-Volume-Profit (CVP) Relationships

Bilco Fabrication manufactures one product, a low-cost car battery. Cost analysis by the accounting department has determined that the variable cost per unit is $12. Bilco’s fixed costs amount to $792,480 annually. The company is projecting data based on a sales price of $20. Use the above data to answer the following:

* Calculate Bilco’s break-even point in number of units.

* Figure the level of sales that Bilco would have to achieve to reach a target income of $150,000. Indicate your answer in dollars of sales.

* What is Bilco’s Degree of operating leverage at 125,000 batteries? If sales were to increase by 8%, how much would Net Income increase by (b-% c-$)?

a. _______________               b. _________________        c. _________________

* Indicate the company’s margin of safety at a projected level of sales of 125,000 units sold, stated in (a) dollars of sales, and (b) as a percentage of sales and (c) units.

         a. _______________               b. _________________       c. _________________

how does cost benefit analysis differ from cost effectiveness analysis? why has cost effectiveness analysis become the method of choice in health economists around the world

s.

Can you and your team prepare the income statement table, the operating cash flow (OCF) table, and the total cash flow from assets (CFFA) table for this project?

3. Capstone, Inc. (Chapter 8)

Part 1 Capstone, Inc. mass-produces a special connector unit that it normally sells for $4.25. It sells approximately 45,000 of these units each year. The variable costs for each unit are $2.50. A company in Canada that has been unable to produce enough of a similar connector to meet customer demand would like to buy 25,000 of these units at $3.00 per unit. The production of these units is near full capacity at Capstone, Inc., so to accept the offer from the Canadian company would require temporarily adding another shift to its production line. To do this would increase variable manufacturing costs by $0.15 per unit. However, variable selling costs would be reduced by $0.25 a unit.

An irrigation company has asked for a special order of 3,000 of the connectors. To meet this special order, Capstone, Inc. would not need an additional shift, and the irrigation company is willing to pay $3.25 per unit.

Instructions (given the information in Part 1):

1. What are the consequences of Capstone, Inc. agreeing to provide the 25,000 units to the Canadian company? Would this be a wise “special order” to accept?
2. Should Capstone, Inc. accept the special order from the irrigation company?
3. What would be the consequences of accepting both special orders?

Part 2 Capstone, Inc. has discovered that a small fitting it now manufactures at a cost of $1.50 per unit could be bought elsewhere for $0.95 per unit. Capstone, Inc. has fixed costs of $0.25 per unit that cannot be eliminated by buying this unit. Capstone, Inc. needs 375,000 of these units each year.

If Capstone, Inc. decides to buy rather than produce the small fitting, it can devote the machinery and labor to making a timing unit it now buys from another company. Capstone, Inc. uses approximately 575 of these units each year. The cost of the unit is $13.00. To aid in the production of this unit, Capstone, Inc. would need to purchase a new machine at a cost of $2,500, and the cost of producing the units would be $9.90 a unit.

Instructions (given the information in Part 2)

1. Without considering the possibility of making the timing unit, evaluate whether Capstone, Inc. should buy or continue to make the small fitting.
2. (1) What is Capstone, Inc.’s opportunity cost if it chooses to buy the small fitting and start manufacturing the timing unit? (2) Would it be wise for Capstone, Inc. to buy the fitting and manufacture the timing unit? Explain.

Part 3 Capstone, Inc. is considering the replacement of an antiquated machine that has been slowing down production because of breakdowns and added maintenance. The operations manager estimates that this machine still has 2 more years of possible use. The machine produces an average of 45 units per day at a cost of $6.75 per unit, whereas other similar machines are producing twice that much. The units sell for $9.50. Sales are equal to production on these units, and production runs for 260 days each year. The replacement machine would cost $65,000, have a 2-year life and can produce 120 units per day.

Instructions (given the information in Part 3):

1. What are the consequences of Capstone, Inc. replacing the machine that is slowing down production because of breakdowns?