Upon entering the executive conference room in early 2021, Amanda Spangler had to pinch herself to be sure that she was really in an executive meeting at headquarters. After completing an MBA degree, Spangler had landed her dream job as a lead manager at one of the premier brands in the American food industry, Bob’s Baloney (Bob’s).

Spangler’s first months on the job had been all that she had hoped. She had wrestled with important business decisions, experienced the genius of some favorite foody legends, witnessed the drama of marketing a true premium brand, and even hobnobbed with several celebrities. It had been truly amazing. But her biggest surprise was what was going on right then in the conference room. It was clear that things were not well at Bob’s.

The Company

Since its founding in Philadelphia in the 1920s, Bob’s had grown to dominate the world market for ultrapremium bologna. Bob’s market share of the high-end market was greater than 50%, and was particularly strong among high-end restaurants where it was the de facto bologna brand used by elite chefs. World- renowned French chef Bruno Saucisson had recently waxed poetic in his expressions of esteem for the Bob’s product.

The esteem Bob’s drew was not isolated to its customers. It also had a long history of community awards, including being a perennial winner in polls for best meat-processing employer. The company was also well known as a strong corporate advocate for animal rights, which still did not discourage suppliers from competing aggressively to do business with Bob’s. Its merchandise (e.g., t-shirts) was popular among young people because Bob’s was known as a company that cared deeply about its community.

Bob Klobase had launched the company in the mid-1920s after his family had immigrated to the United States from Slovenia. Klobase had a long family heritage in the bologna industry, so it was a natural business for him to build—but Klobase had outdone his family heritage. From the beginning, he had created bologna at the very highest level. Those in meat production circles often observed that to Klobase, “Holy Baloney” was not just an interjection but an abiding product aspiration.

The current management team continued to maintain the same commitment to quality. Company buyers were uncompromising in their demands from suppliers for quality source ingredients, including the spice blends and cures, the nonmeat fillers, and particularly the nuggets of free-range, humanely vivisected, organic beef. Inventory levels were managed carefully to ensure freshness while maintaining sufficient product to quickly meet customer needs. Despite the demanding nature of Bob’s premium customer clientele, it was very rare for the company to receive negative customer feedback. In fact, customer delight had seemingly been uncontained since the company’s 2018 investment in a completely redesigned production facility. The new facility housed a host of cutting-edge food production achievements that permeated the entire production process, including grinding, smoking, slicing, and packaging.

Finally, the Bob’s brand was supported by a creative marketing team. The team was highly regarded for its well-executed advertising campaigns. If anything, brand-building investments at Bob’s were on the rise.

The Meeting

Given that Bob’s was a poster child for corporate success, Spangler was astonished at the negative tone of the meeting. Bob’s CEO Prateek Gupta, sweat accumulating on his forehead, had gotten straight to the point. Diaz, the Argentine food conglomerate and owner of 30% of the equity shares in Bob’s, had recently made public its great displeasure with the current management team. Veronica Mino, the chair of Diaz, had openly decried Bob’s management:

[Sure, everyone says that the team at Bob’s has built a fantastic company, but for the love of chorizo, doesn’t financial performance matter anymore? Shouldn’t a powerhouse brand make money? If the team can’t generate a decent return, they’re as good as dead bologna.]

Bob’s Baloney Case Questions

1.       Why do you believe that the management team at Diaz is so displeased with management performance at Bob’s?

2. What should Spangler say to the committee?

ACC 2234 Hand-In Assignment 3 v3

QUESTION 1

Transfer Pricing Basics

Gerbig Company's Electrical Division produces a high-quality transformer. Sales and cost data on the transformer follow:

Selling price per unit on the outside market            $40

Variable costs per unit                                                 $21

Fixed costs per unit (based on capacity)                                $9

Capacity in units                                                      60,000

Gerbig Company has a Motor Division that would like to begin purchasing this transformer from the Electrical Division. The Motor Division is currently purchasing 10,000 transformers each year from another company at a cost of $38 per transformer.

Gerbig Company evaluates its division managers on the basis of divisional profits.

Required:

Assume that the Electrical Division is now selling only 50,000 transformers each year to outside customers.

From the standpoint of the Electrical Division, what is the lowest acceptable transfer price for transformers sold to the Motor Division?

From the standpoint of the Motor Division, what is the highest acceptable transfer price for transformers acquired from the Electrical Division?

If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 10,000 transformers from the Electrical Division to the Motor Division? Why or why not?

From the standpoint of the entire company, should a transfer take place? Why or why not?

Assume that the Electrical Division is now selling to outside customers all of the transformers it can produce.

From the standpoint of the Electrical Division, what is the lowest acceptable transfer price for transformers sold to the Motor Division?

From the standpoint of the Motor Division, what is the highest acceptable transfer price for transformers acquired from the Electrical Division?

If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 10,000 transformers from the Electrical Division to the Motor Division? Why or why not?

From the standpoint of the entire company, should a transfer take place? Why or why not?

QUESTION 2

Transfer Pricing from the Viewpoint of the Entire Company

Division A manufactures components for plasma TVs. The components can be sold either to Division B of the same company or to outside customers. Last year, the following activity was recorded in Division A:

Selling price per component........................$525

Variable cost per component ......................$390

Number of components:

Produced during the year ........................20,000

Sold to outside customers .......................16,000

Sold to Division B ......................................4,000

Sales to Division B were at the same price as sales to outside customers. The components purchased by Division B were used in a TV set manufactured by that division. Division B incurred $900 in additional variable cost per TV and then sold the TVs for $1,800 each.

Required:

1. Prepare income statements for last year for Division A, Division B, and the company as a whole.

2. Assume that Division A's manufacturing capacity is 20,000 components per year. Next year Division B wants to purchase 5,000 components from Division A, rather than only 4,000 components as it did last year. (Components of this type are not available from outside sources.) From the standpoint of the company as a whole, should Division A sell the 1,000 additional components to Division B, or should it continue to sell them to outside customers? Explain

QUESTION 3

Compute the Return on Investment (ROl)

Tamarind Services Company, a division of a major oil company, provides various services to operators of an oil field in northern Alberta. Data concerning the most recent year are as follow:

Sales ........................................$12,000,000

Operating income .......................$3,600,000

Average operating assets .........$24,000,000

Required:

1. Compute the margin for Tamarind Services Company.

2. Compute the turnover for Tamarind Services Company.

3. Compute the return on investment (ROI) for Tamarind Services Company.

QUESTION 4

Residual Income

British firm Midlands Design Ltd. specializes in providing design services to residential developers. Last year the company had operating income of £600,000 on sales of £2,400,000. The company's average operating assets for the year were £4,400,000 and its minimum required rate of return was 9%.

Required:

Compute the company's residual income for the year.

On January 1, 2020, Bronson Corporation had the following information available
regarding its stockholders' equity:

4%, $50 par, cumulative Preferred Stock, 300,000 shares authorized 9,000,000 $
Paid-in Capital in Excess of Par - Preferred Stock 1,440,000
Common Stock, $3 par, 1,000,000 shares authorized, 530,000 shares issued, ?
510,000 shares outstanding
Paid-in Capital in Excess of Par - Common Stock 4,770,000
Paid-in Capital from Treasury Stock Transactions 55,000
Treasury Stock (held at cost) 180,000
Retained Earnings 17,210,000

The following transactions affecting stockholders' equity took place during 2020:
2/4/2020 Issued 170,000 shares of common stock for $13/share.
3/17/2020 Issued 40,000 shares of preferred stock for $54/share.
4/24/2020 Declared a cash dividend to shareholders of record on May 15, 2020 payable on
May 31, 2020. The preferred shareholders are to receive their contractual preference
(no dividends are in arrears) and the common shareholders are to receive $0.30/share.
Use separate payable accounts for preferred and common dividends.
5/31/2020 Paid the cash dividend.
7/3/2020 Sold all of the treasury stock for $7/share.
8/15/2020 Declared a 3:1 stock split on the common stock. Authorized shares were adjusted
to accommodate the split.
9/10/2020 Declared a 10% stock dividend on the common stock for shareholders of record
September 30, 2020, to be issued on October 15, 2020. The market price of the
common stock on September 10, 2020 was $6/share.
10/15/2020 Issued the shares in conjunction with the stock dividend.
11/18/2020 Repurchased 30,000 shares of its own common stock for $5/share.
12/14/2020 Closed out any and all dividend accounts.
12/31/2020 Closed $500,000 of revenues and 265,000 of expenses for fiscal 2020.
Instructions

YOU MUST COMPLETE THE PROJECT BY COMPUTER AND IT MUST BE FORMATTED TO PRINT CORRECTLY!
1) Open T-accounts for the stockholders' equity accounts that contain balances on January 1, 2020 and
insert the appropriate balance labeling it 1/1/20.
2) Record formal journal entries for the 2020 transactions. Journal descriptions are not required.
3) Post the 2020 journal entries to the stockholders' equity T-accounts (or create new stockholders'
equity T-accounts if necessary) labeling each entry with the appropriate date.
4) Prepare the stockholders' equity section of the balance sheet at December 31, 2020.

Assume you have recently been hired as a new manager of EyeTech Company, an innovative company that sells specialized eye care treatment equipment to Ophthalmologists, Optometrists, clinics, and hospitals. Over the course of your first year, you will face 4 challenges as set forth below: 1. March 2. June 3. September 4. December. Respond to each and every challenge one at a time with insights you have gained from your study of the material presented in modules 1 through 5.

You must use at least 2 different resources (the textbook can be one of the resources) to support each of your responses.  

All of the resources you use for each response must be cited as specific references in accordance with APA formatting requirements . To assist your efforts, access the link to APA Formatting by clicking onto the Course Syllabus tab in the Course Menu, and then scroll down to APA Formatting.

Place your references used for each specific challenge at the end of your response to each specific challenge.  Do not include a separate reference page at the end of all of your work.

1.March

The company’s finance department has recently concluded some research regarding the elasticity of demand for the company’s primary products. The results show that the company’s primary products now face an elastic demand that is likely to continue for many months.  

1. Explain in detail the basic meaning of elastic demand, and then explain in detail the basic meaning of inelastic demand.

2a. Next, based on the information provided by the company’s finance department, set forth whether you will recommend to the company CEO either a price increase or price decrease of your primary products, and explain why. Note that one or the other must be chosen because the prices must either be increased or decreased. Keeping the current prices is Not an option.

2b. Also set forth what is likely to happen if the CEO ignores your advice and does the opposite of what you recommend, and explain why.

2. June

As manager, you have decided that it's time for some price discrimination to benefit EyeTech Company. There are typically three different "degrees" of price discrimination to choose from: First Degree, Second Degree, and Third Degree.

1. Explain in detail the basic meaning of First Degree Price Discrimination, Second Degree Price
Discrimination, and Third Degree Price Discrimination.

2. Assume that each degree (including the typically impractical first degree form) can be successfully
implemented by EyeTech Company. Select the degree of price discrimination you would recommend
for EyeTech Company that you believe will be the most successful in improving sales, and explain
why. (Note that you can only select one specific degree. Do not select more than one degree or a
combination of degrees.)  

3. September

Assume the year is 2025. The CEO and Board of Directors of EyeTech Company have decided to expand the company's operations into a foreign country, and they have narrowed it down to three countries to choose from: Freedonia, Verpaly, and New Bazoga. Data collected regarding the three countries for the past three years is as follows (note that bil = billions in US dollars):

Freedonia Verpaly   New Bazoga

Years   2022   2023   2024 2022   2023   2024 2022   2023   2024

GDP 20 bil 22 bil 23 bil 15 bil 18 bil 20 bil   17 bil 14 bil 16 bil

Unemployment 7% 7% 6% 9% 8% 9% 5% 5% 4%

Inflation 3% 4% 5% 2% 3% 2% 5% 6% 3%

____________________________________________________________________________________________________________

The company now calls on you as the business manager to analyze the data and provide recommendations to the board regarding the three countries. Be sure to take into account the changes from one year to the next in your analysis to avoid looking only at the data from 2024 and making your recommendations based on that year alone.

1. Based only on GDP, identify the country you would recommend be chosen by the board, and explain why.

2. Based only on Unemployment, identify the country you would recommend be chosen by the board, and explain why.

3. Based only on Inflation, identify the country you would recommend be chosen by the board, and explain why.

4. Lastly, based on all of the data, which country would you recommend be chosen by the board, and explain why.

4. December

The word has gotten out that EyeTech Company and other companies selling similar products are quite successful, so many groups of wealthy investors are in the process of putting together more companies to compete directly against EyeTech Company and others. Because of the additional competition, you are tasked with coming up with several strategies to help EyeTech Company maintain its competitive advantages.

1. With respect to pricing, you have three basic choices: lower the prices, raise the prices, or maintain current prices. Explain the pros and cons of each option in the face of the new competition.

2. How would you approach any of your customers that have been consistent buyers of EyeTech Company's products over many years, but they advise you that they like what the newcomers are offering, and they are also offering to sell their products at lower prices that EyeTech Company cannot match? What would you do to try to keep the customers loyal to EyeTech Company?

3. You soon discover that the new competition is offering equipment that is more advanced than EyeTech Company's equipment. Two options present themselves to you: A. Immediately invest in and offer the same quality of equipment to your buyers so you can compete more equally with the new competition, or B. Invest the same amount of money into researching even more advanced equipment to more than likely enjoy a competitive advantage over all of your competitors. However, this will take some two to three years to develop and offer on the market, plus the costs will be significant and could diminish your overall profits for many years. Also note that if you go with option A, the investment cost would be such that EyeTech Company will not be in a position to develop new equipment for at least 4 years.

Select the option you believe will work best for EyeTech Company, and explain why you believe that option is the best one. Then explain why you believe the option you selected is a better option than the option you did not select.

On January 1, 2014, Pert Company purchased 85% of the outstanding common stock of Sales Company for$350,000.On that date, Sales Company’s stockholders’ equity consisted of common stock, $100,000; other con-tributed capital, $40,000; and retained earnings, $140,000. Pert Company paid more than the book value of netassets acquired because the recorded cost of Sales Company’s land was significantly less than its fair value.During 2014 Sales Company earned $148,000 and declared and paid a $50,000 dividend. Pert Companyused the partial equity method to record its investment in Sales Company.

Prepare the workpaper eliminating entries for a workpaper on December 31, 201

1.    For each of the following pairs of goods, which good is expected to have the more price elastic demand?

[i]    Milk [all brands, grades] or President's Choice Cola [a generic brand of cola]

[ii]   Cell phone usage or matches

[iii] Restaurant meals or food [generally defined]

           [iv] Auto gas during the next 3 months or during the next 3 years

2.    In the United States in 1916, the Ford Motor Company sold 500,000 Model T fords at a price of $440. Henry Ford, the founder of the Ford Motor Company, believed he could increase sales of the Model T by 40,000 cars if he cut the price to $400.

[a] Use the provided information to calculate the anticipated price elasticity of demand [PED] for the Model T Ford.   

[b] Based on your calculation in [a], did Henry Ford believe demand for the Model T was elastic or inelastic?

[c]   Based on your calculation in [a], if Henry Ford wished to increase total revenue from Model T sales, should he have increased or decreased price?

3.     [a] A recent study found that the cross-price elasticity of demand for marijuana and beer is –

               0.63. In light of this result, are marijuana and beer complements or substitutes?

        [b] The income elasticities of demand for movies and clothing have been estimated to be +3.4

               and +0.5, respectively. What do the associated numerical values imply about the items?

4.    Which good do you expect would you expect to have a smaller price elasticity of supply in the short term – baby-sitting services or rental accommodation?

On January 1, 20X9, Timber Company acquired 25% of Johnson Company's common stock at underlying book value of $200,000. Johnson reported net income of $270,000 for 20X9 and paid total dividends of $140,000. Timber uses the equity method to account for this investment.

What amount would be reported by Timber Company as the balance in its investment account on December 31, 20X9?

A. $200,000

B. $220,500

C. $232,500

D. $255,500

*Please show your computations for the answer.

Lewis Company owns 75% of the voting common stock of Bosch, Inc. On January 1, 2015, Bosch sold $1,400,000 in ten-year bonds to the public at 105. The bonds pay a 10% interest rate every December 31. Lewis Company acquired 40% of these bonds on January 1, 2017, for 95% of the face value. Both companies utilizes the straight-line method of amortization.

What consolidation entry would be recorded in connection with these intra-entity bonds on December 31, 2017?

1. Classify this news event as Systematic or Unsystematic and indicate whether prices will increase or decrease.

US home construction drops 30.2% in April as virus rages.

2. Classify this news event as Systematic or Unsystematic and indicate whether prices will increase or decrease.

Home Depot's sales soared in the first quarter, despite an increase in costs due to the coronavirus.

3. Classify this news event as Systematic or Unsystematic and indicate whether prices will increase or decrease.

Walmart says it will discontinue Jet, which it acquired for $3B in 2016

4. A stock with a price of $10 per share must have a lower market capitalization than a stock with $100 per share.