Performance Motors has just launched a new model that is being produced at a rate of 10,000 vehicles per month (and is flying off the dealers’ lots as fast as they arrive). You are one month into customer sales (10,000 units sold and delivered) and already there are some reports of a specific failure that impacts safety. NHTSA has opened a preliminary investigation, and your engineers are participating in the analysis. It is expected that the results will be known in one month. At that time, the findings will be: a) that there is no defect (just some bad luck and statistical outliers), or b) that there is a quality defect, meaning that a batch of some component was not manufactured correctly, or c) that there is a design defect requiring a redesign and replacement of the part. If there is no defect, then there will be no further action and no additional costs incurred. If a quality lapse is pinpointed, several scenarios are possible, but the most likely case is that it would be confined to one of the four weekly batches of the component that went into the first month’s production (2,500 vehicles, all of which are now in customer hands). NHTSA would require that those vehicles be recalled immediately but at least it is known which vehicles received which parts. On the other hand, if a design defect is found, then all cars will be recalled, and no more cars would be sold until they are fixed with an approved solution. As a precautionary measure, a crash redesign of the component could be started immediately and would take one month and cost $3M. Because the key design features are embedded in firmware, replacement parts could be available immediately upon completion of the redesign. Your engineers estimate that the likelihoods of the possible findings are: 20% that there is no defect, 40% that one batch will be affected, and 40% that all parts must be recalled and replaced with a new design.

You have two key decisions to make right now; one is whether to keep selling vehicles or not, and the other is whether to start a redesign right away. Stopping sales is not expected to affect demand in the long run, but it does delay cash flow, complicates logistics and is not good for customer satisfaction; a stoppage is estimated to cost $1M/month. Production would not stop – it is much cheaper to repair already-built units than to stop and re-start the line. The product redesign might ultimately prove to be unnecessary, but it would ensure that replacement parts would be available if NHTSA ordered a full recall. If a full recall were ordered, and the redesign had not been done, it would have to be started at that time, at the same cost. Sales would have to stop for a month because of the recall, at the same cost/month as above.

Recalling a vehicle from the field to have it repaired at a dealer costs $5,000, if repair parts are available   If parts are not available, there would be a 1-month wait and the owners would be provided a loaner for the month so the cost would be $7,000 per vehicle. Repairing a vehicle that is still at the factory costs $500. Currently there are 10,000 vehicles in customers’ hands, and in the coming month there will be 10,000 more vehicles coming off the production line at the factory. If you do not stop sales, in one month there will be 20,000 vehicles in customers’ hands, whereas if you do stop sales, there will be the same 10,000 with customers, and 10,000 parked at the factory. If there is an additional month delay at that point (a recall is ordered, but no parts are available) then there would be an additional 10,000 vehicles parked at the factory that would also need to be repaired.

What are you going to do?

1 A baseline design is the same as the final design?

(A) True (B) Cost False

2 For the example of the firewater design we talked about in the lectures, if we said the water pump pressure must be greater than 60 psi when tested monthly, we would be establishing a:

(A) FEL requirement (B) TPM

(C) cost

(D) None of the above

3 If we are talking about step 2.1.3 in a system, we are talking about a step that is two levels down:

1.       True
2.       False   

4 Specifications that are set too tight are referred as “overdesigning” and risk driving costs too high:

1.       True
2.       False  

5 Sub-systems within an architecture should be designed so that if one component fails, it impacts all the other components and the system as a whole:

1.       True
2.       False

    6 When a system fails it is likely because a single person made a mistake:

1.       True
2.       False

    7 BP’s Deepwater disaster had multiple causes for the failure?

1.       True
2.       False

    8 If you were leading a meeting that was to Define the Problem, circle all the topics that you would put on the agenda (there are two solutions):

1. Identification of the “need”
2. Discussion of who the contractors will be
3. Discussion of who the customer is and what they want
4. Functional analysis
5. A discussion of a proposed detailed design solution

     9 It is never appropriate to go back and re-visit the problem definition when you are in the functional analysis step of a system design?

1.       True
2.       False

10 How many barriers were stated to be breached and that led to the Deepwater disaster?

1. One
2. Four
3. Five
4. None
5. Eight

11 As we work a project through the systems engineering process, which of the following are things we would be doing? (There is more than one answer!)

1. Ensuring traceability of technical performance measures
2. Ensuring the process is followed closely and without skipping steps
3. Emphasizing picking the final design as quickly as possible
4. Allowing for re-consideration of issues raised earlier in the process such as in the problem definition step
5. Ensuring documentation for each step is being done
6. Ensuring there is total cost visibility of each option being considered in tradeoff studies

12 One key reason for allowing feedback to the original “problem definition” is that it could lead the process to an entirely different solution?

1.       True
2.       False

13 Circle all the reasons why it is important to consider the entire life cycle of a system’s design (there is more than one answer):

1. To ensure all the costs for various alternatives are known
2. To ensure you’ve designed for “disposability”
3. 14 psi
4. 15 psi

14 In the system engineering process, the step immediately after defining the problem is:

1. Do a functional analysis
2. Identify and prioritize TPM’s
3. Do a feasibility analysis
4. Explore the maintenance and support concept
5. None of the above

15 The systems engineering design process can be thought of as a:

1. A “best practice” built from past engineering design experiences including their faults and failures:
2. One of a number of different work processes that all give the same result
3. A way of maximizing the cost of doing a project
4. A way of minimizing the cost of doing a project

Brunswick Parts is a small manufacturing firm located in eastern Canada. The company, founded in 1947, produces metal parts for many of the larger manufacturing firms located in both Canada and the United States. It prides itself on high quality and customer service, and many of its customers have been buying at least some of their parts from Brunswick since the 1950s.

Production of the parts takes place in one of two plants. The older plant, located in Fredericton, was purchased when the company was founded, and the last major improvements to the plant took place in the 1970s. A newer plant, located in Moncton, was built in 1995 to take advantage of the expanding markets. The same part can be produced in either plant, and the final scheduling decision is based on capacity, transportation costs, and production costs.

At a weekly production meeting, Sara Hunter, the manufacturing manager expresses her frustration at trying to schedule production.

Something isn’t right. We build a new plant to take advantage of new manufacturing technology and we struggle to keep it filled. We didn’t have this problem a few years ago when we couldn’t keep up with demand, but with the current economy, marketing keeps sending orders to the old plant in Fredericton. I know manufacturing, but I guess I must not understand accounting.

The latest order that generated discussion among plant management was placed by Lawrence Machine Tool Company, a long-time customer. The order called for 1,000 units of a special rod (P28) used in one of its many products. The order was received by the marketing department. Following the established procedure at Brunswick, the marketing manager checked the product costs for both plants. Because quality and transportation costs would be the same from either plant, a decision was made to produce and ship from the Fredericton plant.

The cost system at Brunswick is a traditional manufacturing cost system. Plant overhead (including plant depreciation) is allocated to products based on estimated production for the period. Separate overhead rates are computed for each plant. Corporate administration costs are allocated to the plants based on the estimated production in the plant for purposes of executive performance measurement. Production is measured by direct labor-hours. Cost and production information for P28 follows.

Corporate and plant overhead budgets are as follows:

Required:

a. What would be the reported product cost of P28 per unit for the two plants?

b. At what plant should the P28 units for the Lawrence order be produced?

• Moncton

• Fredericton

EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange Commission (SEC). All publicly traded domestic companies use EDGAR to make the majority of their filings. (Some foreign companies file voluntarily.) Form 10-K, which includes the annual report, is required to be filed on EDGAR. The SEC makes this information available on the Internet.

Required:
1. Access EDGAR on the Internet. The web address is www.sec.gov. Search for the most recent 10-K’s of Expedia, Inc., and Booking Holdings Inc. (which includes Priceline). Search or scroll to find the revenue recognition note in the financial statements.

2. For each of the following types of revenue, indicate whether the amount shown in the income statement is “net” or “gross” (the terms used with respect to revenue recognition in the chapter), and briefly explain your answer.

1. Expedia’s “merchant hotel model” revenues

2. Priceline’s “‘Name Your Own Price’ services”

3. Priceline’s “Merchant Retail Services”

3. Consider your responses to 3a through 3c. Does it look like there is the potential for noncomparability when readers consider Expedia and Priceline? Indicate “yes” or “no,” and briefly explain your answer.

Marvel Cleaning Service, Inc. is a firm that specializes in cleaning business offices, and Marvel enjoys a monopoly position because it is the only firm allowed to provide cleaning service at the TechCenter industrial office park - the monopoly is believed to enhance security. There are 25 equal-sized offices in TechCenter, each one leased to a different company. TechCenter is closed 45 days a year (Sundays plus official federal holidays), which limits the demand for Marvel's cleaning services to a maximum of 320 cleanings per year for each one of the 25 companies leasing offices. Marvel believes it faces an identical demand by each one of the 25 businesses in TechCenter. This demand function is given as P = 80 -0.25Q. Marvel's costs are constant and equal to $30 per office cleaning. The owner of Marvel Cleaning Service is considering uniform pricing

4.1. If Marvel practices uniform pricing, it will charge ________ for an office cleaning and will face a quantity demanded from each of the 25 identical firms of __________ cleanings per year.

4.2. At TechCenter, Marvel's total profit per year is __________ (i.e., the sum of the profits from the 25 businesses in TechCenter). Each one of the businesses enjoys ____________ of consumer surplus under uniform pricing.

4.3. If Marvel Cleaning is able to practice perfect price discrimination, what is the firm’ total profit?

a) The City of Chicago sold bonds in the amount of $5,000,000 to finance the construction of a sports center. The bonds are serial bonds and were sold at par on July1, 2002 the first day of a fiscal year. Shortly thereafter a construction contract in the amount of $4,500,000 was assigned and the contractor commenced work. By year-end, the contractor had been paid in full for all billings to date amounting to $2,000,000. Required: Prepare in general journal form all entries that should have been made during the fiscal year ended June 30, 2003 to record the above information in the capital projects fund(including closing entries) b) Compute the legal debt margin for the City of Huston given the following information regarding its bonded debt 1) The legal debt limit is 10 percent of total assessed valuation 2) Bonds outstanding and bonds authorized are: Face Amounts Description Authorized Outstanding General obligation street construction 12,000,000 12,000,000 Special assessment sidewalk construction 2,000,000 2,000,000 General obligation park acquisition 2,000,000 0 Water Utility Fund revenue 5,000,000 5,000,000 Industrial development revenue 6,000,000 6,000,000 Note: The City has no liability for the revenue bonds or the industrial development bonds. 3) Total assessed valuation of property within the City of Huston is $200,000,000.

Capital Budgeting Activity Scenario: Your client owns a successful restaurant in downtown Chicago (at least pre-Covid-19!). She wants to open a second restaurant in the suburbs and has asked you to help her choose between two locations.

Key information is listed below. Using the four capital budgeting methods that we know, prepare a presentation that shows your recommendation to your client (and why).

Initial Investment: 2,500,000 and use 9% discount rate

Annual non-cash (all depreciation) expenses: Use straight line depreciation to find!

For both, assume no residual value and: 9% discount rate

REQUIREMENTS: Figure out which location your client should open their location at and explain how you got to each step. Additional MUST HAVES, include clearly identified calculations of the four capital budgeting methodologies (showing your work, not the work of Google or Excel programmers!) we have used in this module, and sufficient information on what these metrics mean, particularly as it relates to your preference decision.

1. Emily, Car, Stock Market, Sweepstakes, Vacation and Bayes.

Emily is taking Bayesian Analysis course. She believes she will get an A with probability 0.6, a B with probability 0.3, and a C or less with probability 0.1. At the end of semester, she will get a car as a present form her uncle depending on her class performance. For getting an A in the course Emily will get a car with probability 0.8, for B with probability 0.5, and for anything less than B, she will get a car with probability of 0.2. These are the probabilities if the market is bullish. If the market is bearish, the uncle is less likely to make expensive presents, and the above probabilities are 0.5, 0.3, and 0.1, respectively. The probabilities of bullish and bearish market are equal, 0.5 each. If Emily gets a car, she would travel to Redington Shores with probability 0.7, or stay on campus with probability 0.3. If she does not get a car, these two probabilities are 0.2 and 0.8, respectively. Independently, Emily may be a lucky winner of a sweepstake lottery for a free air ticket and vacation in hotel Sol at Redington Shores. The chance to win the sweepstake is 0.001, but if Emily wins, she will go to vacation with probability of 0.99, irrespective of what happened with the car.

After the semester was over you learned that Emily is at Redington Shores.

(a) What is the probability that she won the sweepstakes?