Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’s return on investment (ROI). Assume the following information relative to the two divisions:

*Before any purchase discount.

Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated.

Required:

1. Refer to case 1 shown above. Alpha Division can avoid $6 per unit in commissions on any sales to Beta Division.

a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?

b. What is the highest acceptable transfer price from the perspective of the Beta Division?

c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?

2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $3 per unit in shipping costs on any sales to Beta Division.

a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?

b. What is the highest acceptable transfer price from the perspective of the Beta Division?

c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be?

d. Assume Alpha Division offers to sell 68,000 units to Beta Division for $44 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole?

3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 5% price discount from the outside supplier.

a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?

b. What is the highest acceptable transfer price from the perspective of the Beta Division?

c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?

d. Assume Beta Division offers to purchase 20,000 units from Alpha Division at $53.90 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged?

4. Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 60,000 units of a different product from the one Alpha Division is producing now. The new product would require $27 per unit in variable costs and would require that Alpha Division cut back production of its present product by 30,000 units annually. What is the lowest acceptable transfer price from Alpha Division’s perspective?

Test the given claim about the means of two populations. Assume that two dependent samples have been randomly selected from normally distributed populations. A test of abstract reasoning is given to a random sample of students before and after they completed a formal logic course. The results are given below. At the 0.05 significance level, test the claim that the mean score is not affected by the course. Include your null and alternative hypotheses, the test statistic, P-value or critical value(s), conclusion about the null hypothesis, and conclusion about the claim in your answer.

Construct a scatter plot. Find the equation of the regression line. Predict the value of y for each of the x-values. Use this resource: Regression Give an example of two variables that have a positive linear correlation.

Give an example of two variables that have a negative linear correlation.

Give an example of two variables that have no correlation.

Height and Weight: The height (in inches) and weights (in pounds) of eleven football players are shown in this table.

Height, x 62 63 66 68 70 72 73 74 74 75 75 Weight, y 195 190 250 220 250 255 260 275 280 295 300

x = 65 inches x = 69 inches x = 71 inches

Starbuck's specialty coffees or teas and a breakfast sandwich per household week and indicate which unit sales and price point maximizes total revenue and contrast that with the different unit sales and price point that maximizes operating profit:

Scaves
Scaves is one of Scandinavia’s largest furniture manufacturers, and sells their
furniture designs all over Europe and beyond. The company was founded in 1934 in
north-western Norway. From their small base in Sykkylven set amidst deep fjords,
and mountains, the company has gone on to become an international success story.
From these humble origins, the firm has become an international success story, selling
furniture in 19 countries including USA and Japan. The company is famous for its
‘Stressless’ brand of leather recliners. This product range has become the cornerstone
of the company’s success. It sells their extensive furniture range under a number of
different brands such as ‘Stressless’ recliner chairs, the ‘Scaves’ sofa collection,
‘Sbane’ mattresses, and ‘Soko’ beanbags. Scaves uses a variety of different brands to
cater for different markets and consumer segments, but the Scaves name is always
associated with these sub-brands, and the company is always trying to enhance brand
association and awareness. It feels that by consumers seeing the Scaves brand name, it
acts as a sign of great product quality. Scaves has developed into a one of Norway’s
most well known international brands.
Jon Scaves, started the company with three employees, and initially pioneered the
selling of mattresses with springs loaded inside the mattress. This was developed into
the “Sbane” mattress brand. Over 70 years later, this brand continues to be sold.
Gradually the firm expanded their range to include other furniture. Now the firm
encompasses a range of sofas, recliners, ottomans, tables, chairs, mattresses, and other
furniture accessories. It achieved international success and prominence through its
landmark and distinctive recliner designs. Through its history it has experienced highs
and lows, nearly experiencing bankruptcy, and having to face large lay offs. This
evolution has seen the firm use a variety of sales structures, seeing different phases of
expansion and retrenchment. Now the firm is powering ahead, through developing its
international sales, and capitalising on the strength of its recliner range.
Table 1: Scaves at a glance
Headquarters are based in a beautiful mountainous region in Ikornnes, which is an
area called Sykkylven, Norway.
Its slogan - “The Innovators of Comfort”
Founded in 1934.
Has revenue of 2,292 million (NOK) or €282 million in 2005.
Profits of 303 million (NOK) or €37 million
Employs 1,545 staff.
Has a total of seven factories in Norway. The company has invested heavily in state
of the art machinery, including automated robots.
The firm now has the capacity to produce over 2,000 ‘Stressless’ seats a day.
Scaves products are available through a network of furniture dealers in over 19
countries including Germany, UK, France, Russia, Japan, Canada, USA, and Poland.
Over 82% of the firm’s products are destined for foreign markets
Its main vision is to become a leading brand name supplier of home furniture in
domestic and international markets. It believes in offering customers, a great quality
premium product at great value for money. In promoting the range, Scaves uses studio
2
merchandising, showcasing a variety of Scaves products in a typical real life setting.
Here samples of the product range are shown to full effect, where prospective buyers
are encouraged to take “the Scaves comfort test”. Scaves designs products with
a focus on comfort, design, and function. Any of the product range has to
entice customers, and make it distinctive from competing furniture ranges, especially
in competing against low cost suppliers. Scaves offers 10-year guarantees on its
internal mechanisms, which is a testament to its quality. The firm uses furniture
designers to come up with new designs that make the range modern and highly sought
after. Similarly, the firm works closely with textile suppliers to ensure their colours,
designs are fashionable for modern consumer tastes. This is particularly important
with the firm’s sofa ranges that can easily date.
The ‘Stressless’ brand is the company’s core brand. It was originally designed back in
1971. Its functional design, unique base support, adjustable headrest, 360 degree
rotation, free standing footstool and overall comfort offered to users proved a winning
combination. The company vigorously defends its unique design, winning copyright
infringement cases against would-be furniture copycats. These recliners are offered in
three sizes, small, medium, and large. One of the main selling points of the
‘Stressless’ recliner is that the chair is highly adjustable to provide maximum lumbar
support and comfort. It uses the strapline of the ‘ultimate recliner’ to support the
‘Stressless’. Furthermore the firm sells a range of ‘Stressless’ accessories to
compliment the recliner such as table attachments, and height adjusters. It offers the
recliners with four different categories of leather, with different finishes, and these
can then be chosen in a wide variety of colours. Scaves customers can choose from
over 50 different leather colours, and 7 different wood grain effects. The level of
customisation is a key selling point that entices would-be customers, and allows the
firm to charge premium prices. These recliners like most of the product range are
priced at the premium end of the market. A recliner can retail for anywhere between
£1,200 (€1,725) and £1,800 (€2,675).
The ‘Stressless’ recliners account for 79% of total sales, the mattress range 9%, the
sofa collection another 9%, while the remainder makes up other Scaves furniture
products. It hopes to break into new markets such as creating suitable furniture for the
home cinema phenomenon, selling a range of sofas and recliners suitable for home
cinema enthusiasts. The company has changed with the times offering a new feature,
called “safe” on certain models allowing the leather upholstery to be removed like a
duvet cover, so that it can be washed and cleaned. The company has also developed
corner and sofa units for its recliner series. These developments have strengthened the
company’s product portfolio, showcasing the ‘Stressless’ brand philosophy.
Its closest comparable competitors in the market are the American famous La-Z-Boy,
and Italian Natuzzi product range. Other recliners are not strongly branded, yet are
sold through well-known large retail chains such as DFS, Argos and Ikea. Some of
these large retail chains have tremendous buying power and market prominence,
selling their own label branded furniture. Many of Scaves competitors are small to
medium sized suppliers, mainly based in Asia. Their distinct advantage is cost. Far
East furniture suppliers have helped drive down furniture prices, and helped
democratise leather furniture. The company envisages that to remain successful, it
must consistently build the brand, invest in product development, and have a strong
distribution network. Through this commitment it can achieve higher margins that
3
make its future more sustainable.
To reduce costs Scaves tries to standardise components. It endeavours to garner
economies of scale through large volumes, especially when it competes with low cost
manufacturing sites such as in Far East Asia. Its production philosophy is focused on
continuous quality improvement initiatives, delivery precision, and the optimisation
of the company’s manufacturing resources. In an effort to get greater production
efficiencies, the firm is aiming to reduce the number of models it offers to customers,
whilst achieving higher volume sales on core Scaves products. The company has 32
different ‘Stressless’ recliner models, and 12 different ‘Stressless’ sofa models.
Table 2: The Objectives of Scaves
1. Have a return on total booked assets of min. 25%
2. Have a return on sales of min. 15%
3. Have an asset turnover of min. 1.7 times
4. Have an equity ratio of min. 40 – 50%
5. Have a gross margin in the Stressless business segment of min. 49%
6. Have a gross margin in the Svane business segment of min. 40%
7. Have a gross margin in the Scaves Collection business segment of min. 40%
8. Have an annual growth of 5 – 10%
The company sells its products through selected retail chains and independent
furniture dealers. The company sees further growth in new international markets such
as Italy, Portugal, some Eastern European countries, and Asia. The firm is an export
driven firm with over 82.1% of products exported abroad. The company uses a
network of company owned sales offices to establish a network of specially selected
distributors in foreign markets. Typically retailers include retail chains and
independent furniture dealers. The furniture range is sold exclusively through these
retail dealers, and is not available on the Internet. Scaves believes that customers want
to ‘touch and feel’ furniture before buying it. The tangible nature of furniture buying
is very important. Dealers have samples of different woods and finishes, which
customers can order. The selection of reputable dealers in international markets is
seen as crucial. Dealers are chosen based on suitable geographic distribution
coverage. Scaves view is that they have to form mutually beneficial partnerships with
its dealers that encourage dealer motivation to stock and support Scaves marketing.
Not all of the Scaves range is available internationally. Its truly international brand is
the ‘Stressless’ recliner, with 95% of all ‘Stressless’ recliners being sold in export
markets. Its ‘Sako’ beanbag furniture range specially designed for kids and the
‘Sbane’ mattress is extremely popular in Scandinavian markets, having a 70-year-old
brand heritage.
The company has a presence in over 19 countries. Scaves has even opened
a showroom in Las Vegas. Scaves has a variety of international websites designed to
promote the brand. The look and feel of these websites is generic, yet all the sites
have local content. No prices are published on their website or on dealer websites.
The company encourages dealers to use the Scaves brand on dealer Internet sites
also. The company focuses their marketing strategies on strong point of purchase
displays, and local advertising campaigns in conjunction with their dealer network.
4
Building up the distribution base for Scaves internationally is vital. A key activity in
securing greater distribution coverage is forming and cultivating relationships with
dealers. The company uses international furniture fairs to secure new dealers, and
showcase their product range to prospective dealers. The range and number of dealers
vary depending on the international market targeted. For example, to expand in Japan,
Scaves uses a network of 400 dealers, where it directly assumed ownership of the
sales channel, by taking over the activities of an importer who had previous
responsibility. In the USA, there are over 375 furniture dealers with 550 outlets that
stock Scaves. Sales growth for Scaves products is continuing to grow in all
international markets achieving between 5%-10%. However, challenges are on the
horizon including mounting cost pressures, exchange rate fluctuations, pressure on
retailer margins, enhanced competition, and copycat products.
Many international furniture dealers are motivated to stock Scaves due to the
strength of the Scaves brand name, the product range, its heritage, its popularity
within the market, and most importantly its margins! In addition to providing a
dealership contract, Scaves provides dealers with additional training programmes for
retail sales staff, branded marketing material, Internet marketing support, and studio
solutions showcasing the product range. Any marketing activity is designed to
promote Scaves brand identity, and to encourage footfall to their dealer network. Both
the strength of the product and its pricing are important. Scaves feels that an effective
supply chain can help encourage consumer purchase behaviour. Scaves tries to ensure
short lead times for products to be delivered, and that promised lead times are met.
Product is typically flat packed to their dealer network, whereby dealers look after
final assembly and delivery of the product to consumers. Scaves want to create a
reputation as a reputable supplier of furniture. The timely delivery of flawless
products is vital in achieving this reputation. Any complaints are handled as
expeditiously as possible.
Through their advertising the company tries to emphasise – “The Comfort Test”, and
uses the slogan “The Innovators of Comfort”. This is their core positioning strategy,
which has been tremendously successful. Will it continue to yield dividends into the
future?

Case Questions
1. What are the important aspects of the market environment of Scaves?
2. What are the main issues facing the company?
3. Based on available information and company commitments, what strategic direction
would you propose for the company?
4. What is their customer target?
5. What is their competitive advantage in the market?
6. What is their marketing approach?

Define lifetime customer value.

Explain the components used to calculate LCV.  

How may marketing managers use LCV in various strategies to grow marketing profits? Bullet points will be helpful.  

Your company, Lem Inc., is evaluating four different market segments. The company is going to select one segment as its primary segment for the next three years.   Using the excel program on lifetime value, what is the Total lifetime value of each of the following customer segments using a 5% discount rate. Show the value of each segment. If the company only has the resources to keep one segment, which segments should the company keep? Why? Include a table or graph showing a comparison of each segment. Your written explanation will be one page or less.  

Segment A has a 90% satisfaction rate, the sales force spends $200 each year calling on them, with an average margin of 50% on a sales of $1000. The marketing department has an integrated marketing communication strategy that costs $300 to attract new customers. There are 1000 of these clients in this segment.

Segment B has a 95% satisfaction rate, the sales force spends $400 each year calling on them, with an average margin of 40% on a sales of $1000. The marketing department has an integrated marketing communication strategy that costs $900 to attract new customers. There are 500 of these clients in this segment.

Segment C has a 65% satisfaction rate, the sales force spends $25 each year calling on them, with an average margin of 80% on a sales of $1000. The marketing department has an integrated marketing communication strategy that costs $30 to attract new customers. There are 3000 of these clients in this segment.

Segment D has a 80% satisfaction rate, the sales force spends $200 each year calling on them, with an average margin of 60% on a sales of $1000. The marketing department has an integrated marketing communication strategy that costs $300 to attract new customers. There are1500 of these clients in this segment.

Asset acquisition vs. stock acquisition (fair value is different from book value)
The following financial statement information is for an investor company and an investee company on January 1, 2019. On January 1, 2019, the investor company’s common stock had a traded market value of $35 per share, and the investee company’s common stock had a traded market value of $31 per share.

Required (Parts a. and b. are independent of each other.)
a. Assume that the investor company issued 11,400 new shares of the investor company’s common stock in exchange for all of the individually identifiable assets and liabilities of the investee company. The financial information presented, above, was prepared immediately before this transaction. Provide the Investor Company’s balances (i.e., on the investor’s books, before consolidation) for the following accounts immediately following the acquisition of the investee’s net assets:

b. Assume that the investor company issued 11,400 new shares of the investor company’s common stock in exchange for all of the investee company’s common stock. The financial information presented, above, was prepared immediately before this transaction. Provide the Investor Company’s balances (i.e., on the investor’s books, before consolidation) for the following accounts immediately following the acquisition of the investee’s net assets:

Suppose there is a linear association between crime rate and percentage of high school graduates.

a) State the full and reduced model

b)Obtain SSE(F), SSE(R), df(F), fd(R), test statistics F for the general linear test and decision rule.

crime rate, high school grad %

  8487    74
   8179    82
   8362    81
   8220    81
   6246    87
   9100    66
   6561    68
   5873    81
   7993    74
   7932    82
   6491    75
   6816    82
   9639    78
   4595    84
   5037    82
   4427    79
   6226    78
  10768    73
   8335    77
  12311    65
  10104    77
  10503    76
   7562    79
   8593    79
   7133    78
  10205    84
  14016    78
   5959    81
   3764    89
   4297    85
   7562    77
   4844    74
   5777    80
   3599    84
   3219    88
  11187    75
   2105    77
   6650    78
  11371    61
   4517    91
   7348    83
   5696    77
   4995    85
   9248    70
   6860    88
   9776    80
   4280    82
  11154    82
   3442    82
   9674    70
   7309    64
   4530    79
   4017    83
   7122    77
   5689    76
   6109    80
   3343    84
   5029    82
   4330    81
   5425    74
   8769    81
   6880    76
   6538    78
   6521    78
   9423    79
   9697    83
   3805    79
   3134    83
   3433    81
   2979    84
   6836    64
   5804    67
   7986    75
  10994    73
  11322    77
   8937    64
   8807    75
  11087    80
  10355    83
   7858    85
   3632    91
   8040    88
   6981    83
   7582    76

Sample annual salaries? (in thousands of? dollars) for employees at a company are listed. 50 50?? 47 47?? 59 59?? 54 54?? 28 28?? 28 28?? 50 50?? 47 47?? 59 59?? 27 27?? 54 54?? 50 50?? 45 45 ?(a) Find the sample mean and sample standard deviation. ?(b) Each employee in the sample is given a 5 5?% raise. Find the sample mean and sample standard deviation for the revised data set. ?(c) To calculate the monthly? salary, divide each original salary by 12. Find the sample mean and sample standard deviation for the revised data set. ?(d) What can you conclude from the results of? (a), (b), and? (c)? ?(a) The sample mean is x overbar x equals = nothing thousand dollars. ?(Round to one decimal place as? needed.)

Describe incremental revenue and expense.