What are territorial collective goods, and what is their effect?

What is the Convention on Contracts for the International Sale of Goods?

a.Suppose there are two goods, that the prices are given, and that there is a consumer with a certain income. Show in a diagram it is possible to split the effect of price fall on good 1 into income- and substitution effects. Assume that the good is a normal good.

b.If the good had been an inferior good, what would have been different in the graph?

c.If the good had been a Giffen good, what would have beedifferent?

Internal Control : Performance Measures

Essex Engineering

Topic: Performance measures,

Essex is an industrial company with three divisions. Both the Midland Division and the North Division are long established. Senior managers are concerned that these divisions have a high percentage of products that are near the end of their product life-cycle. Forecast sales increases over the next 5 years is expected to be in the region of 4-5% per annum.

The East Division was acquired in 1999 and senior managers are optimistic that this division has very good growth potential. Most of the senior managers at this division have experience of working at the other divisions.

Since 1999 the head office has ranked all divisions according to return on investment (ROI) and residual income (RI). All managers believe that the rankings are important for future promotions and career development.

A small number of other performance measures are also used by managers. These include

These performance measures were agreed by all managers in 1999. At the time it was thought that managers should focus on only a small number of measures.

2002

The managers at the divisions provided the following information for the head office.

Selected data from the budgeted Management Accounts to 31 December 2002

Other measures

The head office has estimated that the group cost of capital is 10%

Ranking divisions in 2000

In 2000 the data on controllable and non-controllable costs and investments will be used to rank divisions.

Questions

Question 1

Based on the data provided comment on the relative financial performance of the two divisions and discuss how the ranking of the divisions changes if controllable and non-controllable costs and capital employed are analysed. (provide the calculation to prove your standpoint)

Question 2

Evaluate the choice of performance measures for the 3 divisions

Question 3

Identify and evaluate the difficulties faced by managers when measuring capital employed for a division.

Question 4

Discuss how using ROI can result in managers making poor investment decisions.

ROI has some built in biases that can lead managers to make poor decisions. First, ROI requires that all costs and benefits be stated in dollars. Because it is usually easier to quantify costs than benefits, ROI measurements can be biased in a way that gives undue weight to costs. Second, ROI focuses on benefits that can be predicted. It also tends to emphasize short run benefits over long run benefits. This biases ROI calculations to weigh short term costs and benefits more heavily than long term costs and benefits.

Question 5

Discuss the particular problems multinational companies have when evaluating the performance of divisions.   

The following budgeted income statement has been prepared for XY company for the months of January to April 2020

Jan Feb Mar April

Le000 Le000 Le000 Le000

Sales 60.0 50.0 70.0 60.0

Costs of production 50.0 55.0 32.5 50.0

(increase)/decrease in inventory (5.0) (17.5) 20.0 (5.0)

Cost of sales 45.0 37.5 52.5 45.0

Gross Profit 15.0 12.5 17.5 15.0

Administration and selling overhead (8.0) (7.5) (8.5) (8.0)

7.0 5.0 9.0 7.0

Additional information:

40% of the production cost relates to direct materials. Materials are bought in the month prior to the month in which they are used. Purchases are paid for one month after purchase.
30% of the production cost relates to direct labour which is paid for when it is used.
The remainder of the production cost is produced overhead.
Le 5,000 per month is a fixed cost which includes Le 30,000 depreciations. Fixed production overhead costs are paid for when incurred.
The remaining overhead is variable. The variable production overhead is paid 40% in the month of usage and the balance, one month later. Unpaid variable production overhead at the beginning of January is Le 90,000.
The administration and selling costs are paid quarterly in advance on 1st January, 1st April,1st July, and 1st October. The amount payable is Le 15,000 per quarter.
All sales are on credit. 20% of receivables are expected to be paid in the month of sale and 80% in the month following. Unpaid trade receivables at the beginning of January were Le 44,000.
The Company intends to purchase equipment costing Le 30,000 in February which will be payable in March.
The bank balance on 1st January 2020 is expected to be Le 5,000 overdrawn.
You are required to prepare the cash budget for the first quarter of 2020.   

Bradley Cooper operates a distributor business which he started in 2009. The business is doing well, so he is contemplating expansion for the upcoming year 2012, to meet the orders of a large customer recently received. He wants to make sure that he does not foul up with this order and has asked you to prepare his budget for the next year which should include the new customer's orders. This will help him to see if he will have sufficient cash or will need to negotiate an overdraft facility or a loan with his bankers, since he wants to maintain a cash balance of at least $15,000 at all times. He has supplied you with the following information:

1. His opening balance at January 1, 2012 is expected to be $14,000.

2. 80% of all sales are made for cash, and the other 20% collected in the following month.

3. Sales revenue are projected as: December 2011 $14,000; Jan 2012 $37,000; Feb 2012 $41,000, March 2012 $31,000.

4. Purchases are paid for the month following purchase. It is expected that $8,250 will be owing to suppliers at December 31, 2011.

5. John purchases are 55% of total monthly sales.

6. Salaries for two new staff members will be $4,800 per month as of January 1, 2012.

7. Rent is $3,600 per quarter payable January, April, July and October.

8. Electricity costs approximate to $1,650 per month.

9. Drawings for John's living expenses will be $2,750 per month.

10. John will deliver to the new customer so will purchase a used pick-up in January, 2012 from his father for $30,000. Petrol will cost $3,000 per month

Required:

a) Prepare Bradley's cash budget for the first quarter of 2012.

b) What advice would you offer to Bradley?

Amanda McNall, is the corporate controller of Scott Quarry. Scott Quarry operates 12 rock crushing plants in Scott County, Kentucky, that process huge chunks of limestone rock extracted from underground mines. Given the competitive landscape for pricing. Scott's managers pay close attention to costs. Each plant uses a process-costing system, and at the end of every quarter, each plant manager submits a production report and a production-cost report. The production report includes the manager's estimate of the percentage of completion of the ending work in process as to direct materials and conversion costs, as well as the level of processed limestone inventory. McNall uses these estimatesto compute the cost per equivalent unit of work done for each input for the quarter. Plants are ranked from 1 to 12, and the three plants with the lowest cost per equivalent unit for direct materials and conversion costs are each given a bonus and recognized in the company newsletter. McNall has been pleased with the success of her benchmarking program. However, she has recently received anonymous emails that two plant managers have been manipulating their monthly estimates of percentage of completion in an attempt to obtain the bonus. 1) Why and how might managers manipulate their monthly estimates of percentage of completion and level of inventory? 2) McNall's first reaction is to contact each plant controller and discuss the problem raised by the anonymous communications. Is that a good idea? 3) Assume that each plant controller's primary reporting responsibility is to the plant manager and that each plant controller receives the phone call from McNall mentioned in requirement 2. What is the ethical responsibility of each plant controller (a) to Amanda McNall and (b) to Scott Quarry in relation to the equivalent-unit and inventory information each plant provides? 4) How might McNall learn whether the data provided by particular plants are being manipulated?

Mid-South Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can offer competitive prices due to volume buying and requires an interest rate implicit in the lease that is one percent below alternate methods of financing. On September 30, 2018, the company leased a delivery truck to a local florist, Anything Grows. The lease agreement specified quarterly payments of $3,000 beginning September 30, 2018, the beginning of the lease, and each quarter (December 31, March 31, and June 30) through June 30, 2021 (three-year lease term). The florist had the option to purchase the truck on September 29, 2020, for $6,000 when it was expected to have a residual value of $10,000. The estimated useful life of the truck is four years. Mid-South Auto Leasing’s quarterly interest rate for determining payments was 3% (approximately 12% annually). Mid-South paid $25,000 for the truck. Both companies use straight-line depreciation or amortization. Anything Grows’ incremental interest rate is 12%.

1. Calculate the amount of selling profit that Mid-South would recognize in this sales-type lease. (Be careful to note that, although payments occur on the last calendar day of each quarter, since the first payment was at the beginning of the lease, payments represent an annuity due.)
2. Prepare the appropriate entries for Anything Grows and Mid-South on September 30, 2018.
3. Prepare an amortization schedule(s) describing the pattern of interest expense for Anything Grows and interest revenue for Mid-South Auto Leasing over the lease term.
4. Prepare the appropriate entries for Anything Grows and Mid-South Auto Leasing on December 31, 2018.
5. Prepare the appropriate entries for Anything Grows and Mid-South on September 29, 2020, assuming the purchase option was exercised on that date.