imagine that the Fed decides to take action to restore GDP to the original level from before the increase in saving by American families. What policy would the Fed undertake? Consider the impact of the increased saving behavior and the Fed’s response in a short-run framework with the United States as a closed economy. That is, consider the combined short-run impact of these two developments – increased saving by American families and the Fed response to the increased saving. What would be the combined impact on U.S. GDP, consumption, interest rates, and investment compared to the original equilibrium before either the increase in saving or the response of the Fed? Explain.

Exploring Innovation in Action Sewing up the competition – innovation in the textile and clothing industry Manufacturing doesn’t get much older than the textile and clothing industry. Since the earliest days when we lived in caves there’s been a steady demand for something to wrap around us to keep warm and to protect the more sensitive bits of our anatomy from the worst of the elements. What began with animal hides and furs gradually moved into a more sophisticated activity with fabrics woven from flax or wool – and with people increasingly specializing in the business. In its early days this was very much a cottage industry – quite literally people would spin wool gathered from sheep and weave simple cloths on home-made looms. But the skill base – and the technology – began to develop and many of the family names we still have today – Weaver, Dyer, Tailor, for example – remind us of the importance of this sector. And where there were sufficient cottages and groups of people with such skill we began to see concentrations of manufacturing – for example, the Flemish weavers or the lace makers in the English Midlands. As their reputation – and the quality of their goods – grew so the basis of trading internationally in textile and clothing was established. The small-scale nature of the industry changed dramatically during the Industrial Revolution. Massive growth in population meant that markets were becoming much bigger whilst at the same time significant developments in technology (and the science underpinning the technology) meant that making textiles and clothing became an increasingly industrialized process. Much of the early Industrial Revolution was around the cotton and wool industries in England and many of the great innovations and machinery – such as the Spinning Jenny – were essentially innovations to support a growing international industry. And the growth of the industry fueled scientific research and led to developments like the invention of synthetic dyes (which allowed a much broader range of color) and the development of bleaching agents. There’s a pattern in this in which certain manufacturing innovation trajectories play a key role. For example, the growing mechanization of operations, their linking together into systems of production and the increasing attempts to take human intervention out through automation. Of course this was easier to do in some cases than others – for example, one of the earliest forms of programmable control, long before the invention of the computer, was the Jacquard punched card system which could control the weaving of different threads across a loom. But actually, making material into various items of clothing is more difficult, simply because material doesn’t have a fixed and controllable shape – so this remained increasingly a labor-intensive process. By the twentieth century the industries had become huge and well-established, with growing international trade in raw materials such as cotton and in finished goods. The role of design became increasingly important as basic demand was satisfied and certain regions – for example, France and Italy – began to assume strong reputations for design. Branding became increasingly important in a world where mass communications began to make the telling of stories and the linking of images and other elements into advertising which fueled demand for clothing as much more than a basic necessity purchase. Mass production methods and the scientific management approaches underpinning them diffused rapidly – and in the case of clothing assembly which remained a labor-intensive process – led to the quest for lower wage cost locations. So began the migration of clothing manufacture around the world, visiting and settling in ever cheaper locations across the Far East, through much of Africa and Latin America to its present home in China. Today this is a global industry embracing design activities, cutting and processing operations, assembly, distribution and sales – all fueled by a huge demand for differentiation and personalization. This is an industry in which price is only one element – non-price factors such as variety, speed, brand and quality matter. And it’s an industry dominated by the need for high-frequency product innovation – fashion collections no longer run along the old seasonal track with winter and summer collections. In some cases, the range is changed every month and innovation in information and communications technology means that this cycle is getting shorter still. All of this has shaped an industry which is highly networked across global ‘value chains’ and coordinated by a few major players. Much of the ‘front’ end of the industry is about major brands and retail chains whilst the ‘backroom’ operations are often small-scale subcontractors often in low wage cost areas of the world. Like so many industries it has become somewhat footloose and wandered from its origins – leaving behind only a small reminder of its original dominance. Compared with countries like India and China, today’s European clothing industry is a small player on the global stage. There are some exceptions to this – and they underline the power of innovation and entrepreneurship. Just because the dominant trends lead in one direction does not mean that there isn’t scope for someone to spot and deploy ways of bucking this trend. One such player was a young clerk working in a small clothing retailing business in northern Spain. Frustrated with his career prospects Amancio Ortega Gaona decided to strike out on his own and in 1963 invested his savings – the princely sum of $25 – into a small manufacturing operation making pajamas and lingerie. In classic fashion he peddled (and pedaled – his earliest transport was a bicycle!) his wares around the region and built the business over the next ten years and then decided to move into retailing as well, opening his first shop in the north-western town of La Coruna in 1975. Things have moved on somewhat since then. Industria de Diseno Textil – Inditex – the holding company which he established – is now worth around $8 billion and has just opened its 2000th store in Hong Kong. Active in nearly 70 countries this textile and clothing business has eight key brand groups, each targeted at particular segments or product types – for example, ‘Pull and Bear’ for children, ‘Massimo Dutti’ for older men and women or ‘Oysho’ in lingerie. Best known of these is ‘Zara’ – a global brand with strong design and fashion identity running through both the clothes and the stores in which they are sold. Its clothes combine stylish designs with a strong link to current high-fashion themes with moderate prices. As Lotte Freddie, fashion editor of the Danish daily newspaper Berlingske Tidende, commented ‘If you want a classic, Italianate look in tune with current styles and at a reasonable price go to Zara’. Zara’s successful growth is not simply a matter of low cost or of standardization but rather of innovation. The company has become a leader by exploiting some of the key non-price trends in the industry – for example, variety and product innovation. For example, over 10,000 different clothing models are created and sold every year – this is most certainly not a case of ‘one size fits all’ or of long-lasting product types! Ortega has taken the entire system for creating clothes and built a business – and originally did so in an area which did not previously have any textile tradition. At an early stage in the development of the manufacturing business he moved back into textile finishing operations to make sure that the colors and quality of the material he used to make the clothes were up to scratch. Not only did this give better quality control but it also opened up the road to offering exciting and different fabric designs and textures. There are now 18 textile designing and finishing operations in the group as well as the clothing manufacturing. A major part of the company’s success comes from a strong commitment to design – they employ over 200 designers and make extensive play of this commitment. It’s a theme which doesn’t stop with the clothes themselves but also extends to the presentation of the stores, their window displays, their catalogues, Internet advertising and so on. Part of the headquarters building in Arteixo La Coruna, Spain, contains 25 full-size shop windows with display platforms and lighting which allow the team to see what real store windows would look like – not only under normal conditions but also on rainy days, at night and so on. Another key aspect of Zara’s success is the flexibility which comes from having a very different model for manufacturing. Around 2500 employees work directly in manufacturing operations – but behind them is a much larger workforce spread across villages and small communities in Spain and northern Portugal. Once the new design has been approved the fabric is cut and then distributed to this network of small workshops – and these represent an outsource capability delivering a high degree of flexibility. Pre-cut pieces and easy to follow instructions are given to workers in what is still largely an informal economy – and their output then flows back into the massive Zara distribution center like tributaries to a fast-flowing river. (This is not a small operation – the center has around 200 kilometers of moving rails on which the products flow. Highly automated and with extensive in-line quality checking the process transfers the incoming pieces into production lots which are then allocated to a fleet of trucks for fast shipment, mostly by air from the nearby airport at Santiago de Compostella.) Needless to say this places significant demands on a highly flexible and innovative co-ordination system which Zara have developed in-house. In this way they make use of a model which dates back hundreds of years (the idea of industrial districts and clusters) but use twenty-first century technologies to make it work to give them huge flexibility in both the volume and variety of the things they make. Where competitors such as H&M and Gap have to start planning and producing their new lines three to five months before goods finally make it to the stores, Zara manages the whole process in less than three weeks! Their flexibility is also based on rapid response and extensive use of information and communication technologies. At the end of the day as the customers leave their 950 stores around the world the sales staff use wireless handsets to communicate inventory levels to the store manager who then transmits this intelligence back to Spain as a feed into the design order and distribution system. This gives an up-to-the-minute idea of what is selling – and what isn’t – so the stores can be highly responsive to customer preferences – which colors ‘work’, which themes are popular, which designs aren’t hitting the spot. But it’s not just following the market – Zara can also push the game by making sure that no model is kept on sale for more than four weeks – no matter how well it is selling. This has a strong impact on their brand – they are seen as very original and design-led – but it puts even more pressure on their ability to be agile in design and manufacture.

Question: You have been hired as a consultant to a small clothing manufacturer who wants to emulate the success of Zara and Benetton. She wants advice on an innovation strategy which takes the key lessons from these successful firms. What would you offer?

SAT-Corp. is considering the purchase of a new piece of machinery that will cost them $1,700,000 today (in 2010). This piece of machinery will increase the company’s after-tax cash flows by $500,000 in 2011, $750,000 in 2012, $1,000,000 in 2013. If SAT-Corp.’s discount rate (WACC) is 10%, then the NPV of making this purchase is

During Phase 1, each individual will submit their own idea for an innovation along with a model they find useful for evaluating its merits. Each team member is responsible for completing research on various models. While there are several models in circulation for evaluating innovations, such as The Lean StartUp Plan, NOMMAR, SNIFF, and the linear and mental models of innovation, innovators should not feel constrained by any particular model. Feel free to borrow elements from multiple models to develop one that would work best to most effectively evaluate your own innovation.

I am doing lean start up .

Year/Number of Years Since 1971/Number of stores

• Identify the initial value and the growth rate of your exponential model and explain what they mean in the context of Starbucks Stores. Put your explanations in a text box.

• Use your exponential model to predict the number of Starbucks locations in the following years:

1980, 1990, 2000, 2010, 2020, 2030, 2040, 2050

You have worked for Wood Manufacturing for 15 years. For the last year, you have been assigned to lead the Customer Intelligence Innovation team (10 people from various departments in your organization). Unfortunately, the team has yet to come up with a customer “product,” and you are under a significant amount of pressure to develop a profitable item immediately. You have decided to take a “step back” and assess your innovation leadership. You think that developing a list of FIVE skills that YOU personally need to enhance in order to create a more productive team.

Identify those five skills. (Hint: these should be five skills related to innovation that YOU personally need to work on. )

1. Name the skill (competence, trait, knowledge gap).

2. Define the skill.

3. Explain how the skill can be applied and how improving the skill will impact the team in a positive way to increase effectiveness.

4. State how you will learn (or enhance) this skill. . Use headings: Skil1 #1: Innovation Brainstorming. Etc. Please note: These skills MUST be related to innovation. They CANNOT be “general business” goals (NOT: I want to do accounting better.). Strongly encourage peer review of the midterm traits.

2.   Calculate Mean Absolute Error ( MAD) for the data in question 1 for the three     methods used. Round MAD to two decimal places. ( 4 marks)

What does MAD measures? which of these three forecasting methods provides better forecast of the revenue data ? ( 2 mark)

Williams-Santana, Inc., is a manufacturer of high-tech industrial parts that was started in 2009 by two talented engineers with little business training. In 2021, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries were prepared. The income tax rate is 25% for all years.

1. A five-year casualty insurance policy was purchased at the beginning of 2019 for $39,500. The full amount was debited to insurance expense at the time.
2. Effective January 1, 2021, the company changed the salvage value used in calculating depreciation for its office building. The building cost $636,000 on December 29, 2010, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $100,000. Declining real estate values in the area indicate that the salvage value will be no more than $25,000.
3. On December 31, 2020, merchandise inventory was overstated by $29,500 due to a mistake in the physical inventory count using the periodic inventory system.
4. The company changed inventory cost methods to FIFO from LIFO at the end of 2021 for both financial statement and income tax purposes. The change will cause a $1,005,000 increase in the beginning inventory at January 1, 2022.
5. At the end of 2020, the company failed to accrue $17,300 of sales commissions earned by employees during 2020. The expense was recorded when the commissions were paid in early 2021.
6. At the beginning of 2019, the company purchased a machine at a cost of $810,000. Its useful life was estimated to be ten years with no salvage value. The machine has been depreciated by the double-declining balance method. Its book value on December 31, 2020, was $518,400. On January 1, 2021, the company changed to the straight-line method.
7. Warranty expense is determined each year as 1% of sales. Actual payment experience of recent years indicates that 0.75% is a better indication of the actual cost. Management effects the change in 2021. Credit sales for 2021 are $4,900,000; in 2020 they were $4,600,000.

Required:
For each situation:
1. Identify whether it represents an accounting change or an error. If an accounting change, identify the type of change. For accounting errors, choose "Not applicable".
2. Prepare any journal entry necessary as a direct result of the change or error correction, as well as any adjusting entry for 2021 related to the situation described. Any tax effects should be adjusted for through Income tax payable or Refund—income tax.

Williams-Santana, Inc., is a manufacturer of high-tech industrial parts that was started in 2009 by two talented engineers with little business training. In 2021, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries were prepared. The income tax rate is 25% for all years.

1. A five-year casualty insurance policy was purchased at the beginning of 2019 for $31,000. The full amount was debited to insurance expense at the time.
2. Effective January 1, 2021, the company changed the salvage value used in calculating depreciation for its office building. The building cost $568,000 on December 29, 2010, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $100,000. Declining real estate values in the area indicate that the salvage value will be no more than $25,000.
3. On December 31, 2020, merchandise inventory was overstated by $21,000 due to a mistake in the physical inventory count using the periodic inventory system.
4. The company changed inventory cost methods to FIFO from LIFO at the end of 2021 for both financial statement and income tax purposes. The change will cause a $920,000 increase in the beginning inventory at January 1, 2022.
5. At the end of 2020, the company failed to accrue $15,600 of sales commissions earned by employees during 2020. The expense was recorded when the commissions were paid in early 2021.
6. At the beginning of 2019, the company purchased a machine at a cost of $640,000. Its useful life was estimated to be ten years with no salvage value. The machine has been depreciated by the double-declining balance method. Its book value on December 31, 2020, was $409,600. On January 1, 2021, the company changed to the straight-line method.
7. Warranty expense is determined each year as 1% of sales. Actual payment experience of recent years indicates that 0.75% is a better indication of the actual cost. Management effects the change in 2021. Credit sales for 2021 are $3,200,000; in 2020 they were $2,900,000.

Required:
For each situation:
1. Identify whether it represents an accounting change or an error. If an accounting change, identify the type of change. For accounting errors, choose "Not applicable".
2. Prepare any journal entry necessary as a direct result of the change or error correction, as well as any adjusting entry for 2021 related to the situation described. Any tax effects should be adjusted for through Income tax payable or Refund—income tax.