FCA Company“ produces and sells three products (A), (B) and (C).The following data and information are now accessible for the last year ended December 31, 2015:

To plan for the next year, some alternative views are expressed as under:

The first view : Although product ( C ) showed last year   a net loss, it is recommended not to delete product ( C ) but to continue producing and selling the same three products without any changes from last year ended.

The Second View : Continue product ( C ) because studies indicated that deleting this product in the next year will decrease the sales quantities of each of the other products by 10% without any changes in selling prices , contribution margin ratio , special and common committed fixed costs of the last year and no alternative use of the vacated facilities of product ( C ) .

The Third View: Deleting products ( C ) and ( A ) and use the vacated facilities of these products to increase the sales quantities of product ( B ) to the maximum units of the local market demand of 50,000 units , without any changes in selling prices , contribution margin ratio , special and common committed fixed costs of the last year .

Required: Prepare the detailed income statement which is expected under each alternative view, then comment briefly on the decision rules involved therein. (Show the necessary supporting computations)

Please use the following information to answer the next question:

For BB Incorporated:

Cash Flows from Assets -------------------------------------------------------------------- 100 dollars
EBIT (from 1999 INCOME STATEMENT) -------------------------------------------0 dollars
Depreciation Expense (from 1999 INCOME STATEMENT) ---------------------- 0 dollars
Taxes (from 1999 INCOME STATEMENT) ------------------------------------------ 0
Net Fixed Assets from BALANCE SHEET dated December 31, 1998-------------1400 dollars
Net Fixed Assets from BALANCE SHEET dated December 31, 1999------------ 1300 dollars
Additions to (Changes in) NWC for 1999 ---------------------------------------------- 0 dollars

For KK Incorporated:

Cash Flows from Assets ---------------------------------------------------------------------0 dollars
EBIT (from 1999 INCOME STATEMENT) -------------------------------------------500 dollars
Depreciation Expense (from 1999 INCOME STATEMENT) ----------------------100 dollars
Taxes (from 1999 INCOME STATEMENT) ------------------------------------------100
Net Fixed Assets from BALANCE SHEET dated December 31, 1998------------1400 dollars
Net Fixed Assets from BALANCE SHEET dated December 31, 1999------------1800 dollars
Additions to (Changes in) NWC for 1999 ----------------------------------------------0 dollars

For LL Incorporated:

Cash Flows from Assets --------------------------------------------------------------------100 dollars
EBIT (from 1999 INCOME STATEMENT) -------------------------------------------0 dollars
Depreciation Expense (from 1999 INCOME STATEMENT) ----------------------100 dollars
Taxes (from 1999 INCOME STATEMENT) -------------------------------------------0
Net Fixed Assets from BALANCE SHEET dated December 31, 1998-------------1400 dollars
Net Fixed Assets from BALANCE SHEET dated December 31, 1999-------------1300 dollars
Additions to (Changes in) NWC for 1999 -----------------------------------------------0 dollars

*Based only on the numbers provided, which Company is doing the BEST?
*In other words, if you were an individual investor, in which Company would you invest?

Santana Rey expects second-quarter 2020 sales of Business Solutions’s line of computer furniture to be the same as the first quarter’s sales (reported below) without any changes in strategy. Monthly sales averaged 42 desk units (sales price of $1,270) and 22 chairs (sales price of $520).

* Reflects revenue and expense activity only related to the computer furniture segment.
† Revenue: (126 desks × $1,270) + (66 chairs × $520) = $160,020 + $34,320 = $194,340
‡ Cost of goods sold: (126 desks × $770) + (66 chairs × $270) + $30,600 = $145,440

Santana Rey believes that sales will increase each month for the next three months (April, 50 desks, 34 chairs; May, 54 desks, 37 chairs; June, 58 desks, 40 chairs) if selling prices are reduced to $1,170 for desks and $470 for chairs and advertising expenses are increased by 10% and remain at that level for all three months. The products’ variable cost will remain at $770 for desks and $270 for chairs. The sales staff will continue to earn a 10% commission, the fixed manufacturing costs per month will remain at $10,200 and other fixed expenses will remain at $6,200 per month.
Required:
1. Prepare budgeted income statements for the computer furniture segment for each of the months of April, May, and June that show the expected results from implementing the proposed changes. Use a three-column format, with one column for each month.
2. Recommend whether Santana Rey should implement the proposed changes.

1. An increase in wages of oil rig workers has increased the cost of producing oil. How is the supply curve affected by this newly incurred cost? Represent graphically plot against the demand curve, label all points, and explain.

2. How does a $20 dollar subsidy effect the supply curve of Oil per barrel? Represent graphically, plot against the demand curve and explain.

3. Identify the type of good. Explain how the changes will affect demand. Pepsi price declines what happens to the demand for Coca Cola?

4. Illustrate and explain how changes in price effects substitute goods. The price of margarine declines what happens to the demand for butter?

5. A free market has a demand curve where the demand curve Qd= 600-30p and the supply curve Qs= - 360 +60p

A. Calculate PD, QD, PE, QE, PS

B. Graph against Q, P axis. (Label all points)

C. Calculate CS, PS, TS

D. Illustrate and explain what occurs to this market when the number of sellers is increased.

E. Explain what happens to PE, QE and demand.

6. Illustrate and explain how changes in price effects substitute goods. The price of margarine declines what happens to the demand for butter?   
7. A. List the determinants of Demand. B. List the determinants of Supply.

8. A free market has a demand curve where the demand curve Qd= 984-3p and the supply curve Qs= - 798 +14p

A. Calculate PD, QD, PE, QE, PS

B. Graph against Q, P axis. (Label all points)

C. Calculate CS, PS, TS

D. Illustrate and explain what occurs to this market when technology is upgraded.

E. Explain what happens to PE, QE and demand.

9. I would like to know the answer number 5,6,7,8

Part 6 – Activity Based Cost

A company reports the following information about its indirect costs:

1.   Total indirect costs of $3,000,000 for the next year.
2.   There two products: Product A and Product B.
3.   Direct labour hours for Product A is 40,000 and Product B is 60,000
4.   The company’s accountant has suggested an alternative to the traditional allocation of indirect overhead based on direct labour hours. The accountant suggested the following:
a.   Indirect costs can be broken down into supervisory wages $500,000, machine set up $250,000, machinery operating costs including depreciation $1,250,000, engineering changes $500,000, quality inspection costs $250,000, shipping costs $250,0000.
b.   Activity drivers are supervisory wages (direct labour hours), machine set up (2,500 set up hours), machinery operating (12,500 machine hours), engineering changes (2,500 engineering hours), inspection (2,500 inspection hours), shipping (5,000 shipments)

Driver   Product A   Product B
DLH   40,000   60,000
Machine set up   750   1,750
Machine operating   3,500   9.000
Engineering changes   1,000   1,500
Inspections   500   2,000
Shipping Units   1,500   3,500

  
Questions:

A.   Under the traditional allocation method, what is the amount of indirect cost allocated to Product A and Product B?
____________________________________________________________
B.   Under the Activity Based Accounting (ACB) method, what is the amount of indirect cost allocated to Product A and Product B?
____________________________________________________________
C.   Would the ABC method add value to the company, Yes or No and Why or Why Not?
____________________________________________________________
D.   The accountant alternatively suggested a “standard costing system” for indirect costs. This would be a set / fixed amount for the year for each unit of Product A or Product B shipped. What is the standard cost per unit for Product A and Product B assuming a traditional cost allocation approach?
____________________________________________________________

Santana Rey expects second-quarter 2020 sales of Business Solutions’s line of computer furniture to be the same as the first quarter’s sales (reported below) without any changes in strategy. Monthly sales averaged 41 desk units (sales price of $1,260) and 21 chairs (sales price of $510).

* Reflects revenue and expense activity only related to the computer furniture segment.
† Revenue: (123 desks × $1,260) + (63 chairs × $510) = $154,980 + $32,130 = $187,110
‡ Cost of goods sold: (123 desks × $760) + (63 chairs × $260) + $30,300 = $140,160

Santana Rey believes that sales will increase each month for the next three months (April, 49 desks, 33 chairs; May, 53 desks, 36 chairs; June, 57 desks, 39 chairs) if selling prices are reduced to $1,160 for desks and $460 for chairs and advertising expenses are increased by 10% and remain at that level for all three months. The products’ variable cost will remain at $760 for desks and $260 for chairs. The sales staff will continue to earn a 10% commission, the fixed manufacturing costs per month will remain at $10,100 and other fixed expenses will remain at $6,100 per month.

Required:
1. Prepare budgeted income statements for the computer furniture segment for each of the months of April, May, and June that show the expected results from implementing the proposed changes. Use a three-column format, with one column for each month.
2. Recommend whether Santana Rey should implement the proposed changes.

Katharine Rally is the vice president of operations for the XYZ Company. She oversees operations at a plant that manufactures components for hydraulic systems. Katharine is concerned about the plant’s present production capability. She has reduced the decision situation to three alternatives. The first alternative, which is fully automation, would result in significant changes in present operations. The second alternative, which is semi-automation, involves fewer changes in present operations. The third alternative is to make no changes (do nothing).

As a manager of the plant management team, you have been assigned the task of analyzing the alternatives and recommending a course of action. Based on the past data, Katharine is further convinced that the capital investment, annual revenue, useful lives, and salvage values can be considered random variables with the following specified probability distributions. She also asks you to develop a simulation of 50 sample points of AW values at a MARR 0f 20%/year. Interpret your results and indicate which alternative should be selected.

Use the Random Number Generation (RNG) Data Analysis Tool package of Microsoft Excel. The online help function explains how to initiate and use the RNG to generate random numbers from a variety of probability distributions: normal, uniform (continuous variable), binomial, Poisson, and discrete.

Statically show that one of the alternatives is more appropriate than the other one using hypothesis testing?

Alternative

--------------------------------------------------------------------------------------------

Parameter                  A                                                         B                    

--------------------------------------------------------------------------------------------

Capital                         Normal                                    Normal

Investment                  Mean: $300,000                      Mean: $85,000           

                                    Std. dev.: $50,000                   Std. dev.: $500

Annual                         Normal                                    Normal                       

Revenue                      Mean: $150,000                      Mean: $85,000           

                                                Std. dev.: $10,000                   Std. dev.: $500

Useful live                   Discrete uniform                     Discrete uniform        

3 to 8 years with                     3 to 7 years with

equal probability                     equal probability        

Salvage Value             Uniform                                  Uniform         

                                                30,000 to $60,000                   $10,000 to $20000                 

Johnson Transformers Inc.

Following is the seven-year forecast for a new venture called Johnson Transformers: (all amounts in $000)

Beginning after year 2026 the annual growth in EBIT is expected to be 1.5%, a rate that is projected to be constant over Johnson Transformers remaining life as an enterprise.   Beginning in 2026 Johnson's Transformers capital expenditures and depreciation are expected to offset each other (capex - depreciation = 0) and year to year changes in working capital are expected to be zero (working capital levels remain constant year over year). For discounting purposes consider 2020 as year 1.

Assume a tax rate is 21% and a cost of capital of 7.75%

Question 1: Determine the NPV of Johnson Transformers Free Cash Flow for the years 2020 -2026. HINT: Remember to account for loss carry-forwards when determining income taxes. The answer to this question was determined in Excel. Your answer may deviate slightly depending upon differences in truncation and rounding. Answers below are in $000.

Answer: $2105

Calculate the fair market value (NPV) for Johnson Transformers. For this problem assume that the Net Present Value of Johnson Transformers free cash flow for the period 2020 - 2026 is $3000 (NOTE its not $3000 but make this assumption in case the answer you determined in the first question was incorrect. Assume no underlying changes to any of the data in the problem. DO NOT USE YOUR ANSWER FROM THE QUESTION ABOVE. All ANSWERS ARE IN $000

Part 1

Johnson Transformers Inc. Following is the seven-year forecast for a new venture called Johnson Transformers: (all amounts in $000) 2020 2021 2022 2023 2024 2025 2026 EBIT $(1000) $(900) $200 $1,200 $2,500 $3000 $3,050 Capital Expenditures $550 $350 $200 $175 $175 $160 $150 Changes in Working Capital $400 $300 $200 $100 $100 ($100) ($100) Depreciation $40 $80 $125 $150 $150 $150 $150 Beginning after year 2026 the annual growth in EBIT is expected to be 1.5%, a rate that is projected to be constant over Johnson Transformers remaining life as an enterprise. Beginning in 2026 Johnson's Transformers capital expenditures and depreciation are expected to offset each other (capex - depreciation = 0) and year to year changes in working capital are expected to be zero (working capital levels remain constant year over year). For discounting purposes consider 2020 as year 1. Assume a tax rate is 21% and a cost of capital of 7.75% Question 1: Determine the NPV of Johnson Transformers Free Cash Flow for the years 2020 -2026. HINT: Remember to account for loss carry-forwards when determining income taxes. The answer to this question was determined in Excel. Your answer may deviate slightly depending upon differences in truncation and rounding. Answers below are in $000.

Part 2

Calculate the fair market value (NPV) for Johnson Transformers. For this problem assume that the Net Present Value of Johnson Transformers free cash flow for the period 2020 - 2026 is $3000 (NOTE its not $3000 but make this assumption in case the answer you determined in the first question was incorrect. Assume no underlying changes to any of the data in the problem. DO NOT USE YOUR ANSWER FROM THE QUESTION ABOVE. All ANSWERS ARE IN $000

Family Medical Care (FMC) is a family medical practice with 8 physicians, a nursing staff of 10 to 12 nurses, and an administrative staff that varies from 6 to 9 personnel. Rajat Patel, the chief physician at FMC, is interested in studying the efficiency of the practice as a basis to set some benchmarks for further improvement, for rewarding his staff, and for comparing the efficiency of the FMC practice to other family medical practices. He is able to get comparable data for other practices from industry sources. So that the data are consistent with the industry sources, Patel has asked Marin & Associates, his accounting firm, to develop a set of productivity measures that would satisfy this requirement. Upon investigation, Joseph Marin finds that the measures to be used are the partial financial and operational productivity measures as defined in the chapter. The following information is for the last 2 years for the FMC practice:

Required:

1. Compute the partial financial productivity ratios for nursing and administrative support for the current and prior year.

2. Separate the change in the partial financial productivity ratio from the prior year to the current year into productivity changes, input price changes, and output changes.

(For all requirements, round your answers to 4 decimal places. Negative values should be indicated by a minus sign.)