Question 1: In order to get a better understanding of which types of people buy their product, a large company wanted to estimate the proportion of customers who are considered low income. They took a random sample (a very small subset) of 500 customers and found that 210 were low income.

a) Check to see if conditions (there are 4) are met to have a valid confidence interval.

b) What would happen to the distribution of sample proportions if one the first three conditions are not met (sample size conditions)?

c) Construct an approximate 95% confidence interval for the proportion of low-income customers.

d) Interpret the interval found in “c”.
e) Calculate the confidence interval width of the interval created in “c”
f) If were to calculate an 85% confidence interval what z* values would you use? g) What do the values in “f” represent conceptually?
h) Which confidence interval would be more precise (smaller width); 95% or 85%?

i) Before the company took its initial sample (They did not take the 500 observation sample yet), they ideally wanted to have a confidence interval width of 0.048 when creating an approximate 95% confidence interval. What is the least amount of people they needed to sample in order to guarantee there confidence interval width would not be larger than 0.048.

Photographic laboratories recover and recycle the silver used in photographic film. Stikine River Photo is considering purchase of improved equipment for their laboratory at Telegraph Creek. Here is the information they have:

The equipment costs $101,000 and will cost $80,800 per year to run.

It has an economic life of 10 years but can be depreciated over five years by the straight-line method.

It will recover an additional 5,000 ounces of silver per year. Silver is selling for $22 per ounce.

Over the past 5 years, the price of silver has appreciated by 4.5% per year in real terms.

Silver is traded in an active, competitive market.

Stikine's marginal tax rate is 34%.

Stikine's company cost of capital is 10% in real terms.

The nominal interest rate is 8%.

What is the NPV of the new equipment? Assume 2017 Tax Cuts and Jobs Act, where 100% write-off of investment expenditures, is not applicable.

Using industry averages for fast casual / premium casual dining, assume that Famoso’s overall base revenues this year across 25 locations will be $25 million, cost of goods sold (food and beverages) is 30% of revenue, variable labour costs (e.g. restaurant staff) are also 30% of revenue, marketing costs are $1 million, occupancy and equipment costs are $5 million, and home office administration costs are $2 million. Assume average revenue per transaction of $50.

Opportunity 1: Product improvement Famoso would like to consider taking an even stronger product quality positioning by using organic food ingredients. This is expected to increase food and beverage costs as a percent of sales by 5%. They would make a one-time investment of $100,000 in marketing communications to promote this offering. They believe they could see a sales increase of 10% under this opportunity.

Opportunity 2: Sales promotion Famoso wants your perspective on a free pizza promotion to generate trial and new customer acquisition. They would market the offer via direct email, using address lists likely to avoid current customers. The campaign would reach 300,000 people at a cost of $75,000. They expect that 1% of those who receive the direct mail/email would take advantage of the offer, and spend $25 on their visit beyond the free pizza. For promotion cost purposes, assume that the average retail price of a Famoso pizza is $15. Famoso expects that half of those who participate in the promo would become a “regular” customer, going on to have two more transactions per year.

Opportunity 3: Third-party delivery service Famoso has decided to consider a new distribution option: rolling out the use of a third party service such as Just-eat.ca, Skipthedishes.com, or UberEATS for food deliveries. They have been conducting a market test of this service at one of their 25 locations. The test achieved 1,000 deliveries with an average purchase of $25. Famoso pays the third-party service $5 for each delivery, and will spend $10,000 on in-store signage to promote the delivery option.

1. Given the hypothetical information provided, what is Famoso’s overall break-even point in units? What is this as a percent of their current transaction volume? For this kind of business, units would be the number of tables served / transactions.

2. What is the break-even point in units for the product improvement idea (Opportunity 1)? What percentage sales increase is needed to achieve this break even?

3. What is the incremental transaction volume and variable cost of Opportunity 2?

4. What are the fixed costs of Opportunity 3? Is there a risk related to this investment?

1. Consider the applications for home mortgages data in the file of P12_04.xlsx.

1. Create a time series chart of the dat
2. Use simple exponential smoothing to forecast these data, using the default smoothing constant of 0.1
3. Calculate the three types of forecast errors, RMSE, MAE, and MAPE
4. Use the solver function in excel to optimize the smoothing constant in order to generate a minimum MAPE value.
5. Use multiple regression to develop an equation that can be used to predict future applications for home mortgages (hint: use dummy variables for the quarters and create a time variable for the quarter numbers)

The owner of a departmental store would like to estimate monthly gross revenues as a function of advertising
expenditures. Historical data for randomly selected 8 months is given below (₹ in crores)
Monthly revenue Television Advertising Newspaper advertising

a. Derive a regression equation with amount of expenditure on television advertising as independent
variable.
b. Derive a regression equation with both expenditure on television advertising and newspaper advertising
as independent variables.
c. Estimate the monthly gross revenue for a month when 4 crores is spent on TV , and 1.5 crores is spent
on newspaper advertising.

Managing diversity in a Chinese-owned multinational IT firm

Company background

Established in 1988 in Beijing, Lenovo Group Limited (formerly known as ‘Legend Group Limited’) is the largest IT enterprise in China. Lenovo employs some 25,000 staff in all its operations in nearly 70 countries, but with the majority of employ- ees working in China. In 1984, with an initial capital of RMB 200,000 funded by the Chinese Academy of Sciences, a government-funded institution, 11 researchers formed the parent company of Lenovo. It was the first company to introduce the concept of the home computer in China. Lenovo’s main business activities are in the sale and manufacturing of desktop computers, notebook computers, mobile handsets, servers and printers. Lenovo is a stock-listed company, with the Chinese government holding over a quarter of its shares. In April 2003, the group adopted a new logo and the English brand name ‘Lenovo’, replacing the original English brand name ‘Legend’ in order to appeal to the international market. The English company name was also officially changed to ‘Lenovo Group Limited’ a year later. In December 2004, Lenovo spent US$1.25 billion to acquire IBM’s PC business. This was the largest cross-border acquisition in China’s IT industry (China Business, 13 December 2004). The acquisition process was completed in May 2005. The marriage of IBM and Lenovo created one of the world’s largest PC powerhouses. IBM possessed strong competitive advantage in the higher end of the customer market in its distribution channel, high quality customer resources, which complemented that of Lenovo. The two companies have main- tained a long-term cooperative strategy since the acquisition, with Lenovo having access to some of IBM’s key resources, such as technology, sales force, PartnerWorld, Global Finance and IBM Credit. The continuing expansion and globalization of Lenovo has brought a number of challenges to its HRM function, including the alignment of corporate HR strategy and DM after the acquisition of IBM’s PC business. Below are some of the issues that illustrate the challenges.

Managing foreign employees in China

Lenovo’s growing global presence in the IT sector has in recent years attracted an increasing number of non-Chinese citizens who wish to work in its operations in China. This is in part because they want to spend time in China to gain wider work experience and a deeper understanding of the country. These foreign citizens are employed by Lenovo under the same employment conditions as those offered to Chinese citizens. Free working meals and company-subsidized accommodation are some of the benefits that Lenovo offers its employees. These are traditional and typical workplace welfare provisions of Chinese firms. Under the housing scheme, newly recruited single employees are provided dormitory accommodation. Since housing is expensive in Beijing, this often takes the form of one bedroom shared by a few employees of the same gender. This arrangement is normal and acceptable to Chinese employees – Chinese students also share their dormitories in schools and universities, and in sweatshop manufacturing plants the situation is far worse where ten or more rural migrant workers are crowded in a room with poor facilities. However, foreign employees, though only very small in number compared with the Chinese employees, find it difficult to get used to this idea because of the lack of privacy. Lenovo (China) has no special policy to accommodate their needs. Different management style is another source of cultural shock to foreign employees. According to an HR manager, foreign employees all emphasize their cultural shock when they come to China. However, Lenovo (China) has not developed a formal policy to manage these cultural shocks. This has led to the turnover of a few of the foreign employees and the company has made no effort to retain them.

Managing Chinese graduate returnees from overseas

Since the early 2000s, an increasing number of Chinese who went abroad for their higher education have been returning to China to seek employment and career development. The majority of Chinese overseas graduate returnees (known as haigui in China) are keen to work for multinational firms, and are often the favourite candidates. Lenovo is among the top employers of choice for which haiguis want to work. These repatriated Western educated and trained graduates bring with them different life styles, perspectives and (often unrealistic) expectations that may depart from Chinese norms. Some of them are said to be complacent and consider themselves superior to other graduate employees who have not been abroad for education or training. They expect high salaries up front, fast promotion, flexibility and autonomy in their work. Turnover is common among haiguis when expectations are unmet or better offers are available elsewhere. How to recruit and manage overseas graduate returnees effectively is an important issue for MNCs operating in China. Companies are now reportedly more cautious in recruiting and managing these returnees because they are seen as ‘demanding’ employees who are difficult to retain. Lenovo shares some of these issues. Although turnover has not been a major problem, how to harmonize the relationship between haiguis and home- grown graduate employees is sometimes a challenge for line managers.

Gender equalities

Prior to Lenovo’s acquisition of the IBM PC business unit, Lenovo had more women at the senior management level. The proportion of women in senior management has actually declined since the acquisition because it is now part of a bigger inter- national operation. Two main reasons are attributed to this change. One is that there is a lower proportion of women at senior management level in the acquired business unit of IBM than in the Chinese operation. Another reason is that Lenovo has been through successive rounds of senior management restructuring after the acquisition, partly to do with the post-acquisition integration and partly to do with the poaching of senior managers among IT firms in China. Cultural clashes triggered by the post-acquisition integration have led to the departure of a number of senior managers. When new managers are recruited, they tend to bring their own people and HR initiatives with them, which will later be displaced by their successors when those managers depart. As an HR director observed, ‘It is organizational politics, rather than equal opportunities, that we consider in the recruitment of senior managers. You need to be competent as well as well connected to get the senior management’s job, and men tend to be better connected than women in the IT sector in general.’

Developing a global diversity management strategy

According to informants from Lenovo (China), diversity is not a key issue in the workforce in China. Therefore, it is not a priority of the company. The major task is post-acquisition integration to align the organizational cultures and become a truly international company. Nevertheless, Lenovo (China) does emphasize the need for employees to respect other employees’ rights and privacy. Aggressive or discriminaory behaviours are forbidden, even as jokes. These expectations are written in the business conduct guidelines for employees. However, Lenovo (China) does not have any specific equal opportunities or diversity management programmes to enforce these clauses. The acquired business unit of IBM has good HR practices, for example, WLB and DM. These have not yet been transferred to the Chinese operation due to staff shortages. There was a corporate initiative (stimulated from the US side) about grouping women at international level together to have a global forum to discuss diversity issues in 2006. Unfortunately, budget constraints meant that the plan was set to one side. The HR directors from Lenovo (US) are well aware of the challenge they face in transferring their US-developed diversity management programme to other branches across different countries and cultures. The US HR team are the people who are familiar with the concept and responsible for promoting its global diffusion, and they are approaching the task with extreme caution. This is in part, as they admit- ted, due to their unfamiliarity with the local environments in different parts of the world, although they are planning to visit Lenovo (China) for the first time. How to accommodate the diversity of the global workforce and leverage it to enhance the performance of the firm on the one hand, and how to develop a strong corporate culture that all employees will identify with on the other hand is their main HR con- cern, and a solution has yet to be found. According to all managerial informants, the corporate priority is talent management. A new scheme called ‘Mobility Plan’ has been implemented at the international level. The purpose of the plan is to give managers an opportunity to work overseas to gain international experience to be able to lead at a global level. It is not aimed at Chinese managers in principle, but in reality has mainly involved sending Chinese managers to the US for development.

Questions:

1: Identify and explain the main issues in this case study

2. What are the key issues of diversity management in this case study and how are they manifested?

Problem 9.3 – Aging analysis, preparing journal entries and balance sheet presentation (LO 9-1)

At December 31, 20X0, Oettinger Corporation, a premium kitchen cabinetmaker for the home remodeling industry, reported the following accounts receivable information on its year-end balance sheet:

During 20X1, the company had credit sales of $8,200,000 of which it collected $7,975,000. Oettinger employs the sales revenue approach to estimate its bad debt provisions and, continuing to use the same 1% used in previous years, made the normal adjustment at the end of 20X1.

Although 20X1 started off well, the industry experienced a slowdown in the last four months of the year, and cash collections consequently dropped off substantially. Moreover, a major customer, which owed Oettinger $85,000, unexpectedly filed for bankruptcy and went out of business during November, at which time its account was written off. Oettinger’s controller is concerned that some customers are experiencing cash flow problems and that the company’s allowance for credit losses is too low. As a result, she prepared the following schedule:

Required:

1. 1-a. Determine Oettinger’s accounts receivable balance at December 31, 20X1.

1-b. Prepare a journal entry for each transaction affecting the accounts receivable balance for 20X1.

2. 2-a. Prepare an aging analysis.

2-b. Compute the required balance in the Allowance for credit losses at December 31, 20X1.

3. 3. Prepare any other required journal entries affecting the Allowance for credit losses for the year ended December 31, 20X1. (Do not duplicate any entries from requirement 1.)

4. Show Oettinger’s balance sheet presentation of accounts receivable at December 31, 20X1.