Jack Tar, CFO of Sheetbend & Halyard, Inc., opened the company confidential envelope. It contained a draft of a competitive bid for a contract to supply duffel canvas to the Canadian Armed Forces. The cover memo from Sheetbend’s CEO asked Mr. Tar to review the bid before it was submitted. The bid and its supporting documents had been prepared by Sheetbend’s sales staff. It called for Sheetbend to supply 100,000 yards of duffel canvas per year for 5 years. The proposed selling price was fixed at $30 per yard.

The cost of goods will increase for this this project is 70% in the first year followed by 73%, 76%, 78.74% and 82% in years 2 through 5.Company tax rate is 35% Mr. Tar was not usually involved in sales, but this bid was unusual in at least two respects. First, if accepted by the forces, it would commit Sheetbend to a fixed-price, long-term contract. Second, producing the duffel canvas would require an investment of $1.5 million to purchase machinery and to refurbish Sheetbend’s plant in Saint John, New Brunswick. Mr. Tar set to work and by the end of the week had collected the following facts and assumptions:

• The plant in Saint John was built in the early 1900s and is now idle. The plant was fully depreciated on Sheetbend’s books, except for the purchase cost of the land (in 1947) of $10,000. • Now that the land was valuable shorefront property, Mr. Tar thought the land and the idle plant could be sold, immediately or in the future, for $600,000.

• Refurbishing the plant would cost $500,000. This investment would be depreciated for tax purposes in an asset class that has a CCA rate of 5%. • The new machinery would cost $1 million. This investment could be depreciated in an asset class that has a CCA rate of 30%.

• Working capital requirement is 10% of sales • The refurbished plant and new machinery would last for many years. However, the remaining market for duffel canvas was small, and it was not clear that additional orders could be obtained once the Forces contract was finished. The machinery was custom-built and could be used only for duffel canvas. Its second-hand value at the end of 5 years was probably zero.

1) Armed with this information, construct a spreadsheet/table to calculate the NPV of the duffel canvas project, assuming that Sheetbend’s bid would be accepted by the Forces. Should Mr. Tar recommend submitting the bid to the Forces at the proposed price of $30 per yard? The discount rate for this project is 12%.

2) He had just finished debugging the spreadsheet when another confidential envelope arrived from Sheetbend’s CEO. It contained a firm offer from a New Brunswick real estate developer to purchase Sheetbend’s Saint John land and plant for $1.5 million in cash. Which offer would you except 5 marks

Show all calculations and rationale . Use the Cheat Sheet NPV Analysis as a template for this analysis Hint Think of the three areas that have to be examined

1. Cash flow from investments in plant and equipment – capital investment.

2. Cash flow from investment in working capital 3. Cash flow from operations

Chapter 20 Inventory management, Just -in-time, and simplified costing methods

This is all the information I have

As a new senior accountant of Troy Rugs Inc. an exotic rug manufacturer, you have taken on the new responsibility of lean accounting within the company. During your monthly analysis, you outline many areas that the company does not possess to adopt a lean accounting system. You have observed that setup times take a week versus two days as they should. You noticed that the lot in which the raw materials are stored shares 75% of the lot in which rugs are wrapped and prepared for shipping which extends the time needed to fulfill an order an additional four days. Overall the layout of the facility is not as functional as the materials used to produce the rugs are on the same floor in inventory as rugs that have been produced and there is no one process to separate the two or overlook certain rug inventory due to materials being placed in the wrong area of the warehouse. You also have a memo from the CEO stating that one of the company’s largest suppliers of thread has gone bankrupt and there is no backup supplier. This ultimately is the reason no custom orders will be approved for at least the next three months.

Questions:

1. What suggestions do you have for implementing JIT at Troy Rugs?

2. Should custom orders and standard orders be produced on the same line? (Hint: Do they require the same type of operation?)

According to Peters (2017), the pharmaceutical industry faced a challenging situation in September 2017 with the significant weather disruption incurred by their manufacturing plants when the island of Puerto Rico was hit by damaging Hurricane Maria. How big of a deal was it for the industry? For many years, favorable tax laws made it cost beneficial for pharmaceutical companies to locate manufacturing plants in Puerto Rico. In fact, almost 75% of Puerto Rico’s exports in 2016 were pharmaceutical products according to the Bureau of Labor Statistics. Shortly after Maria hit, the U.S. Food & Drug Administration identified a list of more than 40 high-priority pharmaceutical drugs where short-term distribution disruption could be an issue! That’s a huge hit to the industry which it likely had not planned for and would have to incur significant additional costs to remedy. Bye-bye to some of those cost savings…

If the CEO of a newer pharmaceutical company was in the process of looking to outsource the manufacturing of a medication currently produced at a plant in the U.S. to Puerto Rico when Maria hit, should (s)he immediately stop his/her consideration of the plans because of the hurricane, even if it was financially favorable to outsource there?

Vetting each qualitative and quantitative matter takes time and resources, but it is necessary to make sure the company makes sound business decisions from both perspectives.

You are the controller of PWC Ltd. PWC Ltd. is a public company with 30% of its common shares traded on the Toronto Stock Exchange; the remaining 70% of shares are owned by members of the PWC family. The CEO would like to take PWC private by re-acquiring and cancelling the 30% of common shares that are currently publicly traded. Once PWC becomes a private company, it will likely switch to ASPE. In preparation for this potential change, you have decided to create a reference document that provides a brief overview of how financial reporting under ASPE would differ from PWC Ltd.’s current accounting approach in each of the following key areas that affect PWC’s financial statements: Investments (PWC currently holds FV-OCI bonds, FV-OCI shares, and FV-NI shares); convertible bonds; mandatorily redeemable preferred shares; defined benefit pension plan; leases (PWC is a lessor for several leases); income taxes; EPS; cash flow statement. For items where ASPE accounting would be substantially the same as IFRS, indicate that this is the case. When ASPE allows for more than one option, describe each option available, indicating which, if any, of these options is substantially the same as IFRS requirements. PWC currently follows IFRS16 and IFRS9. Required: Prepare a draft of the reference document.

Year Plant Expansion Product Intro  

0 -$3,200,000 -$500,000
1 $1,500,000 $375,000
2 $2,250,000 $275,000
3 $2,500,000 $350,000
4 $2,500,000 $300,000

The High-Flying Growth Company (HFGC) has been growing very rapidly in recent years, making its shareholders rich in the process. The average annual rate of return on the stock in the last few years has been 25%, and HFGC managers believe that 25% is a reasonable figure for the firm's cost of capital. To sustain a high growth rate, the HFGC CEO argues that the company must continue to invest in projects that offer the highest rate of return possible. Two projects are currently under review. The first is an expansion of the firm's production capacity, and the second project involves introducing one of the firm's existing products into a new market. Cash flows from each project appear in the above table

a. Calculate the NPV for both projects. Rank the projects based on their NPVs. (Round to the nearest dollar.)

b. Calculate the IRR for both projects. Rank the projects based on their IRRs. (Round to the nearest dollar.)

c. Calculate the PI for both projects. Rank the projects based on their PIs. (Round to the nearest dollar.)

d. The firm can only afford to undertake one of these investments. What do you think the firm should do?

At Cleveland Hopkins International Airport in northeastern Ohio, a vending machine that dispenses socks was recently installed. Located in the C concourse, the Stance sock vending machine offers a variety of what Stance refers to as “uncommon” socks. The designs on the socks in the Cleveland airport vending machine include Cleveland Browns, Cleveland Indians, patriotic flag designs, Hawaiian tropical flowers, and others.

The machine is stocked with an assortment of socks. The airport traveler inserts a credit card, makes a sock selection in the keypad, and the socks are dispensed to the purchaser.

Stance sells its socks through retailers, at its own stores, via vending machines, and through monthly subscriptions.

Requirements:

You are the CFO of Stance Inc. write a memo to the CEO. The form of the memo should include a brief statement of the facts. An analysis of the situation covering the items listed below, a recommendation.

1) the types of costs incurred with the airport vending machines. Assume that Stance rents the vending machine from a vending service. Use your imagination and list as many costs as you can.

Use the chart below to list the types of costs you think the company has.

2) the impact of the current cost structure on the breakeven volume analysis for the airport machines.

3) the impact on the breakeven analysis if the company were to purchase the vending machines.

A Internet food delivery company advertises that it has 3 different diets that will result in weight loss if strictly followed. One diet is advertised as a moderate weight loss, a second offers a slightly more aggressive weight reduction program, and a third that is the most aggressive weight loss. The company gathers some data by taking a random sample from people using the different diets at the end of a two months trial. The data on weight loss are recorded below. ( This is an ANOVA problem)

1. What type of data are these values? Quantitative data as all the values are numerical.

2. Can these data be generalized? Explain. Yes as the random sample of people is used.
3. Can cause and effect statements be made? Explain. Yes as the type of diet will affect weight loss.
4. Conduct a test to see if the weight losses are equal with the three diets using a alpha of .05.
5. Construct 95% confidence intervals.

6. Write a brief conclusion to the CEO of this firm. The wright losses are equal with the three diets

Relay Health is a company that has operated in the health care environment for several years. This organization has developed a platform whereby patients are able to communicate with their doctors online for consultations (www.relayhealth.com). The adoption of this service has been slowly growing for many years but has not received widespread acceptance in the marketplace by physician groups, although there are many benefits that can be discerned from the platform for patients or employers who might have employees who have doctors who are on such a platform. And, insurers such as Blue Cross and Cigna have also begun to accept that online visits are acceptable and are moving increasingly to reimbursing this approach. In spite of this growing trend, less than 3% of the family physicians in the American Academy of Family Practice report doing e-visits.

Recently, a company called Sophrona Solutions (https://sophrona.com/) has developed a platform that initially was for ophthalmology practices. One of the larger developers is American Well (https://amwell.com/cm/?test=true&gclid=CI7Zw4Xdp8oCFUUTHwodqssEhw), the producer of online care. They have announced that they are expanding their online portal nationally.

The CEO of Relay Health has called you in as a consultant to analyze this rapidly changing market.

There are several growth strategy alternatives available. Explain each alternative and then consider/apply each alternative for Relay Health. Which one did American Well employ? Which alternatives might be available to Relay Health? How might they be implemented?

A company that produces coffee for use in commercial machines monitors the caffeine content in its coffee. The company selects 35 8-oz samples each hour from its production line to analyze. The samples collected one morning between 8:00 - 9:00 am contained on average 96.1 mg of caffeine, with standard deviation 1.2 mg.

1. a) Compute and interpret a 95% confidence interval for mean caffeine content based on the collected data.

2. b) According to production standards, the mean amount of caffeine content per 8 ounces should be no more than 95 mg. An overly high caffeine content indicates that the coffee beans have not been roasted long enough.

   Conduct a formal hypothesis test to investigate whether production standards are being met, based on the observed data. Summarize your findings to the CEO using language accessible to someone who has not taken a statistics course and make a recommendation as to whether an adjustment needs to be made to the bean roasting time.

3. c) A set of samples collected between 10:00 - 11:00 am on the same day has average caffeine content of 95.3 mg, with standard deviation 1.1 mg. Based on observing this data, would you change your recommendation in part c)? Explain your answer.