Zhou Bicycle Case Study

Zhou Bicycle Company, located in Seattle, is a wholesale distributor of bicycles and bicycle parts. Formed in 1991 by University of Washington Professor Yong-Pia Zhou, the firm’s primary retail outlets are located within a 400-mile radius of the distribution center. These retail outlets receive the order from ZBC with 2 days after notifying the distribution center, provided that the stock is available. However, if an order is not fulfilled by the company, no backorder is placed; the retailers arrange to get their shipment from other distributors, and ZBC loses that amount of business. The company distributes a wide variety of bicycle. The most popular model, and the major source of revenue to the company, is the AirWing. ZBC receives all the models from a single manufacturer in China, and shipment takes as long as one month from the times an order is place. With the cost of communication, paperwork, and customs clearance included, ABC estimates that each time an order is place, it incurs a cost of $65. The purchase price paid by ZBC, per bicycle, is roughly 70% of the suggested retail price for all the styles available, and the inventory carrying cost is 1% per month (12% per year) of the purchase price paid by ZBC. The retail price (paid by the customers) for the AirWing is $170 per bicycle. ZBC is in interested in making as inventory plan for 2019. The firm wants to maintain a 97% service level with is customers to minimize the losses on the lost orders. A forecast for AirWing model sales in 2019 has been developed and will be used to make an inventory plan for ZBC.

DEMAND FOR AIRWING MODEL

Discussion Questions

Develop an inventory plan to help ZBC:

1) Determine the simple EOQ, assuming constant demand throughout the year (which obviously is not true; to be dealt with later).

2) Calculate the annual inventory cost under this EOQ policy (carrying cost plus ordering cost).

3) Assuming that that the demand is variable (with the mean of 36.58 and the standard deviation to be calculated by you), use the relevant formula in the powerpoint file and calculate the ROP.

4) Calculate the annual cost of holding the safety stock throughout the year and add it to the cost in p. 2 above. This is your total annual inventory cost.

5) Plot the projected future bicycle sales (use Excel) and evaluate the nature of the demand. As mentioned above, it is obviously not constant throughout the year.

6) Segment the planning horizon into three separate intervals:

a) January, February, and March

b) April, May, June, and July

c) August, September, October, November, and December

(Note: other segmentations are also possible, e.g., precisely by the quarters, etc., but please use the one I am suggesting).

7) Repeat the analyses from Q1.-Q4 above, separately for each of the three segments. Of course, you will have to adjust the planning horizon accordingly.

8) Calculate the total cost across the three segments thus producing the total annual inventory cost.

9) Compare it against the cost in Q4 above. Which approach is better and why? Provide a full rationale for your answer.

1. The demand for labor

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Consider Live Happley Fields, a small player in the strawberry business whose production has no individual effect on wages and prices. Live Happley’s production schedule for strawberries is given in the following table:

Suppose that the market wage for strawberry pickers is $170 per worker per day, and the price of strawberries is $12 per pound.

On the following graph, use the blue points (circle symbol) to plot Live Happley’s labor demand curve when the output price is $12 per pound.

Note: Remember to plot each point between the two integers. For example, when the number of workers increases from 0 to 1, the marginal revenue product of the first worker should be plotted with a horizontal coordinate of 0.5, the value halfway between 0 and 1. Line segments will automatically connect the points.

Created with Raphaël 2.1.2Demand P = $12Demand P = $160123453002702402101801501209060300WAGE RATE (Dollars per worker)QUANTITY OF LABOR (Number of workers)

Created with Raphaël 2.1.2

Points:

Close Explanation

Explanation:

At the given wage and price level, Live Happley should hire selector 1

• one worker
• two workers
• three workers
• four workers
• five workers

.

Points:

Close Explanation

Explanation:

Suppose that the price of strawberries increases to $16 per pound, but the wage rate remains at $170.

On the previous graph, use the purple points (diamond symbol) to plot Live Happley’s labor demand curve when the output price is $16 per pound.

Close Explanation

Explanation:

Now Live Happley should hire selector 1

• one worker
• two workers
• three workers
• four workers
• five workers

when the output price is $16 per pound.

Points:

Close Explanation

Explanation:

Assuming that all strawberry-producing firms have similar production schedules, an increase in the price of strawberries will cause the selector 1

• supply of
• demand for

strawberry pickers to selector 2

• decrease
• increase

.

Points:

Close Explanation

Explanation:

Suppose that wages increase to $200 due to an increased demand for workers in this market. Assuming that the price of strawberries remains at $16 per pound, Live Happley will now hire selector 1

• one worker
• two workers
• three workers
• four workers
• five workers

.

Gibson Company makes a product that sells for $33 per unit. The company pays $23 per unit for the variable costs of the product and incurs annual fixed costs of $95,000. Gibson expects to sell 22,600 units of product.

Margin of Safety. %

Zachary Corporation, which has three divisions, is preparing its sales budget. Each division expects a different growth rate because economic conditions vary in different regions of the country. The growth expectations per quarter are 5 percent for Cummings Division, 3 percent for Springfield Division, and 7 percent for Douglas Division.

1. Complete the sales budget by filling in the missing amounts.

2. Determine the amount of sales revenue that the company will report on its quarterly pro forma income statements.

Determine Gibson’s margin of safety expressed as a percentage. (Round your answer to 2 decimal places (i.e., .2345 should be entered as 23.45).)

Complete the sales budget by filling in the missing amounts. (Round your final answers to the nearest whole dollar amount.)

Determine the amount of sales revenue that the company will report on its quarterly pro forma income statements. (Round intermediate calculations and final answers to the nearest whole dollar amount.)

4) Your company is considering a project that will generate sales revenue of $90 million in Year 1. Revenue is expected to be flat for subsequent years. The project requires working capital equal to 16% of sales revenue, and has total operating costs excluding depreciation equal to 50% of sales. The equipment has a 3 year MACRS life and can be purchased and installed for $100 million. The project will end in three years. At that time, the equipment can be sold for $4.2 million. Your company’s tax rate is 25%.

a) Find the initial cash flow (Yr. 0).

b) Find the operating cash flows (Yrs. 1-3).

MACRS Depreciation Tables

5)   Using the information from Problem 4:

         a)   Find the after-tax cash flow from the sale of the equipment.

         b)   Find the total flow that occurs in Yr. 3.

Problem 6-10 (Algo) Long-term contract; revenue recognition over time [LO6-8, 6-9]

[The following information applies to the questions displayed below.]

In 2021, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2023. Information related to the contract is as follows:

Westgate recognizes revenue over time according to percentage of completion.

Problem 6-10 (Algo) Part 1

Required:
1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years. (Do not round intermediate calculations. Loss amounts should be indicated with a minus sign.

2-a. In the journal below, complete the necessary journal entries for the year 2021 (credit "Various accounts" for construction costs incurred).
2-b. In the journal below, complete the necessary journal entries for the year 2022 (credit "Various accounts" for construction costs incurred).
2-c. In the journal below, complete the necessary journal entries for the year 2023 (credit "Various accounts" for construction costs incurred).

Corner Tavern is a small-town bar that sells only bottled beer. The average price of a bottle of beer at the tavern is $3.60 and the average cost of a bottle of beer to the tavern is $1.05. The tavern is open every night. One bartender and two to three waitresses are on duty each night. The fixed costs (salaries, rent, tax, utilities, etc.) total $275,000 per year. (Do not round intermediate calculations. Round the final answers to the nearest whole number.)  

a. The owner wishes to know how many bottles of beer the tavern must sell during the year to start making profit.

No. of bottles

b. What is the revenue at the break-even quantity found in the part a?

Revenue $

c. Not available in connect.

d. If Corner Tavern sells 115,000 bottles of beer a year, would it make a profit? (Hint: Draw the annual revenue and total annual cost vs. the number of bottles of beer sold per year. Make sure that the y-axis is to scale.)

• Yes

• No

e. The owner thinks $50,000 is a reasonable annual profit. How many bottles of beer should the tavern sell to make $50,000 profit?

No. of bottles           

f. An available option is to open the tavern earlier on the weekends. The attraction would be a discount of $0.60 off the regular price. The extra salaries of waitresses and bartender for the whole year are estimated to be $26,000. How many extra bottles of beer must the tavern sell in order to break-even in this option?

No. of extra bottles           

The following transactions relate to Academy Towing Service. Assume the transactions for the purchase of the wrecker and any capital improvements occur on January 1 of each year. 2016 1. Acquired $79,000 cash from the issue of common stock. 2. Purchased a used wrecker for $41,000. It has an estimated useful life of three years and a $10,000 salvage value. 3. Paid sales tax on the wrecker of $5,000. 4. Collected $65,100 in towing fees. 5. Paid $12,900 for gasoline and oil. 6. Recorded straight-line depreciation on the wrecker for 2016. 7. Closed the revenue and expense accounts to Retained Earnings at the end of 2016. 2017 1. Paid for a tune-up for the wrecker’s engine, $1,800. 2. Bought four new tires, $2,150. 3. Collected $71,000 in towing fees. 4. Paid $18,900 for gasoline and oil. 5. Recorded straight-line depreciation for 2017. 6. Closed the revenue and expense accounts to Retained Earnings at the end of 2017. 2018 1. Paid to overhaul the wrecker’s engine, $5,700, which extended the life of the wrecker to a total of four years. The salvage value did not change. 2. Paid for gasoline and oil, $20,000. 3. Collected $74,000 in towing fees. 4. Recorded straight-line depreciation for 2018. 5. Closed the revenue and expense accounts at the end of 2018

Can I get the answers to these with work shown? 2, 3, 4, and 5 only please.

1. The following two linear functions represent a market (thus one is a supply function, the other a demand function). Circle the answer closest to being correct. Approximately what will the quantity demanded be if the government controls the market price to be $1.50 (You must first find the market equilibrium price and quantity in order to see how the $1.50 relates to them)?

Q = 100 – 4.6P and Q = 75 + 6.2P

Qd=100-4.6P Qs=75+6.2P P=$1.50

Qd=Qs 100-4.6P=75+6.2P = 25=10.8P P=2.31

P=1.50 Qd=100-4.6P =100-4.6(1.5) =100-6.9 =93.1

2. There has been a change in the market (represented in 1 above). The change is represented by the following two equations. Circle the one correct conclusion that describes the market change.

Q = 85 + 6.2P and Q = 100 – 4.6P

3. Circle the function on the answer sheet that represents the marginal revenue (MR) function for this demand function: Q = 100 – 3P

4. Circle the quantity that maximizes total revenue (TR) for the marginal revenue (MR) function selected in number three (3).

5. If supply decreases and demand also increases, we can conclude that the new equilibrium:

A researcher records the following data for each of three groups.

What is the value of the F-statistic? (Round your answer to two decimal places.)
F = __________________

Explain your answer.

F is the indicated value because the groups means are different. There is substantial variability between groups.

F is the indicated value because the group means are the same. There is substantial variability between groups.

F is the indicated value because the group means are the same. There is no variability between groups.

F is the indicated value because the group means are different. There is no variability between groups.

Problem 2

You are curious about whether you can enhance the ability to hear differences between nonnative speech sounds when people learn a new language. You test your novel language training procedure on a group of 32 pariticipants using a pretest/posttest design. The pretest and the posttest measure performance as the number of correct trials out of 100. The data are shown on the right. Does the new language training procedure improve the perception of nonnative speech sounds?

Use the four-step hypothesis testing procedure described in class, formatted as in the sample assignment. In addition, calculate 1) the effect size and 2) confidence interval associated with the data. Show your work.