Income from operations is one of the most important items reported by a company. Depending on the decision-making needs of management, income from operations can be determined using absorption costing or variable costing.

Choose whether the following characteristics are most often associated with absorption costing or variable costing.

	Absorption Costing	Variable Costing
Required under generally accepted accounting principles (GAAP)
Often used for internal use in decision making
Cost of goods manufactured includes only variable manufacturing costs
Used in reports prepared for external users
Fixed factory overhead costs are not part of cost of goods manufactured
Both fixed and variable factory costs are included in cost of goods sold and inventory

Method Comparison

Review the income statements on the Absorption Statement and Variable Statement panels, then complete the following table. The company’s sales price per unit is $75.00, and the number of units in ending inventory is 5,000.

Item	Amount
Number of units sold
Variable sales and administrative cost per unit
Number of units manufactured
Variable cost of goods manufactured per unit
Fixed manufacturing cost per unit

Absorption Statement

Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold.

Saxon, Inc.

Absorption Costing Income Statement

For the Year Ended December 31

1	Sales		$1,125,000.00
2	Cost of goods sold:
3	Beginning inventory	$0.00
4	Cost of goods manufactured	840,000.00
5	Ending inventory	(210,000.00)
6	Total cost of goods sold		630,000.00
7	Gross profit		$495,000.00
8	Selling and administrative expenses		275,000.00
9	Income from operations		$220,000.00

Variable Statement

Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin.

Saxon, Inc.

Variable Costing Income Statement

For the Year Ended December 31

1	Sales		$1,125,000.00
2	Variable cost of goods sold:
3	Beginning inventory	$0.00
4	Variable cost of goods manufactured	600,000.00
5	Ending inventory	(150,000.00)
6	Total variable cost of goods sold		450,000.00
7	Manufacturing margin		$675,000.00
8	Variable selling and administrative expenses		210,000.00
9	Contribution margin		$465,000.00
10	Fixed costs:
11	Fixed manufacturing costs	$240,000.00
12	Fixed selling and administrative expenses	65,000.00
13	Total fixed costs		305,000.00
14	Income from operations		$160,000.00

Manufacturing Decisions

Whenever the units manufactured differ from the units sold, finished goods inventory is affected. In analyzing income from operations, such increases and decreases could be misinterpreted as operating efficiencies or inefficiencies. Each decision-making situation should be carefully analyzed in deciding whether absorption or variable costing reporting would be more useful.

All costs are controllable in the long run by someone within a business. For a given level of management, costs may be controllable costs or noncontrollable costs.

The production manager for Saxon, Inc. is worried because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement panel and the Variable Statement panel, he notices that the net income is higher on the absorption cost income statement. He is considering manufacturing another 10,000 units, up to the company’s capacity for manufacturing, in the coming year. He reasons that this will boost net income and satisfy the company’s owner that the company is sufficiently profitable. Although the total units manufactured changes, assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same. Complete questions (1)-(4) that follow. If the answer is zero, enter "0".

1. Use the income statements on the Absorption Statement and Variable Statement panels to complete the following table for the original production level. Then prepare similar income statements at a production level 10,000 units higher and add that information to the table. Assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same at both production levels.

Income From Operations
Original	Original	Additional	Additional
Production	Production	10,000	10,000
Level-Absorption	Level-Variable	Units-Absorption	Units-Variable

2. What is the change in net income from producing 10,000 additional units under absorption costing?

3. What is the change in net income from producing 10,000 additional units under variable costing?

4. What would be your recommendation to the production manager?

Produce the extra 10,000 units. Net income will be increased, and the production manager will receive praise for creating higher profits.

Produce the extra 10,000 units. It's always a good idea to have extra units on hand and keep the factory operating at capacity, even if all the units are not sold.

Do not produce the extra 10,000 units. Net income does not change under absorption costing when the additional units are produced.

Do not produce the extra 10,000 units. The increase in net income under absorption costing is due to fixed manufacturing costs being held in inventory, and the additional inventory will lead to higher handling, storage, financing, and obsolescence costs.

Contribution Margin Data

For planning and control purposes, managers often compare planned and actual contribution margin. Variable costing is used as a basis for such analyses.

Examine the following contribution margin data, and then complete the Contribution Margin Analysis panel.

Saxon, Inc.
Contribution Margin Data Schedule
	Actual	Planned
Sales	$1,125,000	$1,190,000
Variable cost of goods sold	$450,000	$462,000
Variable selling and administrative expenses	210,000	154,000
Total	$660,000	$616,000
Contribution margin	$465,000	$574,000
Number of units sold	15,000	14,000
Per unit:
Sales price	$75.00	$85.00
Variable cost of goods sold	30.00	33.00
Variable selling and administrative expenses	14.00	11.00

Contribution Margin Analysis

Contribution margin analysis focuses on explaining the differences between planned and actual contribution margins, considering the quantity factor and the unit price factor.

After reviewing the data on the Contribution Margin Data panel, complete the following contribution margin analysis. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Saxon, Inc.

Contribution Margin Analysis

For the Year Ended December 31

1	Planned contribution margin
2	Effect of changes in sales:
3	Sales quantity factor
4	Unit price factor
5	Total effect of changes in sales
6	Effect of changes in variable cost of goods sold:
7	Variable cost quantity factor
8	Unit cost factor
9	Total effect of changes in variable cost of goods sold
10	Effect of changes in selling and administrative expenses:
11	Variable cost quantity factor
12	Unit cost factor
13	Total effect of changes in selling and administrative expenses
14	Actual contribution margin

Final Questions

After reviewing your work on the Contribution Margin Analysis panel, answer the following three questions.

1. Explain the total effect of changes in sales on the contribution margin.

Lowering the sales price caused sales to be lower, decreasing overall contribution margin.

Actual total units sold was lower than planned, causing a decrease in contribution margin.

The reduction in sales price lowered contribution margin, but the increased quantity of sales more than made up for it.

The reduction in sales price caused higher sales, but contribution margin was nevertheless negative overall.

2. Explain the total effect of changes in variable cost of goods sold.

More units were sold and so the variable cost of goods sold was higher, even though the per unit variable cost of goods sold was less than planned.

Overall, the effect of changes in variable cost of goods sold increased contribution margin.

Variable cost of goods sold negatively affected contribution margin because of an increase in per unit costs.

The reduction in per unit variable cost of goods sold negatively affected contribution margin, but the increased sales overcame this effect.

3. Explain the total effect of changes in selling and administrative expenses.

Due to increased sales there was an increased contribution margin due to increased selling and administrative expenses.

Contribution margin went up because of a decrease in selling and administrative expenses.

Because the per unit variable selling and administrative expenses increased, contribution margin was greater.

The per unit variable selling and administrative expense was higher than planned, and more units were sold, yielding a negative effect on contribution margin.

Where in the World Is Timbuk2?

Outsourcing, Offshoring, and Mass Customization1Brennan Mulligan paused to admire the San Francisco skyline before entering the leased building that housed all of Timbuk2’s activities, from management to manufacturing (Figure 1). Who would imagine that anyone could profitably manufacture a textile product in San Francisco in 2002? With competition not only from lower-cost centers in the United States but also from China and other places in the Far East, a converted warehouse building in San Francisco was an unlikely location for this manufacturing business. Yet Brenna n was not sure Timbuk2 could continue indefinitely to produce everything in San Francisco. While the pride and satisfaction of producing in San Francisco were ingrained in Timbuk2’s culture, and moving production elsewhere would be a huge change for a small company with local roots, Timbuk2 needed to remain profitable. Hence, Brennan knew there was no easy answer to the question on the table: Should Timbuk2 outsource some (or all) of its production to a Chinese firm?

History and processesTimbuk2 were founded in 1989 by Rob Honeycutt, aSan Francisco bicycle messenger with an old sewing machine. The Timbuk2 Web site (www.timbuk2.com) describes Rob’s goal, “to make a messenger bag rugged enough for real bicycle messengers, yet stylish enough to appeal to a broader market of young, hip urbanites as an alternative to the traditional two-strap daypack. Our catchy name, three-panel design, distinctive ‘swirl’ logo, and the fact that we’re ‘Madein San Francisco’ added to our cachet.”

2At one time Timbuk2’s Web site claimed that its bags were “messenger-designed, civilian-approved, and guaranteed to wear like hell.”Early on, Rob became interested in lean manufacturing and mass customization and hired Brennan Mulligan, then a young graduate from the University of California at Berkeley, to take up the cause. Brennan joined the firm in 1993to help Rob implement his vision. Rob and Brennan managed the company for its first seven years. By 2002 the management team included four other guys, who, together with Rob and Brennan, ran the show at Timbuk2. Collegiality and informality characterized the work environment, where shaving and closed-toe shoes were generally optional for the management team. The name of one of their early successful products, “El Ocho,” was born one-night in Mexico when the VP of marketing woke up to find himself in jail “Number Eight.” (The circumstances shall remain undisclosed.)By 1996, Timbuk2 was a smooth-running operation selling a variety of bicycle messenger bags and similar products whose manufacturing process was first characterized by lean manufacturing and then, once leanness was achieved, by mass customization. Brennan reflected on the many changes they had implemented on their path through lean manufacturing and on to mass customization, and the many decisions the team members had to consider. If the company had not pursued lean manufacturing, Brennan believed that it would not have been able to deliver a product customized to a mass market. Lean manufacturing’s emphasis on eliminating waste and improving quality through smaller batch sizes and streamlined product and information flows had been particularly critical. Brennan recalled that the efforts to reduce batch sizes were much more difficult than they had made it sound in business school. After much analysis and experimentation, the team purchased many additional sewing machines, greatly reduced setups at nearly every step of the manufacturing process, and altered the layout and organization of the factory floor in order to handle batch sizes as small as one item. In addition, they altered the process so that the information associated with a specific order, such as colors and add-on options, was available to workers as they worked on individual bags. A customer order was printed for each bag to accompany it through the manufacturing process. Through experimentation, Timbuk2 found that it was most effective to have work cells of five employees manufacture bags from start to finish as they filled individual customer orders. As each cell operated, there would be five bags in the process, one for each worker. Each employee was trained to perform all of the tasks to produce a bag, and a “bump-back” process was used to balance the workload. When the worker assigned to the last position finished her bag (sending it off to the shipping area), she would “bump back” to the next-to-last position and take over production of that bag, wherever it was in the process. The person in that position would then “bump back” to the previous person, and so on until the person at the beginning of the process would go to the order backlog and begin producing the bag associated with the next order in the queue. Brennan was amazed at the dexterity, speed, and accuracy of the cutters and sewers, all of whom were women, mostly of Asian descent. Figures 3-6 in the Appendix show some of the processes and inventory locations at Timbuk2.After Timbuk2 had successfully implemented a relatively lean manufacturing process with batch sizes as small as one, it was in a position to mass-customize bags. Many new issues had to be worked through to implement mass customization, however, including decisions about product offerings, pricing, delivery, and order processing.The decisions about product offering were especially critical. How many choices should the company provide customers? While every bag had three panels that could be customized according to the customer’s choice of colors, how many colors should be allowed? Each additional color meant more fabric to stock. What other options should the company offer? For example,if Timbuk2 offered a bag with a handle, the management team would need to configure the machines and processes and then train the sewers how to make a bag with this option. If they allowed customers the choice of panel size (in addition to color) the issues would be even more complex, in that equipment able to customized pieces of fabric with little setup time was very expensive, among other issues.Timbuk2’s process for determining which choices to offer customers was based on management intuition. Options were added if they seemed relatively straightforward to offer (in the sense that they would be easy to manufacture with processes currently in place and perceived to be attractive to the customer. For example, they would typically offer between 12 and 16 color choices for the material—enough to cover most of the color palette, but still manageable for stocking and managing inventory.A nice feature of mass customization was that the company could temporarily delete a color from the product offering if it was out of stock.By 1997, Timbuk2 was able to produce bags in batches of one with its signature three-panel, tri-color messenger bag design. Bags could be made in multiple sizes, fabrics, and colors, andTimbuk2 was also capable of adding other options to individual bags such as center dividers, reflector tabs, and tails, grab straps (handles), and even a variety of logo colors.In 2000, Timbuk2 launched it's “Build Your Own Bag” page on its Web site (Figure 2), allowing customers to configure and order individual bags to their own specifications. Customers could see the bag they were configuring on the computer screen and experiment with different colors and options. The customer was offered different colors for the three panels at no extra cost, but most other options, such as the alternate logo color, came at a price. Spools of different colored thread were mounted on the machine that embroidered the logo on the bag. The worker would specify which color should go on the bag and the machine would use the thread from the appropriate spool. While producing a bag with the customer’s chosen logo colors cost no more than producing one with the standard logo color, Timbuk2 charged an additional $5 for a non-standard color. “Pure profit,” Brennan remarks, as he noted that many customers chose an

alternate color.By March 2002, Timbuk2 was shipping more than 200 bags per day through multiple channels.

Question

What criteria Timbuk2 should use for selecting which options to

offer in the e-commerce channel? Please discuss the impacts of each of the following options (i.e. a-c) on 1) the order

placement (i.e. the web design that enables consumers’ ordering of the option), 2)manufacturing processes, 3) facility layout, and 4) added value to customers:

a)an added handle;

b)different color logos; and

c)different size panels—means customers can specify panel sizes, which may be non-standard. You need to discuss how each of a), b) and c) affects items 1)—4).

CASE CHAPTER 15: QUANTITATIVE DATA ANALYSIS: HYPOTHESIS TESTINGPERCEPTIONS OF ORGANIZATIONAL ATTRACTIVENESSINTRODUCTION When Song Mei Hui moved from being Vice President for Human Resources at Pierce & Pierce in Shanghai to her international assignment in New York, she was struck by the difference in perception of Pierce & Pierce as an employer in China and the United States. Pierce & Pierce in China stands for an attractive and popular place to work, as opposed to its image as an employer in the United States, which was one of an unattractive, traditional, and uninspiring place of work. This difference in perception was bothering Song Mei Hui, because a strong and appealing ‘employer brand’ has the capacity to attract (and retain) talent as denoted by the number of university graduates aspiring to work for companies such as SAS, Google, Cisco, and the Boston Consulting Group.According to Song Mei Hui, the drivers of employer attractiveness have evolved into a complex and challenging set in this day and age. Even though she believes that the success of the organization itself is at the cornerstone of being an attractive employer (and Pierce & Pierce is flourishing indeed), she feels that a wide variety of factors contribute to being successful in attracting and retaining talent. “For many employees, being a part of a profitable, thriving corporation is a reward on its own,” she says. “However, this is obviously not enough. Opportunities for empowerment, a feeling of achievement, a substantial compensation package, and a culture of grooming and development also play a major role in the decision making process of today’s young professionals. Job candidates are looking for a career, and not just for a job.”Song Mei Hui has hired a graduate student in management, Timothy Brice, to develop and test a model of employer attraction. The results of Timothy’s study should help Pierce & Pierce to become more popular as an employer in the United States and hence to attract and retain talented young professionals. Timothy has conducted a literature review and in-depth interviews with graduate students and young professionals who have just started their careers in order to establish the drivers of employer attractiveness. Based on the results of the literature review and the qualitative study, he has developed the following model. CONCEPTUAL MODEL AND HYPOTHESESFigure 1: A conceptual model of employer attraction EMPLOYER BRAND IMAGE From this model, Timothy has derived the following hypotheses. The effect of Brand Image on Employer attraction Employer brand image can be defined as the potential applicants’ perceptions of instrumental and symbolic attributes of an organization (cf. Backhaus and Tikoo, 2004; Lievens and Highhouse, 2003; Lievens, 2007; Martin, Beaumont, Doig and Pate, 2005). The instrumental dimension includes tangible attributes related to the job and/or the organization such as ‘job opportunities’, whereas the symbolic dimension includes (the perception of) intangible attributes of an employer (as if it were a person) such as ‘sincerity’ and ‘being exciting’. Both instrumental and symbolic attributes have been found to affect applicant attraction to an employer (Backhaus and Tikoo, 2004; Cable and Turban, 2001; Turban and Greening, 1997). Therefore, the following hypotheses are proposed:H1a: The more positive the perception of instrumental attributes of an employer, the stronger applicant attraction to the organization. H1b: The more positive the perception of symbolic attributes of an employer, the stronger applicant attraction to the organization. Feelings of significant others.If significant others in someone‘s surrounding (e.g., family and friends) tell this person that a company is a much better employer than other employers, someone’s level of attraction to Instrumental attributes:-Workplace atmosphere-Job opportunities-Industry characteristicsEmployer attractionSymbolic attributes:-Excitement-Sincerity-PrestigeSubjective normsCONCEPTUAL MODEL AND HYPOTHESESFigure 1: A conceptual model of employer attraction EMPLOYER BRAND IMAGE From this model, Timothy has derived the following hypotheses. The effect of Brand Image on Employer attraction Employer brand image can be defined as the potential applicants’ perceptions of instrumental and symbolic attributes of an organization (cf. Backhaus and Tikoo, 2004; Lievens and Highhouse, 2003; Lievens, 2007; Martin, Beaumont, Doig and Pate, 2005). The instrumental dimension includes tangible attributes related to the job and/or the organization such as ‘job opportunities’, whereas the symbolic dimension includes (the perception of) intangible attributes of an employer (as if it were a person) such as ‘sincerity’ and ‘being exciting’. Both instrumental and symbolic attributes have been found to affect applicant attraction to an employer (Backhaus and Tikoo, 2004; Cable and Turban, 2001; Turban and Greening, 1997). Therefore, the following hypotheses are proposed:H1a: The more positive the perception of instrumental attributes of an employer, the stronger applicant attraction to the organization. H1b: The more positive the perception of symbolic attributes of an employer, the stronger applicant attraction to the organization. Feelings of significant others.If significant others in someone‘s surrounding (e.g., family and friends) tell this person that a company is a much better employer than other employers, someone’s level of attraction to Instrumental attributes:-Workplace atmosphere-Job opportunities-Industry characteristicsEmployer attractionSymbolic attributes:-Excitement-Sincerity-PrestigeSubjective norms that particular organization will grow. It is generally recognized that potential applicants often consult other people (e.g., family, friends, and/or acquaintances) about jobs and organizations(e.g., Van Hoye and Lievens, 2007)”. What’s more, Turban (2001) found that university personnel’s beliefs about organizations affect students’ attraction to that organization. Kilduff (1990) also found that in the early stages of job search, college students are heavily influenced by the beliefs of their friends and classmates. These findings all point at the relevance of social influences to potential applicants in influencing the level of employer attraction. Hence, the following hypothesis is proposed: H2: The more positive significant others are about an organization, the stronger applicant attraction to the organization. To test these hypotheses, Timothy has undertaken a quantitative field study. He has collected data using a questionnaire measuring the variables in his model and a couple of respondent characteristics such as age, gender, and level of education with closed-ended questions. The results of this study are provided next. RESULTSTable 1 provides the means and standard deviations of the variables of interest to this studyand the results of a multiple regression analysis that was conducted to test the hypotheses of this study. Table 1 Summary statistics and results of the regression analysis Adjusted R2dfFMSDBSEtpRegression.3657, 897.304-----.000aConstant--2.213.5224.238.000Instrumental attributesWorkplace atmosphere4.32.75.088.152.577.565Job opportunities4.73.75.390.1362.868.005Industry characteristics4.24.74.275.1861.473.144Symbolic attributesExcitement3.78.91.071.149.474.637Sincerity5.13.80.109.137.794.429Prestige4.05.81.146.1151.268.208Subjective norm4.981.13.317.1003.169.002 Employer attraction3.711.23----Note. df = degrees of freedom; F = F-statistic; M = Mean; SD = Standard deviation; B = Unstandardized beta coefficient; SE = standard error; t = t-statistic; p = significance level; Scale 1-7 a. Predictors: (Constant), Workplace atmosphere, Job opportunities, Industry characteristics, Excitement, Sincerity, Prestige, Subjective norm.b. Dependent Variable: Employer Attraction.N= 197 (88 men and 109 women). QUESTIONS1. a. Discuss the following statement: “One of the most important issues in regression analysis concerns model specification (the determination of which independent variables should be included in or excluded from a regression equation).” b. Do you like Timothy’s model? Is it, for example, in line with Song Mei Hui’s ideas? 2. What’s the difference between simple regression analysis and multiple regression analysis?3. Why can’t Timothy run a series of simple regressions (for instance three or seven) to test the hypotheses of his study? 4. Provide the equation of Timothy’s model. 5. Interpret the results of the regression analysis. Discuss: a. the model fit; b. the significance of the model; c. the constant; d. the statistical validity of the beta coefficients; e. the face validity of the results.6. A common problem encountered in regression analysis is multicollinearity. a. What is multicollinearity and how does it affect the estimates of the regression coefficients?b. Describe two ways to test for multicollinearity. Which one do you prefer?c. Suppose that multicollinearity is a problem in this study. What can Timothy do about it? d. Do you expect that multicollinearity is a problem in this study? Explain.7. Timothy suggests that Pierce & Pierce should create more exciting jobs to attract more employees since the mean of the independent variable “excitement” is relatively low. Do you agree?8. What managerial conclusions can you draw based on the results of the regression analysis? 9. Song Mei Hui believes that the gender of potential employees may affect the original relationship between prestige and employer attraction. She asks Timothy to test this idea.a. How can Timothy test this idea? b. Provide a new equation of the model: include Song’s ideas about the moderating effect of gender on the relationship between prestige and employer attraction.10. Discuss the following statement: “Regression analysis does not address the issue of causality.”

Vic Corporation refines petrol and sells it through its own petrol gas stations. On the basis of market research, Vic Corporation determines that 60% of the overall petrol market consists of “service-oriented customers,” medium- to high-income individuals who are willing to pay a higher price for gas if the gas stations can provide excellent customer service, such as a clean facility, a convenience store, friendly employees, a quick turnaround, the ability to pay by credit card, and high-octane premium petrol. The remaining 40% of the overall market are “price shoppers” who look to buy the cheapest petrol available. Vic Corporation’s strategy is to focus on the 60% of service-oriented customers. Vic Corporation’s balanced scorecard for 2018 follows. For brevity, the initiatives taken under each objective are omitted.

Objectives	Measures	Target Performance	Actual Performance
Financial Perspective
Increase shareholder value	Operating-income changes from price recovery	$80,000,000	$85,000,000
	Operating-income changes from growth	$60,000,000	$62,000,000
Customer Perspective
Increase market share	Market share of overall gasoline market	4%	3.8%
Internal-Business-Process Perspective
Improve gasoline quality	Quality index	92 points	93 points
Improve refinery performance	Refinery-reliability index (%)	91%	91%
Ensure gasoline availability	Product-availability index (%)	99%	99.5%
Learning-and-Growth Perspective
Increase refinery process capability	Percentage of refinery processes with advanced controls	94%	95%

Required:

1. Was Vic Corporation successful in implementing its strategy in 2018? Explain your answer.
2. Would you have included some measure of employee satisfaction and employee training in the learning-and growth perspective? Are these objectives critical to Vic Corporation for implementing its strategy? Why or why not? Explain briefly.
3. Explain how Vic Corporation did not achieve its target market share in the total gasoline market but still exceeded its financial targets. Is “market share of overall gasoline market” the correct measure of market share? Explain briefly.
4. Do you agree with Vic Corporation’s decision not to include measures of changes in operating income from productivity improvements under the financial perspective of the balanced scorecard? Explain briefly.

2. You are designing a puzzle video game that requires fast reaction skills. Note that games such as this can be used in medical settings as methods of psychological and mental assessment, and do not only have uses for entertainment.

You are creating a game where players are supposed to do a simple task, but the simple task changes when the background colour of the game changes, which happens unpredictably. There are four possible background colours, where players are told that each one is associated with a specific described task for them to complete. One round of the game consists of each background colour appearing once in a random order (for example, red, green, blue, yellow). The length of time that a background colour lasts before it changes has an Exponential distribution with parameter λ, but you have not decided on the value of λ yet. If Ti is the length of time that the ith background colour lasts, then Ti ∼ Exp(λ).

(a) Recall that one ‘round’ of the game consists of all four background colours appearing once each. First, define a new random variable for the length of time that a round lasts, and express it in terms of the Ti random variables. Second, state the distribution of the new random variable in terms of λ. Third, suggest a value for λ such that the expected length of time for a single round would be 12 seconds.

(b) If this game was being used in a medical setting to assess mental attentiveness or reaction time, then there might be worry that a single round of the game would be a poor assessment of the desired trait in the patient. Collecting more information would be better, and it might also be better to vary the order that the coloured backgrounds appear. You decide that the game will have multiple rounds, and there will be one round for every single possible order that the four colours can appear in (i.e., there will be one ‘red, green, blue, yellow’ round, one ‘green, red, yellow, blue’ round, etc.). In between each round, there will be 2 seconds of black screen time to offer a moment for the patient to gather themselves. Calculate the expected length of a whole game from start to finish, using your suggested λ from Part (a). Do not include any black screen time before the first round or after the last round.

Vic Corporation refines petrol and sells it through its own petrol gas stations. On the basis of market research, Vic Corporation determines that 60% of the overall petrol market consists of “service-oriented customers,” medium- to high-income individuals who are willing to pay a higher price for gas if the gas stations can provide excellent customer service, such as a clean facility, a convenience store, friendly employees, a quick turnaround, the ability to pay by credit card, and high-octane premium petrol. The remaining 40% of the overall market are “price shoppers” who look to buy the cheapest petrol available. Vic Corporation’s strategy is to focus on the 60% of service-oriented customers. Vic Corporation’s balanced scorecard for 2018 follows. For brevity, the initiatives taken under each objective are omitted.

Objectives	Measures	Target Performance	Actual Performance
Financial Perspective
Increase shareholder value	Operating-income changes from price recovery	$80,000,000	$85,000,000
	Operating-income changes from growth	$60,000,000	$62,000,000
Customer Perspective
Increase market share	Market share of overall gasoline market	4%	3.8%
Internal-Business-Process Perspective
Improve gasoline quality	Quality index	92 points	93 points
Improve refinery performance	Refinery-reliability index (%)	91%	91%
Ensure gasoline availability	Product-availability index (%)	99%	99.5%
Learning-and-Growth Perspective
Increase refinery process capability	Percentage of refinery processes with advanced controls	94%	95%

Required:

1. Was Vic Corporation successful in implementing its strategy in 2018? Explain your answer.
2. Would you have included some measure of employee satisfaction and employee training in the learning-and growth perspective? Are these objectives critical to Vic Corporation for implementing its strategy? Why or why not? Explain briefly.
3. Explain how Vic Corporation did not achieve its target market share in the total gasoline market but still exceeded its financial targets. Is “market share of overall gasoline market” the correct measure of market share? Explain briefly.
4. Do you agree with Vic Corporation’s decision not to include measures of changes in operating income from productivity improvements under the financial perspective of the balanced scorecard? Explain briefly.

1.Vic Corporation refines petrol and sells it through its own petrol gas stations. On the basis of market research, Vic Corporation determines that 60% of the overall petrol market consists of “service-oriented customers,” medium- to high-income individuals who are willing to pay a higher price for gas if the gas stations can provide excellent customer service, such as a clean facility, a convenience store, friendly employees, a quick turnaround, the ability to pay by credit card, and high-octane premium petrol. The remaining 40% of the overall market are “price shoppers” who look to buy the cheapest petrol available. Vic Corporation’s strategy is to focus on the 60% of service-oriented customers. Vic Corporation’s balanced scorecard for 2018 follows. For brevity, the initiatives taken under each objective are omitted.

Objectives	Measures	Target Performance	Actual Performance
Financial Perspective
Increase shareholder value	Operating-income changes from price recovery	$80,000,000	$85,000,000
	Operating-income changes from growth	$60,000,000	$62,000,000
Customer Perspective
Increase market share	Market share of overall gasoline market	4%	3.8%
Internal-Business-Process Perspective
Improve gasoline quality	Quality index	92 points	93 points
Improve refinery performance	Refinery-reliability index (%)	91%	91%
Ensure gasoline availability	Product-availability index (%)	99%	99.5%
Learning-and-Growth Perspective
Increase refinery process capability	Percentage of refinery processes with advanced controls	94%	95%

Required:

1. Was Vic Corporation successful in implementing its strategy in 2018? Explain your answer.
2. Would you have included some measure of employee satisfaction and employee training in the learning-and growth perspective? Are these objectives critical to Vic Corporation for implementing its strategy? Why or why not? Explain briefly.
3. Explain how Vic Corporation did not achieve its target market share in the total gasoline market but still exceeded its financial targets. Is “market share of overall gasoline market” the correct measure of market share? Explain briefly.
4. Do you agree with Vic Corporation’s decision not to include measures of changes in operating income from productivity improvements under the financial perspective of the balanced scorecard? Explain briefly.

2. You are designing a puzzle video game that requires fast reaction skills. Note that games such as this can be used in medical settings as methods of psychological and mental assessment, and do not only have uses for entertainment.

You are creating a game where players are supposed to do a simple task, but the simple task changes when the background colour of the game changes, which happens unpredictably. There are four possible background colours, where players are told that each one is associated with a specific described task for them to complete. One round of the game consists of each background colour appearing once in a random order (for example, red, green, blue, yellow). The length of time that a background colour lasts before it changes has an Exponential distribution with parameter λ, but you have not decided on the value of λ yet. If Ti is the length of time that the ith background colour lasts, then Ti ∼ Exp(λ).

(a) Recall that one ‘round’ of the game consists of all four background colours appearing once each. First, define a new random variable for the length of time that a round lasts, and express it in terms of the Ti random variables. Second, state the distribution of the new random variable in terms of λ. Third, suggest a value for λ such that the expected length of time for a single round would be 12 seconds.

(b) If this game was being used in a medical setting to assess mental attentiveness or reaction time, then there might be worry that a single round of the game would be a poor assessment of the desired trait in the patient. Collecting more information would be better, and it might also be better to vary the order that the coloured backgrounds appear. You decide that the game will have multiple rounds, and there will be one round for every single possible order that the four colours can appear in (i.e., there will be one ‘red, green, blue, yellow’ round, one ‘green, red, yellow, blue’ round, etc.). In between each round, there will be 2 seconds of black screen time to offer a moment for the patient to gather themselves. Calculate the expected length of a whole game from start to finish, using your suggested λ from Part (a). Do not include any black screen time before the first round or after the last round.

Subject: 51 year Caucasian female                                     

Height: 5'5"                                                                              

Weight: 190 lbs                                                                            

Vitamin D Status: 12 ng/ml                                                    

Waist-to-Hip Ratio: 1.1

Body Fat %: 42% (via DXA)

Conditions Include:

type 2 Diabetic                                                                        

Hyperlipidemia                                                                       

Osteopenia (via DXA Scan)

Non-alcoholic Fatty Liver Disease (NAFLD)    

Vitamin D Status: 12 ng/ml                                                    

Hypertension

Sarcopenia

She states that she is essentially leading a sedentary lifestyle, but is motivated to make nutrition and exercise changes to improve health.

Dietary Recall:  Inadequate intake of Calcium, Vitamin D, Viscous-gel forming fiber, Omega-3 FAs.  Excess intake of Total FAT, Saturated FAT, and Trans FAT

Discuss:

1.      Calculate BMI and BMI category she calculates into.

2.      Dietary recall...discuss the recommended intake of nutrients listed above for this subject, and thus what levels of each she either did not meet or exceeded. Then list foods she could add or eliminate to improve dietary intake.

3.      For every condition listed above (Type 2 Diabetic, Hyperlipidemia etc.), discuss how each is diagnosed (test or technique used; cutoff values to determine

diagnosis).

4.      Discuss interrelationships between conditions listed above...how these conditions are linked and exacerbate entire overall health status.

5.      Discuss realistic dietary and exercise changes she could begin to implement in her routine to improve overall health...discuss mechanisms of improvement for

each condition where appropriate.

Vitamin D

1.      Discuss in detail the synthesis and activation of Vitamin D

2.      Discuss Vitamin D status...what is measured and cutoff values for different categories (sufficient, insufficient, deficient)

3.      Discuss food sources and lifestyle changes she could add to improve Vitamin D status.

4.      Discuss recommended Vitamin D intake (from food, supplementation, and sun exposure) for her to achieve sufficient Vitamin D status in a safe manner.

5.      Discuss in detail the mechanisms or potential/proposed mechanisms that Vitamin D could improve each condition listed above.

1. Maximising revenue should be the goal of the company.

   True

   False

2. QUESTION 2Which one of the following statements about business valuation is NOT true?

3. 		Actions by competitors also affect the value of a business.
   		The value of a business changes over time.
   		There is no such thing as the market value for a business.
   		There is a single value for any business.

4. QUESTION 3In finance, the fundamental determinant of an asset's value is the future cash flow it is expected to generate.

5. True

   False

6. 1 points   

   QUESTION 4It is easier to calculate the market value of a private firm, compared to a public firm.

7. True

   False

8. QUESTION 5Young, rapidly growing companies can be more difficult to value compared to mature, stable companies. Why?

9. 		Young companies might only have 2 or 3 years of historical records compared to a mature company with years of records.
   		Many young, rapidly growing companies are not yet profitable and their future is less certain than for mature companies.
   		Due to the amount of money already invested in a young company, cash flows will be negative for the first few years. This makes valuation more difficult.
   		All of the above

10. QUESTION 6An important issue that must be considered when valuing a business is whether a controlling ownership interest or a minority interest is being valued.

11. True

    False

12. QUESTION 7 There is no such thing as ONE value for a business, because...

13. 		the value of a business can be different to different investors.
    		valuing a business is really hard, and no one knows how to do it.
    		accountants and financial managers like to argue.
    		the share market goes up and down all the time.

14. QUESTION 8The value of a business changes over time because...

15. 		changes in general economic conditions, industry conditions, and decisions made by managers all affect value.
    		actions by competitors also affect value.
    		the investment, operating and financing decisions made by managers also affect value.
    		All of the above.

16. QUESTION 9What are the three categories of business valuation?

17. 		Cash flow, growth and capital approach
    		Cost, market and income approach
    		Profit, loss and Excel approach
    		Assets, liabilities and capital approachQUESTION 10'Market Capitalisation' of a company listed on the stock market refers to:

18. 		The market value of the company.
    		The fundamental value of the company.
    		The book value of the company.
    		Nothing, this is not a term we use in finance.