Question 1
Hello, I have sent this as an attachment but here it is below.Please let em know if you can work on this I have until about 5 pm Ongko?s Furniture Scenario While many people know that Bali, Indonesia is a beautiful vacation spot, it is also a large furniture manufacturing location in Southeast Asia. Jaya Ongko made furniture for years near his Bali home. The area had an effective supply of timber for the variety of tables and chairs produced by his company. Labor was also relatively inexpensive. In addition, he priced his handcrafted products at a slight premium for the quality they represented. Ongko not only supplied the surrounding countries in Southeast Asia, but also exported his hand-crafted premium products to more than 20 countries worldwide. Overall, life was good for Mr. Ongko. In the late 1990s, two forces combined to cause a large dent in his business. First, a new competitor from overseas entered the furniture market. Using a high-tech approach, the new foreign company provided furniture to exact specifications and did so with rock-bottom prices. Second, the sleepy communities in Bali woke up. One of the largest retailers in the nation?s headquarters was just a few miles down the road, and its influence had expanded considerably. With inexpensive housing, mild weather, beautiful scenery, uncongested roads, a new international airport, and plenty of development, an increase in the population and the number of jobs raised the cost of labor substantially. Ongko watched his profit margins shrink as prices fell and costs rose. After researching his competition to see how they were handling these changes, Ongko saw that many of them were consolidating into larger organizations by merger or acquisition. Being independent, Ongko did not relish the idea of being acquired by a larger competitor and then forced out as the new company squeezed every rupiah it could out of the overhead costs. Initially, Ongko was not a big fan of forming a joint venture, as it would affect time spent with his family in ways that he would not enjoy. When one of his former suppliers in Brazil approached him for a possible acquisition deal, Ongko became interested in the option of expanding his management responsibilities by acquiring this supplier, who had been underperforming in the Brazilian market. One factor that concerned him was the political unrest in Brazil, accompanied by hyperinflation. Prices of goods fluctuated wildly on a daily basis. At the same time, the government kept issuing more paper currency in higher denominations. Banks would restrict the amount of money people could withdraw. The effects on businesses were also devastating. Companies did not want to buy any goods, because they were not sure what price they would pay, and salaries did not keep up with inflation. Alternatively, Ongko observed the foreign competition and their high-tech solution. Essentially, their production utilized a computer-controlled laser lathe to produce exact cuts in the wood. Highly automated, the plant in Norway used very little labor as robots even performed the precise movement and assembly functions. The cost of the technology was immense, as was the reduction in the labor needed for production. In addition, the production, running on a 24-hour basis, could move between products quickly, as the shift-differentials were more than offset by the reduction in labor. Converting his production to this model would be expensive, but he saw how he could also dramatically decrease his production costs. When talking to some of his distributors about their wants, he had another appealing idea. A second competitor, operating only in Denmark, was looking for channels to distribute in Asia. This second potential rival, however, did not operate furniture outlets, favoring instead to rely on chain distributors. Ongko could coordinate his existing distributor network and essentially become a representative for this other manufacturer. While he would retain some of the high-end custom work, he could move his company from primarily manufacturing to primarily distributing. Ongko also had a patented process for creating a coating for his furniture. During production, the process first created a common flame retardant, and upon further processing, the coating is complete and stain-resistant. There was a market for the flame retardant, but not as much of a market for the finished coating. There was another product that Ongko could buy to apply to his furniture that would add the same amount of value to the furniture.,Hello Rachel, Are you by any chance reviewing the scenario for my question? Thanks for your assistance,Hello rachel, I am currently reviewing the paper Can you provide the website references used for WACC, 2010 and investopedia. I will authorize payment as soon as my review is completed Thanks
Question 2
Consider a project to supply Detroit with 55,000 tons of machine screws annually for automobile production. You will need an initial $1,700,000 investment in threading equipment to get the project started; the project will last for five years. The accounting department estimates that annual fixed costs will be $520,000 and that variable costs should be $220 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the five-year project life. It also estimates a salvage value of $300,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $245 per ton. The engineering department estimates you will need an initial net working capital investment of $600,000. You require a 13 percent return and face a marginal tax rate of 38 percent on this project. 1. Calculate the estimated operating cash flow and net present value for this project. 2. Explain how these calculations may impact the project. 3. Based on the above information, recommend whether or not the project should be pursued. Provide a detailed rationale. 4. Suppose you believe that the accounting department?s initial cost and salvage value projections are accurate only to within + -15 percent; the marketing department?s price estimate is accurate only to within + -10 percent; and the engineering department?s net working capital estimate is accurate only to within + -5 percent. What is your worst-case scenario for this project? Your best-case scenario? Do you still want to pursue the project? "
Question 3
Traditional versus Activity-Based Costing Systems Orange, Inc. manufactures three products for the computer industry: Product Annual Sales (Units) A 8,000 B 15,000 C 4,000 The company uses a traditional, volume-based product-costing system with manufacturing overhead applied on the basis of direct-labour pounds. The product costs have been computed as follows: Product A B C Raw material ??35.00 ??52.50 ??17.50 Direct labour ?16.00 (.8 hr at ?20) ?12.00 (.6 hr at ?20) ?8.00 (.4 hr at ?20) Manufacturing overhead* ?140.00 ?105.00 ?70.00 Total product cost ?191.00 ?169.50 ?95.50 * Calculation of predetermined overhead rate: Manufacturing overhead budget: Machine setup ? 5,250 Machinery 1,225,000 Inspection 525,000 Material handling 875,000 Engineering 344,750 Total ?2,975,000 Direct-labour budget (based on budgeted annual sales): Product A 8,000 ? ?16.00 = ?128,000 Product B 15,000 ? 12.00 = 180,000 Product C 4,000 ? 8.00 = 32,000 Total ?340,000 Predetermined overhead rate = Budgeted overhead ? budgeted direct labour = 875% Orange's pricing method has been to set a target price equal to 150% of full product cost. However, only the product B has been selling at its target price. The target and actual current prices for all three products are the following: Product A B C Product cost ?191.00 ?169.50 ?95.50 Target price 286.50 254.25 143.25 Actual current selling price 213.00 254.25 200.00 Orange has been forced to lower the price of product A in order to get orders. In contrast, Orange has raised the price of Product C several times, but there has been no apparent loss of sales. Orange, Inc. has been under increasing pressures to reduce the price even further on product A. In contrast, Orange's competitors do not seem to be interested in the market for product C. Orange apparently has this market to itself. Required: 1- Is product A the company's least profitable product? 2- Is product C a profitable product for Orange, Inc.? 3- Comment on the reactions of Orange's competitors to the company's pricing strategy. What dangers does Orange. Inc. face? 4- Orange's controller, Medo, recently attended a conference at which activity-based costing systems were discussed. He became convinced that such a system would help Orange's management to understand its product costs better. He got top management's approval to design an activity-based costing system, and an ABC project team was formed. In stage one of the ABC project, each of the overhead items listed in the overhead budget was placed into its own activity cost pool. Then a cost driver was identified for each activity cost pool. Finally, the ABC project team compiled data showing the percentage of each cost driver that was consumed by each product line. These data are summarised as follows: Activity Cost pool Cost Driver Product A B C Machine setup Number of setups 20% 30% 50% Machinery Machine hours 25% 50% 25% Inspection Number of inspections 15% 45% 40% Material handling Raw-material costs 25% 69% 6% Engineering Number of change orders 35% 10% 55% Show how the controller determined the percentages given above for raw-material costs. (Round to the nearest whole percent.) 5- Develop product costs for the three products on the basis of an activity-based costing system. 6- Calculate a target price for each product, using Orange's pricing formula. Compare the new target prices with the current actual selling prices and previously reported product costs. 7- Refer to the new target prices for Orange's three products, based on the new activity-based costing system. Write a memo to the company president commenting on the situation Orange, Inc. has been facing regarding the market for its products and the actions of its competitors. Discuss the strategic options available to management. What do you recommend, and why? 8- Prepare a table showing how Orange's traditional, volume-based product-costing system distorts the product costs of products A, B, and C.
Question 4
Notes: In the most recent fiscal year, its sales were $18 million with $2,500,000 in aftertax profits. Historically, the firm shipped out its goods with a 30 day pay period allowed, with no cash discount offered. In looking over the numbers, Beth (CEO) felt the customers, on average, were taking over 30 days to pay. The receivables were based on average daily credit sales of $54,274 throughout the year. Beth told AL (CFO) to consider the impact of a cash discount on the accounts receivable balance of the firm as well as its profitability. AL evaluated the effect of the three alternative cash discount policies shown in Table 2. He ran some pilot studies among customers and determined the results below. 10% of customers would take advantage of the 1% discount by paying within 10 days. If the 2% discount were offered, 25% would take it, and if the 3% discount were offered, 60% of the customers would take advantage of it. It was assumed in each case that those who do not take the discount would pay at the end of 30 days. Table 1. Accounts Receivables Outstanding, December 2006 Days Outstanding Amount 0-10 20,000 10-20 150,000 20-30 400,000 30-40 650,000 40-50 430,000 50-60 350,000 Total A/R 2,000,000 Table 2. New Terms for Cash Discounts Alternative Terms 1 1/10,net 30 2 2/10,net 30 3 3/10,net 30 He then computed the new average collection period(s) based on the data in the prior paragraph. With an assumption of average daily credit sales remaining at $54,274 per day, he also computed the anticipated new accounts receivable balance based on the three different cash discount policies. He was informed by his corporate treasurer that any freed up funds from accounts receivable could be used elsewhere in the corporation to earn a return of 18%. Required: 1. Compute the current average collection period based on the data in Table 1. In doing this, multiply the midpoint of the days outstanding, by the weight assigned to that category. For example, the midpoint of the second company is 15 days and the category represents 7.5% of total accounts receivable ($150,000/2,000,000). Its value is 1.125 days (15 days * .075). After this process is followed for all six categories, add up the total to get the average collection period. 2. Compute the new average collection period based on the terms in Table 2 and the results of the pilot study. Use the simplifying assumption that under the new policies all customers will all pay at the end of the 10th day or the end of the 30th day. i.e., for the 1/10, net 30 10% * 10 days= 1 day 90% * 30 days= 27 days 28 days average collection period 3. Assuming average daily credit sales remain at $54,274 per day, what will be the new accounts receivable balance based on the three new cash discount policies? Accounts receivable= average collection period * average daily credit sales 4. Compute the cost of the cash discount based on the three policies under consideration. Recall the total credit sales were $18 million. Multiply total credit sales times the percent that use the discount for each new discount policy times the size of the discount. 5. Compute the amount of freed up funds based on the three different cash discount policies based on the following: Old accounts receivable (given in table 1) New accounts receivable (Question 3) Freed up funds
Question 5
The large buildup in sales before and during June is due to Father?s Day. Ending inventories are supposed to equal 90% of the next month?s sales in units. The ties cost the company $5 each. Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 25% of a month?s sales are collected by month-end. An additional 50% is collected in the following month, and the remaining 25% is collected in the second month following sale. Bad debts have been negligible. The company?s monthly selling and administrative expenses are given below: (See Attached) All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Land will be purchased during May for $25,000 cash. The company declares dividends of $12,000 each quarter, payable in the first month of the following quarter. The company?s balance sheet at March 31 is given below: (See Attached) The company has an agreement with a bank that allows it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $40,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $10,000 in cash. Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets: 1. a. A sales budget by month and in total. b. A schedule of expected cash collections from sales, by month and in total. c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.
