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2020 Problem Mojakoe

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21 views6 pages

2020 Problem Mojakoe

Uploaded by

dara ibthia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Problem 1 – Decision Making and Relevant Information (Special Order)

Oldbury Packaging operates a packaging machinery with a monthly capacity of 4,500 machine-
hours. Oldbury has two main customers: Rhode Corporation and James Corporation.
Data on each customer for February are:
Rhode Corporation James Corporation Total
Revenues $210,000 $300,000 $510,000
Variable costs 120,000 150,000 $270,000
Contribution margin 90,000 150,000 $240,000
Fixed costs (allocated) 80,000 110,000 $190,000
Operating income $ 10,000 $ 40,000 $ 50,000
Machine-hours required 1,500 hours 3,000 hours 4,500
hours

Rhode Corporation indicates that it wants Oldbury to do an additional $70,000 worth of


packaging jobs during March. These jobs are identical to the existing business Oldbury did
for Rhode in February in terms of variable cost and machine-hours required. Rodeo
anticipates that the business from James Corporation in March will be equal to that in
February. Oldbury can choose to accept as much of the Rhode and James business for March
as its capacity allows. Assume that total machine-hours and fixed cost for March will be the
same as in February.
Required:

1. What should Oldbury do to maximize its operating income? Show your calculations.
2. What other factors should Oldbury consider before making a decision?

Problem 2 – Pricing Decision and Cost Management

White Leather Jacket’s sales have been suffering from losses in the past year. Market research
indicates that White Leather Jackets can only be sold for $380. The product has been sold for
$450 per unit thus far and the cost of production is $250 per unit. The Fabricator Inc. decides
to follow the research results and sells their products at $380 per unit. Annual sales target with
the new price is estimated to be 910 units (an increase by 30% compared to current sales). The
Fabricator Inc. desires a 30% profit from revenue.

Required:
1. Find target operating income
2. Find target cost per unit
3. Find the difference in current operating income and estimated operating income,
assuming only sales price changes and sales increase estimation is correct.
4. Find target cost assuming the company desires the same operating income as the current
period with estimated sales increase being correct.
5. Explain how the company can achieve the targeted cost

Problem 3 – Management Control System and Transfer Pricing


Green Corporation has 2 divisions, they are the Milk division, who collects milks from the
firm’s cows, and the Cheese division who processes milk into cheese. The production capacity
of the Milk division is 600,000 gallons while the Cheese division has a capacity of 100,000 kg.
The Cheese division processes 1,000kg of cheese for every 3,000 gallons of milk. The
following data are available for both the milk and cheese division:
Milk Division Cheese Division
Selling Price / gallon $2.5 Selling Price / kg $18
Variable Production cost / $0.5 Variable Processing Cost / kg $3
gallon
Fixed Production Cost / gallon $1 Fixed Processing Cost / kg $2.5
(Based on 600,000 gallons of (Based on 100,000 kg of output)
output)

Required:

1. Assume that the Milk division can sell all that it produces whereas the Cheese division
could buy all its milk from an external supplier for $3/gallon. What are the minimum
and maximum transfer prices?
2. Assume that the Milk division has an idle capacity of 200,000 gallons whereas the
Cheese division could buy all its milk from an external supplier for $3/gallon. What are
the minimum and maximum transfer prices?
3. Assuming that the Milk division has to always transfer 300,000 gallons of milk to the
Cheese division, calculate the operating income of each division for the 300,000 gallons
using the following transfer pricing methods (Assume that fixed production and
processing cost remains constant):
a) Market Price
b) 180% at full cost

4. Following requirement 3, which transfer pricing method would each manager prefer?

Problem 4 – Performance Evaluation (ROI, RI, EVA)


United Houseworks Company operates 2 divisions, Studying Table Division and Ergonomic
Chair Division. Some division financial measures for 2020 are as follows:
Studying Table Division Ergonomic Chair Division
Total Assets $44.000.000 $38.500.000
Current Liabilities $8.400.000 $12.300.000
Operating Income $4.265.000 $3.985.000
Required Rate of 10% 10%
Return

Required:

1. Calculate return on investment (ROI) for each division using operating income as a
measure of income and total assets as a measure of investment.
2. Calculate residual income (RI) for each division using operating income as a measure
of income and total assets minus current liabilities as a measure of investment.
3. Camie Farraday, the Studying Table Division manager, argues that the Ergonomic
Chair Division has “loaded up on a lot of short-term debt” to boost its RI. Calculate an
alternative RI for each division that is not sensitive to the amount of short-term debt
taken on by the Ergonomic Chair Division. Comment on the result.
4. United Houseworks Company, whose tax rate is 35%, has two sources of funds: long-
term debt with a market value of $20,000,000 at an interest rate of 10% and equity
capital with a market value of $12,000,000 and a cost of equity of 15%. Applying the
same weighted-average cost of capital (WACC) to each division, calculate EVA for
each division.
5. Use your preceding calculations to comment on the relative performance of each
division.
Problem 5 – Balance Scorecard

Orange Corporation manufactures several kinds of computers. Orange Corporation chooses to


undertake the product differentiation strategy by offering products and services which the
customers perceives to be superior and unique relative to the other competitors. However, as
of 2018, Orange Corporation has an on-time delivery rate of 75% and an order delivery time
of 35 days which are considered quite low and slow compared to their competitors. In 2019,
Orange Corporation expects to increase their on-time delivery rate and reduce their delivery
time. Orange Corporation’s balance scorecard measures for 2019 follows:

Objectives Measures Target Actual


Performance Performance
Financial Perspective
Increase Shareholder Increase in Operating $4,500,000 $5,000,000
Value Income due to
increase in the
number of customers
and/or improved
delivery
Customer Perspective
Increase Market Market share in 8% 10%
Share computers
Internal Business Process Perspective
Reduce Delivery Order Delivery Time 20 days 25 days
Time
Meet Specified On-time Delivery 90% 80%
Delivery Dates Rate
Learning and Growth Perspective
Increase Employee Percentage of 70% 80%
Competence Employees trained in
Processes
Enhance Information Percentage of 90% 92%
System Capabilities Business Processes
with real-time
feedback

Required:
1. Was Orange Corporation successful in implementing its strategy in 2019? Please
explain your answer briefly.
2. Would you have included some measure of employee satisfaction in the learning and
growth perspective? Are these objectives critical to Orange Corporation for
implementing its strategy? Please explain briefly.

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