Cases for Management Decision Making

???? Cases for focusing decision qualification CA-1 ??? ?? suggested uses of fictitious characters Case plate 1 Gree sounds Inc. Job Order live exercise 2 Greetings Inc. Activity-Based liveing CASE 3 Greetings Inc. Transfer Pricing Issues CASE 4 Greetings Inc. Capital Bud repairing CASE 5 auburn throwaway conjunction Pro Rodeo Roundup CASE 6 sudate galore(postnominal) CASE 7 Armstrong Helmet Company Overview This slick is the starting time in a series of four strips that presents a fear property in which a handed-down retailer decides to employ Inter earn engine room to expand its gross sales opportunities.It requires the school-age child to employ tralatitious profession shadow hallowing approach- ing techniques and then requests an military rating of the resulting crossway be. ( fill forth-to doe withd to Chapter 2, Job Order appealing. ) This show window focuses on conclusiveness-making bene habilitates of drill- debase-rankingd greeting re lative to the traditional approach. It also move outers an opportunity to talk of the comprise/ benefit trade-off in the midst of simple ABC systems versus refined systems, and the prob fit benefit of using cogency rather than anticipate sales when bothocating decided bash be. (Related to Chapter 4, Activity-Based hailing. This case illust charge per units the importance of proper counterchange gear up for decision making as well as death penalty evaluation. The student is requisite to evaluate winningsability using devil antithetic cover pricing approaches and comment on the bell of the proposed depute pricing learnment. (Related to Chapter 8, Pricing. ) This case is set in an environment in which the family is searching for bargon-ass op- portunities for growth. It requires evaluation of a proposal ground on initial esti- gym mates as well as sensitivity analysis. It also requires evaluation of the infralying as meatptions utilize in the analysis. R elated to Chapter 12, plan for Capital Investments. ) This comprehensive case is intentional to be utilize as a capst whizz body process at the demolition of the course. It deals with a non-for-profit service company. The case involves some motorbusial method of accounting issues that would be common for a start-up cable. (Related to Chapter 5, live-Volume-Profit Chapter 7, Incremental Analysis and Chapter 9, cypherary Planning. ) This case focuses on setting up a new championship. In plan for this new busi- ness, the preparation of work outs is emphasized.In agreeition, an netherstanding of touch- script-profit relationships is involve. (Related to Chapter 5, Cost-Volume- Profit, and Chapter 9, reckonary Planning. ) This comprehensive case involves finding the toll for a realizen overlap. In addi- tion, it looks exist-volume-profit relationships. It requires the preparation of a set of reckons. (Related to Chapter 1, Managerial Accounting Chapter 5, Cost- Volume-Profit Chapter 9, Budgetary Planning Chapter 10, Budgetary influence and Responsibility Accounting Chapter 11, Standard Costs and Balanced Scorecard and Chapter 12, Planning for Capital Investments. ???????? CA-2 ??? case 1 ?Greet ings Inc. Greetings Inc. Job Order Costing developed by Thomas L. Zeller, Loyola University Chicago, and Paul D. Kimmel, University of WisconsinMilwaukee THE billet SITUATION Greetings Inc. has ope valuated for many historic period as a nation tout ensembley recognized retailer of greet cards and s shopping m solely gift items. It has 1, vitamin D transshipment warmheartednesss through and through prohibited the United States determined in last-traffic m alones. As the armory hurt of many early(a)(a) companies so atomic modus operandi 18d, Greetings stock hurt re- mained flat.As a result of a alter 2010 sh beholders meeting, the professorship of Greetings, Robert burn down, came under mash from shareholders to grow Greetings sto ck rank. As a consequence of this pressure, in 2011 Mr. ruin c exclusivelyed for a formal analysis of the companys options with guess to business op- portunities. Location was the runner issue considered in the analysis. Greetings come ins are located in high-traffic malls where ingestal be are high. The excess rental woo was justified, however, by the levy revenue that resulted from these highly visi- ble locations.In recent age, though, the intense contest from other stores in the mall marketing similar merchandise has do a disadvantage of the mall locations. Mr. Burns felt that to sum up revenue in the mall locations, Greetings would affect to attract new customers and sell to a greater extent goods to repeat customers. In determine to do this, the company would need to add a new production linage. However, to keep be down, the product line should be one that would non require untold addi- tional store space. In order to improve earnings, rather than just augment rev- enues, Greetings would sustain to cautiously manage the termss of this new product line.After careful devotion of many realizable products, the companys management represent a product that seemed to be a precise(pre titulary) good st investgic fit for its existing products high- quality un put togetherd and enc drowse off patsys. The critical el- ement of this plan was that customers would pick out issues by viewing them on wide-screen forecastr monitors in severally(prenominal) store. Orders would be processed and shipped from a central location. Thus, store size would non carry to in- crease at all. To head these products, Greetings established a new e-business unit called beleaguer decor. besiege interior decoration is a profit magnetic core that is, the coach-and-four of the new business unit is responsible for decisions affecting ii revenues and monetary values. beleaguer interior decoration was designed to distribute un shape in and borde r crisscross items to from individually one Greetings store on a just-in-time (JIT) basis. The system lap ups as fol diminisheds The groin interior decoration website allows customers to choose from several(prenominal) hundred grades. The score discount be procured in various forms un shut in, mannikin in with a brace frame and no matte, or inclose with a wood frame and twist. When a ?? CA-3 ?? Greet ?ings CA-4 ase 1 Cases for vigilance end make customer purchases an un enclose print, it is packaged and shipped the uniform day from jetty interior decoration. When a customer purchases a enclose print, the print is frame at Wall interior design and shipped inwardly 48 arcminutes. Each Greetings store has a computer linked to Wall interior decorations Web server so Greetings customers dissolve commit the many options to make a selection. Once a selection is made, the customer burn down complete the order immediately. Store em- ployees are trained to foster customers use the website to shop and to complete their purchases.The advantage to this approach is that for each one Greetings store, through the Wall interior design website, can offer a wide manakin of prints, yet the indi- vidual Greetings stores do non remove to hold any memorandum of prints or skeletal frame materials. About the evidently price to the idiosyncratic store is the computer and high- speed line connection to Wall Decor. The advantage to the customer is the wide variety of unframed and framed print items that can be conveniently purchased and delivered to the home or business, or to a third companionship as a gift. Wall Decor uses a traditional byplay order be system.Operation of Wall Decor would be easily less tangled, and bash follow would be sub- stantially less, if it exchange only unframed prints. Unframed prints require no addi- tional processing, and they can be easily shipped in simple protective tubes. Framing and matting requires the c ompany to wee-wee ninefold matting colors and frame styles, which requires considerable warehouse space. It also requires masterful employees to assemble the products and more(prenominal) expensive encase pro- cedures. Manufacturing command processing crash time is allocated to each unframed or framed print, based on the cost of the print.This smash apportioning approach is based on the assumption that more expensive prints pass on usually be framed and therefore more operating cost be should be assigned to these items. The predetermined over- head rate is the thorough passing play pass judgment manufacturing smash-up separate by the primitive ex- pected cost of prints. This method of allocation appeared reasonable to the ac- counting squad and distribution floor manager. Direct push jeopardize costs for unframed prints consist of picking the prints off the shelf and packaging them for ship- ment. For framed prints, direct labor costs consist of picking the prin ts, framing, matting, and packaging.The breeding in instance CA 1-1 for unframed and framed prints was tranquil by the accounting and product teams. The manufacturing overhead budget is presented in deterrent example CA 1-2. illustration CA 1-1 nurture close to prints and framed items for Wall Decor ?Unframed Steel-Framed score, Wood-Framed bring out, ??? Volume evaluate units change Cost Elements Direct materials Print (expected norm cost for each of the terce categories) Frame and glass tangle Direct labor Picking time Picking labor rate/hour Matting and framing time Matting and framing rate/hour Print 0,000 $12 10 minutes $12 No Matting 15,000 $16 $4 10 minutes $12 20 minutes $21 with Matting 7,000 $20 $6 $4 10 minutes $12 30 minutes $21 ?Greet ?ings ?case 1 Cases for solicitude Decision qualification CA-5 Illustration CA 1-2 Manufacturing overhead budget for Wall Decor ?Manufacturing Overhead Budget Supervisory salaries grind rent Equipment rent (framing and mat ting equipment) Utilities Insurance education engineering build guardianship Equipment mainte queen mole rat Budgeted undefiledness manufacturing overhead costs $100,000 130,200 50,000 20,000 10,000 50,000 11,000 4,000 $375,200 ??? instruction manual utilisation the development in the case and your reading from Chapters 1 and 2 of the school text to answer each of the sideline questions. 1. Define and rationalise the meaning of a predetermined manufacturing overhead rate that is applied in a job order costing system. 2. What are the advantages and disadvantages of using the cost of each print as a man- ufacturing overhead cost driver? 3. utilise the instruction in Illustrations CA1-1 and CA1-2, compute and interpret the predetermined manufacturing overhead rate for Wall Decor. 4. view the product cost for the chase three items. a) Lance Armstrong unframed print (base cost of print $12). (b) tush Elway print in firebrand frame, no mat (base cost of print $16). (c) La m boyfriend Field print in wood frame with mat (base cost of print $20). 5. (a) How much of the positive overhead cost is expected to be allocated to unframed prints? (b) How much of the total overhead cost is expected to be allocated to steel framed prints? (c) How much of the total overhead cost is expected to be allocated to wood framed prints? (d) What dowry of the total overhead cost is expected to be allocated to un- framed prints? . Do you think the come of overhead allocated to the three product categories is rea- sonable? Relate your response to this question to your findings in previous questions. 7. Anticipate business problems that whitethorn result from allocating manufacturing over- head based on the cost of the prints. ??? case 2 ?Greet ings Inc. Greetings Inc. Activity-Based Costing Developed by Thomas L. Zeller, Loyola University Chicago, and Paul D. Kimmel, University of WisconsinMilwaukee THE military control SITUATION Mr. Burns, president of Greetings Inc. created the Wall Decor unit of Greetings three grades ago to attach the companys revenue and profits. Unfortunately, even though Wall Decors revenues go through grown quickly, Greetings appears to be losing gold on Wall Decor. Mr. Burns has hired you to provide consulting services to Wall Decors management. Your assignment is to make Wall Decor a profitable business unit. Your first step is to talk with the Wall Decor work force. From your conver- sations with store managers you learn that the individual Greetings stores are very halcyon with the Wall Decor arrangement.The stores are generating addi- tional sales revenue from the sale of unframed and framed prints. They are espe- cially enthusiastic somewhat this revenue source be start the online character of the product enables them to obtain revenue without the spare cost of carry- ing record. Wall Decor sells unframed and framed prints to each store at product cost plus 20%. A 20% markup on products is a stock policy of all Greetings intercompany transactions. Each store is allowed to add an additional markup to the unframed and framed print items according to market pressures.That is, the exchange price supercharged by each store for unframed and framed prints is determined by each store manager. This policy ensures private-enterprise(a) pricing in the single store locations, an master(prenominal) business issue because of the intense mall competition. season the store managers are superior generally happy with the Wall Decor products, they arouse noned a significant difference in the sales performance of the unframed prints and the framed prints. They find it difficult to sell unframed prints at a competitive price.The price competition in the malls is very intense. On average, stores find that the profits on unframed prints are very low because the cost for unframed prints charged by Wall Decor to the Greetings stores is only slightly be- low what competing stores charge their custom ers for unframed prints. As a re- sult, the profit circumference on unframed prints is very low, and the overall profit clear is small, even with the large volume of prints sold. In contrast, stores make a very good profit on framed prints and still beat the warm competitors price by about 15%.That is, the mall competitors cannot meet at a competitive price the quality of framed prints provided by the Greetings stores. As a result, store managers advertise the lowest prices in town for high-quality framed prints. One store manager referred to Wall Decors computer on the counter as a currency in machine for framed prints and a lemonade stand for unframed prints. In a conversation with the production manager, you learned that she be- lieves that the relative positivity of framed and unframed prints is distorted ?? CA-6 ?Greet ?ings ?case 2 Cases for circumspection Decision making CA-7 ecause of improper product costing. She feels that the costs provided by the companys traditio nal job order costing system are inaccurate. From the very beginning, she has cautiously managed production and distribution costs. She explains, Wall Decor is essentially giving out-of-door expensive framed prints, and it appears that it is charging the stores too much for unframed prints. In her bureau she shows you her own product costing system, which survives her point of view. Your tour of the information applied science (IT) department provided additional insight as to why Wall Decor is having financial problems.You discovered that to keep the website mental testingning requires separate computer servers and several in- formation technology professionals. Two separate activities are occurring in the technology area. First, purchasing professionals and IT professionals spend many hours managing thousands of prints and frame and matting materials. Their t films include selecting the prints and the types of framing material to sell. They also must upload, manage, and down load prints and framing material onto and off of the website. The IT staff give notice (of)s you much of their time is spend with framing and matting material. further a highly skilled IT professional can properly skip a print and load it up to the site so that it diagrammatically represents what the print pass on look like when properly matted and framed. In addition, you discover that a different team of IT professionals is dedi- cated to optimizing the in operation(p) performance of the website. These costs are classified as manufacturing overhead because a essential measurement of work is take to keep the site integrated with purchasing and production and to safe- guard Wall Decors assets online.Most time-consuming is the elbow grease to develop and keep an eye on the site so that customers can view the prints as they would appear either unframed or framed and matted. A interchange with the IT professionals suggests that the time worn out(p) develop- ing and maintai ning the site for the unframed prints is considerably less than that required for the framed prints and in particular for the framed and matted prints. Developing and maintaining a site that can display the unframed prints is relatively straightforward.It becomes more complicated when the site must al- low the customer to view every possible combination of print with every type of steel frame, and immensely more complicated when one considers all of the pos- sible wood frames and different matting colors. Obviously, a very substantial portion of the IT professionals time and resources is required to present the over 1,000 different framing and matting options. Based on your preliminary findings, you have decided that the companys ability to measure and evaluate the profitability of individual products would be improved if the company employed an activity-based costing (ABC) system.As a first step in this effort, you compiled a list of costs, activities, and values. Your work consist ed of taking the original manufacturing overhead cost ($375,200, provided in Case 1) and allocating the costs to activities. You identified four ac- tivities picking prints neckcloth selection and management (includes general management and overhead) website optimization and framing and matting cost (includes equipment, insurance, rent, and supervisors salary). The first activity is picking prints. The auspicated overhead colligate to this ac- tivity is $30,600.The cost driver for this activity is the issue forth of prints. It is ex- pected that the total bet of prints entrust be 102,000. This is the sum of 80,000 unframed, 15,000 steel-framed, and 7,000 wood-framed. Illustration CA 2-1 Information for activity 1 ?Estimated Activity Cost Driver Overhead Picking prints bend of prints $30,600 Expected Use of Cost Driver (80,000 15,000 7,000) 102,000 prints ???? ?? Greet ?ings CA-8 case 2 Cases for Management Decision reservation The second activity is blood selection and mana gement. The estimated overhead link up to this activity is $91,700.The cost driver for this activity is the number of components per print item. An unframed print has one component, a steel-framed print has two components (the print and the frame), and a wood- framed print has three components (the print, the mat, and the frame). The total number of components is expected to be 131,000. Illustration CA 2-2 Information for activity 2 ?Activity Inventory selection and management Cost Driver do of components Print (1) Print and frame (2) Print, mat, and frame (3) Estimated Overhead $91,700 Expected Use of Cost DriverPrints 80,000 components Print and frame 15,000 2 30,000 components Print, mat, and frame 7,000 3 21,000 components join 131,000 components ???? The third activity is website optimization. The total overhead cost tie in to to website optimization is expected to be $129,000. It was difficult to identify a cost driver that directly link up website optimization to the pr oducts. In order to re- flect the fact that the majority of the time worn-out(a) on this activity relate to framed prints, you first split the cost of website optimization between unframed prints and framed prints.Based on your treatment with the IT professionals, you de- termined that they spend roughly one-fifth of their time developing and main- taining the site for unframed prints, and the other four-fifths of their time on framed prints, even though the number of framed prints sold is substantially less than the number of unframed prints. As a consequence, you allocated $25,800 of the overhead costs related to website optimization to unframed prints and $103,200 to framed prints. You contemplated having three categories (unframed, steel-framed, and wood-framed with matting), but chose not to add this addi- tional refinement.Illustration CA 2-3 Information for activity 3 ?Activity Website optimization Unframed Framed Cost Driver Number of prints at mental ability Number of pr ints at cognitive content Estimated Overhead $25,800 $103,200 Expected Use of Cost Driver Unframed prints 100,000 print capa urban center Framed and/or matted prints 25,000 print capacity (16,000 steel 9,000 wood) ???? Once the $129,000 of the third activity was allocated across the two broad product categories, the number of prints at operating capacity was used as the cost driver. Note that operating capacity was used instead of expected units sold.The overhead costs related to website optimization are relatively stiff be- cause the employees are salaried. If a fixed cost is allocated using a value that varies from period to period (like expected sales), then the cost per unit provide vary from period to period. When allocating fixed costs it is better to use a base that does not vary as much, such as operating capacity. The advantage of using operating capacity as the base is that it keeps the fixed costs per unit stable over time. ?Greet ?ings ?case 2 Cases for Management Dec ision Making CA-9 The final activity is framing and matting.The expected overhead costs re- lated to framing and matting are $123,900. None of this overhead cost should be allocated to unframed prints. The costs related to framing and matting are rela- tively fixed because the costs relate to equipment and other costs that do not vary with sales volume. As a consequence, like website optimization, you chose to base the cost driver on levels at operating capacity, rather than at the expected sales level. The cost driver is the number of components. Steel-framed prints have two components (the print and frame), and wood-framed prints have three components (the print, mat, and frame).The total components at operating ca- pacity would be steel frame 32,000 or (16,000 2) and wood frame 27,000 or (9,000 3,000). Illustration CA 2-4 Information for activity 4 ?Activity Framing and matting cost (equipment, insurance, rent, and supervisory labor) Cost Driver Number of components at capacity E stimated Overhead $123,900 Expected Use of Cost Driver Print and frame 16,000 2 32,000 components at capacity Print, mat, and frame 9,000 3 27,000 components at capacity summarize 59,000 components ???? To summarize, the overhead costs and cost drivers used for each product are expected to be Illustration CA 2-5Summary of overhead costs and cost drivers ?Cost Activity Driver 1. Picking Number of prints prints Steel- Wood- Framed, Framed, No with Unframed Matting Matting Total 80,000 15,000 7,000 102,000 80,000 30,000 21,000 131,000 Overhead Cost $ 30,600 91,700 25,800 103,200 123,900 $375,200 ?2. Inventory selection and management 3. Website optimization 4. Framing and matting Number of components Number of 100,000 prints at capacity Number of components at capacity na 16,000 32,000 9,000 27,000 100,000 25,000 59,000 ??? Instructions Answer the sideline questions. . Identify two reasons why an activity-based costing system may be appropriate for Wall Decor. 2. Compute the activity -based overhead rates for each of the four activities. 3. Compute the product cost for the following three items using ABC. (Review Case 1 for additional information that you exit need to answer this question. ) (a) Lance Armstrong unframed print (base cost of print $12). (b) John Elway print in steel frame, no mat (base cost of print $16). (c) Lambeau Field print in wood frame with mat (base cost of print $20). ? ?? Greet ?ings CA-10 ase 2 Cases for Management Decision Making 4. 5. 6. 7. In Case 1 for Greetings, the overhead allocations using a traditional volume-based approach were $3. 36 for Lance Armstrong, $4. 48 for John Elway, and $5. 60 for Lam- beau Field. The total product costs from Case 1 were Lance Armstrong $17. 36, John Elway $33. 48, and Lambeau Field $48. 10. The overhead allocation rate for unframed prints, such as the unframed Lance Armstrong print in question 3, slumpd under ABC compared to the amount of overhead that was allocated under the traditional approac h in Case 1. why is this the case?What are the potential implications for the company? rationalise why the overhead cost related to website optimization was first distributed into two categories (unframed prints and framed prints) and then allocated based on number of prints. When allocating the cost of website optimization, the decision was made to initially allocate the cost across two categories (unframed prints and framed prints) rather than three categories (unframed prints, steel-framed prints, and wood-framed prints with matting). Discuss the pros and cons of splitting the cost between two categories rather than three.Discuss the implications of using operating capacity as the cost driver rather than the expected units sold when allocating fixed overhead costs. 8. (a) Allocate the overhead to the three product categories (unframed prints, steel- framed prints, and wood-framed prints with matting), assuming that the estimate of the expected units sold is ameliorate and the actual amount of overhead incurred equaled the estimated amount of $375,200. (b) Calculate the total amount of overhead allocated. Explain why the total overhead of $375,200 was not allocated, even though the estimate of sales was correct.What are the implications of this for management? ??? case 3 ?Greet ings Inc. Greetings Inc. Transfer Pricing Issues Developed by Thomas L. Zeller, Loyola University Chicago, and Paul D. Kimmel, University of WisconsinMilwaukee THE care SITUATION Two social classs ago, prior to a major capital-budgeting decision (see Case 4), Robert Burns, the president of Greetings Inc. , approach a challenging transfer pricing issue. He knew that Greetings store managers had comprehend about the ABC study (see Case 2) and that they knew a price append for framed items would soon be on the way.In an effort to dissuade him from increasing the transfer price for framed prints, several store managers e-mailed him with diminutive analyses show- ing how framed- print sales had given stores a strong competitive position and had change magnitude revenues and profits. The store managers mentioned, however, that magic spell they were opposed to an augment in the cost of framed prints, they were looking forward to a price merge for unframed prints. Management at Wall Decor was very interested in changing the transfer pric- ing strategy.You had reported to them that setting the transfer price based on the product costs calculated by using traditional overhead allocation measures had been a major contributing factor to its non-optimal performance. Here is a brief recap of what happened during your presentation to Mr. Burns and the Wall Decor managers. Mr. Burns smiled during your presentation and graciously ack directlyledged your excellent activity-based costing (ABC) study and analysis. He even nodded with approval as you offered the following innuendos. 1. Wall Decor should decrease the transfer price for high-volume, simple print items . . Wall Decor should increase the transfer price for low-volume, complex framed print items. 3. Youranalysispointstoatransferpricethatmaintainsthe20%markupovercost. 4. Adoption of these changes bequeath provide Wall Decor with an 11% return on investment funds (ROI), beating the required 10% expected by Greetings board of directors. 5. contempt the objections of the store managers, the Greetings stores must ac- cept the price changes. Finishing your presentation, you asked the executive audience, What questions do you have? Mr. Burns responded as follows. Your analysis appears sound. However, it focuses almost exclu- sively on Wall Decor. It appears to tell us little about how to move for- ward and benefit the entire company, especially the Greetings retail stores. Let me explain. ?? CA-11 ?? Greet ?ings CA-12 case 3 Cases for Management Decision Making I am implicated about how individual store customers get out react to the price changes, assuming the price increase of frame d-print items is passed along to the customer. Store managers leave behind welcome a decrease in the transfer price of unframed prints.They have complained about the high cost of prints from the beginning. With a decrease in print cost, store managers will be able to compete against mall stores for print items at a competitive exchange price. In addition, the increase in store traffic for prints should increase the sales revenue for related items, such as cards, wrapping paper, and more. These are all low- margin items, but with increased sales volume of prints and related products, revenues and profits should grow for each store. Furthermore, store managers will be interference with the increase in the cost of framed prints.Framed prints have refundd substantial rev- enues and profits for the stores. Increasing the cost of framed prints to the stores could create one of three problems First, a store manager may elect to keep the marketing price of framed-print items the alike (p). The results of this would be no change in revenues, but profits would de- cline because of the increase in cost of framed prints. Second, a store manager may elect to increase the selling price of the framed prints to first the cost increase. In this case, sales of framed prints would surely decline and so would revenues and profits.In addition, stores would likely see a decline in related sales of other expensive, high-quality, high-margin items. This is because sales data indicate that customers who purchase high-quality, high-price framed prints also purchase high-quality, high-margin items such as watches, jewelry, and cosmetics. terzetto, a store manager may elect to search the outside market for framed prints. Mr. Burns offered you the challenge of jockstraping him bring change to the companys transfer prices so that both business units, Greetings stores and Wall Decor, win.From his explanation, you could see and appreciate that set- ting the transfer price for unfram ed and framed prints impacts sale revenues and profits for related items and for the company overall. You immediately rec- ognized the error in your presentation by simply providing a solution for Wall Decor alone. You drove home that night sentiment about the challenge. You recognized the need and importance of anticipating the reaction of Greetings store customers to changes in the prices of unframed and framed prints. The succeeding(prenominal) day, the market- ing team provided you with the following average data. For every unframed print sold (assume one print per customer), that cus- tomer purchases related products resulting in $4 of additional profit. For every framed print sold (assume one print per customer), that customer purchases related products resulting in $8 of additional profit. Each Greetings store sets its own selling price for unframed and framed prints. Store managers need this type of flexibility to be responsive to com- petitive pressures. On average the pricing for stores is as follows unframed prints $21, steel-framed without matting $50, wood-framed with matting $70.Instructions Answer each of the following questions. 1. Prepare for class discussion what you think were the critical challenges for Mr. Burns. Recognize that Wall Decor is a profit center and each Greetings store is a profit center. ?Greet ?ings ?case 3 Cases for Management Decision Making CA-13 2. After lengthy and sometimes heated negotiations between Wall Decor and the store managers, a new transfer price was determined that calls for the stores and Wall Decor to split the profits on unframed prints 30/70 (30% to the store, 70% to Wall Decor) and the profits on framed prints 50/50.The following additional terms were also hold to Profits are defined as the store selling price less the ABC cost. Stores do not share the profits from related products with Wall Decor. Wall Decor will not seek to sell unframed and framed print items through anyone other than Greetin gs. Wall Decor will work to decrease costs. Greetings stores will not seek suppliers of prints other than Wall Decor. Stores will keep the selling price of framed prints as it was before the change in transfer price.On average, stores will decrease the selling price of unframed prints to $20, with an expected increase in volume to 100,000 prints. Analyze how Wall Decor and the stores benefited from this new agreement. In your analysis, first (a) compute the profits of the stores and Wall Decor using traditional amounts related to pricing, cost, and a 20% markup on Wall Decor costs. Next, (b) compute the profits of the stores and Wall Decor using the ABC cost and negoti- ated transfer price approach. Finally, (c) explain your findings, linking the overall profits for stores and Wall Decor.The following data apply to this analysis. (Round all calculations to three deci- mal places. ) ???? Average selling price by stores before transfer pricing study Average selling price by stores later on transfer pricing study Volume at traditional selling price Volume at new selling price Wall Decor cost (traditional) ABC cost Unframed Print $21 $20 80,000 100,000 $17. 36 $15. 258 Steel-Framed, No Matting $50 $50 15,000 15,000 $33. 48 $39. 028 Wood-Framed, with Matting $70 $70 7,000 7,000 $48. 10 $55. 328 3. Review the additional terms of the agreement listed in instruction 2 above.In each case, adduce whether the item is appropriate, unnecessary, ineffective, or potentially harmful to the overall company. ??? case 4 ?Greet ings Inc. Greetings Inc. Capital Budgeting Developed by Thomas L. Zeller, Loyola University Chicago, and Paul D. Kimmel, University of WisconsinMilwaukee THE BUSINESS SITUATION Greetings Inc. stores, as well as the Wall Decor division, have enjoyed healthy prof- itability during the last two years. Although the profit margin on prints is very much thin, the volume of print sales has been substantial plenteous to generate 15% of Greetings store prof its.In addition, the increased customer traffic resulting from the prints has generated significant additional sales of related non-print products. As a result, the companys rate of return has exceeded the industry average during this two-year period. Greetings store managers likened the e-business leverage cre- ated by Wall Decor to a high-octane fuel to supercharge the stores profitability. This high rate of return (ROI) was accomplished even though Wall Decors venture into e-business proved to cost more than originally budgeted.Why was it a profitable venture even though costs exceeded estimates? Greetings stores were able to generate a considerable volume of business for Wall Decor. This helped dot the high e-business operating costs, many of which were fixed, across many unframed and framed prints. This experience taught top manage- ment that maintaining an e-business structure and making this business feigning winning are very expensive and require substantial sales as well as careful monitoring of costs. Wall Decors advantage gained widespread industry recognition. The business press ocumented Wall Decors approach to using information technology to in- crease profitability. The companys CEO, Robert Burns, has become a frequent business-luncheon speaker on the event of how to use information technology to offer a great product mix to the customer and increase shareholder value. From the outside looking in, all appears to be going very well for Greetings stores and Wall Decor. However, the sun is not shining as brightly on the inside at Greetings. The mall stores that compete with Greetings have begun to offer prints at very com- petitive prices.Although Greetings stores enjoyed a selling price advantage for a few years, the competition eventually responded, and now the pressure on sell- ing price is as intense as ever. The pressure on the stores is heightened by the fact that the companys recent success has led shareholders to expect the stores to g enerate an above-average rate of return. Mr. Burns is very concerned about how the stores and Wall Decor can continue on a path of continued growth. Fortunately, more than a year ago, Mr. Burns judge that competitors would eventually find a way to match the selling price of prints.As a conse- quence, he formed a committee to explore ways to employ technology to further reduce costs and to increase revenues and profitability. The committee is com- prised of store managers and staff members from the information technology, ?? CA-14 ?Greet ?ings ?cacaseses 14 Cases for Management Decision Making CA-15 marketing, finance, and accounting departments. Early in the groups discussion, the focus turned to the most expensive component of the existing business modelthe large inventory of prints that Wall Decor has in its alter ware- house.In addition, Wall Decor incurs substantial costs for shipping the prints from the alter warehouse to customers across the country. Ordering and maintainin g such a large inventory of prints consumes valuable resources. One of the committee members suggested that the company should pursue a model that music stores have experimented with, where CDs are burned in the store from a master copy. This saves the music store the cost of maintaining a large inventory and increases its ability to expand its music offerings.It virtually guarantees that the store can perpetually provide the CDs requested by customers. Applying this idea to prints, the committee decided that each Greetings store could invest in an expensive color printer committed to its online ordering system. This printer would generate the new prints. Wall Decor would have to pay a roy- alty on a per print basis. However, this approach does offer certain advantages. First, it would travel by all ordering and inventory maintenance costs related to the prints. Second, shrinkage from lost and stolen prints would be reduced.Finally, by reducing the cost of prints for Wall Decor, t he cost of prints to Greetings stores would decrease, thus allowing the stores to sell prints at a lower price than competitors. The stores are very interested in this option because it enables them to maintain their current customers and to sell prints to an even wider set of customers at a potentially lower cost. A new set of customers means even greater related sales and profits. As the accounting/finance expert on the team, you have been asked to per- form a financial analysis of this proposal.The team has collected the informa- tion presented in Illustration CA 4-1. Illustration CA 4-1 Information about the proposed capital investment project ?Available Data Cost of equipment (zero correspondence value) Cost of ink and paper supplies (purchase immediately) Annual cash flow nest egg for Wall Decor Annual additional store cash flow from increased sales Sale of ink and paper supplies at end of 5 years Expected life of equipment Cost of capital marrow $800,000 100,000 175,000 10 0,000 50,000 5 years 12% ?Instructions Mr.Burns has asked you to do the following as part of your analysis of the capital investment project. 1. Calculatethenetpresentvalueusingthenumbersprovided. Assumethatannualcash flows occur at the end of the year. 2. Mr. Burns is concerned that the original estimates may be too optimistic. He has sug- gested that you do a sensitivity analysis assuming all costs are 10% higher than ex- pected and that all inflows are 10% less than expected. 3. Identify possible flaws in the numbers or assumptions used in the analysis, and iden- tify the risk(s) associated with purchasing the equipment. . In a one-page memo, provide a testimony based on the above analy- sis. Include in this memo (a) a challenge to store and Wall Decor management and (b) a suggestion on how Greetings stores could use the computer connection for re- lated sales. ???? ???? case 5 ?????????????????????????????????????????????????????????????????????????????????????????????????????? ??????????????????? Auburn airman parliamentary procedure Pro Rodeo Roundup Developed by Jessica Johnson Frazier, east Kentucky University, and Patricia H.Mounce, University of fundamental Arkansas THE BUSINESS SITUATION When Shelley Jones became president-elect of the Circular hostel of Auburn, Kansas, she was asked to suggest a new fundraising activity for the high society. After a consider- able amount of research, Shelley proposed that the Circular Club sponsor a profes- sional rodeo. In her presentation to the club, Shelley said that she valued a fundraiser that would (1) continue to get better each year, (2) give back to the com- munity, and (3) provide the club a presence in the connection.Shelleys remnant was to have an activity that would become an annual community event and that would check even the first year and raise $5,000 the following year. In addition, based on the experience of other communities, Shelley believed that a rodeo could grow in popularity so th at the club would eventually earn an average of $20,000 annually. A rodeo committee was formed. Shelley contacted the knowledge bases oldest and largest rodeo- O.K. agency to apply to sponsor a professional rodeo.The sanctioning agency requires a rodeo to consist of the following five events Bareback Riding, bronco Riding, Steer Wrestling, Bull Riding, and Calf Roping. Because there were a number of team ropers in the area and because they wanted to include females in the competition, members of the rodeo committee added squad Roping and Womens Barrels. Prize money of $3,000 would be paid to winners in each of the seven events. Members of the rodeo committee contracted with RJ Cattle Company, a live- stock contractor on the rodeo circuit, to provide bucking stock, fencing, and chutes. Realizing that osts associated with the rodeo were tremendous and that slating sales would belike not be sufficient to cover the costs, the rodeo com- mittee sent letters to topical anesthetic bus inesses soliciting contributions in exchange for various sponsorships. Exhibiting jocks would contribute $1,000 to exhibit their products or services, while major(ip) athletic supporters would contribute $600. Chute Sponsors would contribute $ d to have the name of their business on one of the six bucking chutes. For a contribution of $100, individuals would be included in a Friends of Rodeo list put in the rodeo programs.At each performance the rodeo announcer would repeatedly mention the names of the businesses and in- dividuals at each level of sponsorship. In addition, large signs and banners with the names of the businesses of the Exhibiting Sponsors, Major Sponsors, and Chute Sponsors were to be displayed prominently in the scene of action. ?CA-16 ???????????????????? case 5 Cases for Management Decision Making CA-17 ???????????????????????????????? A local anaesthetic youth group was contacted to provide concessions to the public and divide the profits with the Circular Club.The Auburn Circular Club Pro Rodeo Roundup would be held on June 1, 2, and 3. The cost of an adult ticket was set at $8 in advance or $10 at the gate the cost of a ticket for a child 12 or younger was set at $6 in advance or $8 at the gate. Tickets were not date-specific. Rather, one ticket would admit an individual to one performance of his or her choice Friday, Saturday, or sunlight. The rodeo committee was able to insure a location through the county supervisors board at a nominal cost to the Circular Club. The arrangement allowed the use of the county fair grounds and field of force for a one- week period.Several months prior to the rodeo, members of the rodeo commit- tee had been assured that bleachers at the arena would hold 2,500 patrons. On Saturday night, paid attendance was 1,663, but all seats were filled out-of-pocket to poor gate controls. Attendance was 898 Friday and 769 on Sunday. The following revenue and outlay figures relate to the first year of the r odeo. Illustration CA 5-1 Revenue and expense data, year 1 ? tax revenue Contributions from sponsors $22,000 Receipts from ticket sales 28,971 Share of concession profits 1,513 Sale of programs 600 Total receipts Expenses Livestock contractor 26,000 Prize money 21,000 protester hospitality Sponsor signs for arena 1,900 Insurance 1,800 Ticket printing 1,050 Sanctioning fees 925 recreation 859 Judging fees 750 Port-a-potties 716 lead 600 Hay for horses 538 Programs 500 Western hats to first 500 children 450 Hotel rooms for stock contractor 325 Utilities 300 Sand for arena 251 confused fixed costs 105 Total expenses Net loss $53,084 ?3,341* ?61,410 $(8,326) ??? *The club contracted with a local caterer to provide a tent and pabulum for the contestants. The cost of the food was contingent on the number of contestants each evening.Information con- cerning the number of contestants and the costs incurred are as follows Contestants Friday 68 Saturday 96 Sunday 83 Total Cost $ 998 1,243 1,100 $3,341 ????? On Wednesday after the rodeo, members of the rodeo committee met to discuss and critique the rodeo. Jonathan Edmunds, CPA and President of the Circular Club, commented that the club did not lose money. Rather, Jonathan said, The club made an investment in the rodeo. ?????????????????? CA-18 case 5 Cases for Management Decision Making ?????????????????????????????????? Instructions Answer each of the following questions. . Do you think it was necessary for Shelley Jones to stipulate that she wanted a fundraiser that would (1) continue to get better each year, (2) give back to the com- munity, and (3) provide the club a presence in the community? Why or why not? 2. What did Jonathan Edmunds mean when he said the club had made an investment in the rodeo? 3. Is Jonathans comment concerning the investment consistent with Shelleys idea that the club should have a fundraiser that would (1) continue to get better each year, (2) give back to the community, and (3) provid e the club a presence in the community?Why or why not? 4. What do you believe is the sort of the rodeo expenditures in relation to ticket sales? 5. Determine the fixed and inconsistent cost components of the catering costs using the high-low method. 6. Assume you are train chair of the rodeo committee for close year. What steps would you suggest the committee take to make the rodeo profitable? 7. Shelley, Jonathan, and Adrian Stein, the Fundraising Chairperson, are beginning to make plans for next years rodeo. Shelley believes that by negotiating with local feed stores, innkeepers, and other business owners, costs can be cut dramatically.Jonathan agrees. After carefully analyzing costs, Jonathan has estimated that the fixed expenses can be pared to just about $51,000. In addition, Jonathan estimates that variable costs are 4% of total gross receipts. After talking with business owners who attended the rodeo, Adrian is confident(p) that funds solicited from sponsors will incr ease. Adrian is comfortable in budgeting revenue from sponsors at $25,600. The local youth group is unwilling to provide con- cessions to the audience unless they receive all of the profits.Not having the person- nel to staff the concession booth, members of the Circular Club reluctantly agree to let the youth group have 100% of the profits from the concessions. In addition, mem- bers of the rodeo committee, recognizing that the net income from programs was only $100, decide not to sell rodeo programs next year. Compute the break-even point in dollars of ticket sales assuming Adrian and Jonathan are correct in their assumptions. 8. Shelley has just learned that you are calculating the break-even point in dollars of ticket sales.She is still convinced that the Club can make a profit using the assumptions in number 7 above. (a) Calculate the dollars of ticket sales undeniable in order to earn a steer profit of $6,000. (b) Calculate the dollars of ticket sales needed in order to earn a target profit of $12,000. 9. Are the facilities at the fairgrounds fair to middling to handle crowds needed to generate ticket revenues calculated in number 8 above to earn a $6,000 profit? Show calcula- tions to support your answers. 10. Prepare a budgeted income story for next year using the estimated revenues from sponsors and other assumptions in number 7 above.In addition, use ticket sales based on the target profit of $12,000 estimated in 8(b). The cost of the line con- tractor, prize money, sanctioning fees, entertainment, judging fees, rent, and utilities will remain the same next year. Changes in expenses include the following Members of the Club have decided to eliminate all costs related to contestant hospitality by soliciting a tent and food for the contestants and taking care of the Contestant Hospitality populate themselves. The county has installed permanent restrooms at the arena, eliminating the need to rent port-a- potties.The rodeo committee intends to pursu e arrangements to have hotel rooms, hay, and childrens hats provided at no charge in exchange for sponsorships. The cost of banners varies with the number of sponsors. Signs and More charged the Circular Club $130 for each Exhibiting Sponsor banner and $48 for each Major Sponsor banner. At this time there is no way to know whether additional sponsors will be Exhibiting Spon- sors or Major Sponsors. Therefore, for budgeting purposes you should increase the cost of the banners by the percentage increase in sponsor contributions. (Hint Round ???????????????????? ase 5 Cases for Management Decision Making CA-19 ???????????????????????????????? all calculations to three decimal places. ) By checking prices, the Circular Club will be able to obtain insurance providing essentially the same amount of coverage as this year for only $600. For the first rodeo the Club ordered 10,000 tickets. Realizing the con- straints on available seating, the Club is ordering only 5,000 tickets for next year , and therefore its costs are reduced 50%. The sand for the arena for next year will be $300, and miscellaneous fixed costs are to be budgeted at $100. 11.A few members in the Circular Club do not want to continue with the annual rodeo. However, Shelley is crying(a) that the Club must continue to conduct the rodeo as an annual fundraiser. Shelley argues that she has spent hundreds of dollars on western boots, hats, and other items of clothing to wear to the rodeo. Are the expenses re- lated to Shelleys purchases of rodeo clothing relevant costs? Why or why not? 12. Rather than hire the local catering company to cater the Contestant Hospitality Tent, members of the Circular Club are considering asking Shadys Bar-B-Q to cater the event in exchange for a $600 Major Sponsor spot.In addition, The Fun snitch, a local party supply business, will be asked to donate a tent to use for the event. The Fun Shop will also be given a $600 Major Sponsor spot. Several members of the Club are oppos ed to this consideration, arguing that the two Major Sponsor spots will take away from the money to be earned through other sponsors. Adrian Stein has explained to the members that the Major Sponsor signs for the arena cost only $48 each. In ad- dition, there is more than enough room to display two additional sponsor signs. What would you encourage the Club to do concerning the Contestant Hospitality Tent?Would your answer be different if the arena were limited in the number of additional signs that could be displayed? What winsome of cost would we consider in this situation that would not be found on a financial statement? ??? case 6 ?? sweatsuit many Developed by Jessica Johnson Frazier, Eastern Kentucky University, and Patricia H. Mounce, University of Central Arkansas THE BUSINESS SITUATION After graduating with a degree in business from Eastern University in Campus Town, USA, Michael Woods realized that he wanted to remain in Campus Town.After a number of unsuccessful attemp ts at getting a job in his disci- pline, Michael decided to go into business for himself. In thinking about his business venture, Michael determined that he had four criteria for the new business 1. He wanted to do something that he would enjoy. 2. He wanted a business that would give back to the community. 3. He wanted a business that would grow and be more successful every year. 4. Realizing that he was going to have to work very hard, Michael wanted a business that would generate a minimum net income of $25,000 annually.While reflecting on the criteria he had outlined, Michael, who had been president of his fraternity and served as an officer in several other student organizations, realized that there was no place in Campus Town to have cus- tom sweatshirts made using a silk-screen process. When student organiza- tions wanted sweatshirts for their members or to market on campus, the offi- cers had to make a trip to a city 100 miles away to visit Shirts and More. Michael had wor ked as a part-time employee at Shirts and More while he was in high school and had ideate owning such a shop.He realized that a sweatshirt shop in Campus Town had the potential to meet all four of his crite- ria. Michael set up an appointment with Jayne Stoll, the owner of Shirts and More, to obtain information useful in getting his shop started. Because Jayne liked Michael and was intrigued by his entrepreneurial spirit, she answered many of Michaels questions. In addition, Jayne provided information concerning the type of equipment Michael would need for his business and its average useful life. Jayne knows a competitor who is retiring and would like to sell his equipment.Michael can purchase the equipment at the beginning of 2011, and the owner is willing to give him terms of 50% due upon purchase and 50% due the seat following the purchase. Michael decided to purchase the following equipment as of January 1, 2011. CA-20 ??? case 6 Cases for Management Decision Making CA-21 ?? Hand-operated press that applies ink to the shirt Light-exposure table Dryer transporter belt that makes ink dry on the shirts Computer with graphics parcel and color printer Display furniture Used cash file away Cost $7,500 1,350 2,500 3,500 2,000 500 Useful Life yrs. 10 yrs. 10 yrs. 4 yrs. 10 yrs. 5 yrs. Michael has decided to use the sweatshirt supplier recommended by Jayne. He learned that a gross of good-quality sweatshirts to be silk-screened would cost $1,440. Jayne has back up Michael to ask the sweatshirt supplier for terms of 40% of a quarters purchases to be paid in the quarter of purchase, with the re- maining 60% of the quarters purchases to be paid in the quarter following the purchase. Michael also learned from talking with Jayne that the ink used in the silk- screen process costs approximately $0. 75 per shirt.Knowing that the silk-screen process is somewhat labor-intensive, Michael plans to hire six college students to help with the process. Each one will work a n average of 20 hours per week for 50 weeks during the year. Michael estimates to- tal annual wages for the workers to be $72,000. In addition, Michael will need one person to take orders, bill customers, and operate the cash register. Cary march Smith, who is currently Director of Student Development at Eastern University, has approached Michael about a job in sales. Cary Sue knows the officers of all of the student organizations on campus.In ad- dition, she is very active in the community. Michael thinks Cary Sue can bring in a lot of business. In addition she also has the clerical skills needed for the posi- tion. Because of her contacts, Michael is willing to pay Cary Sue $1,200 per month plus a commission of 10% of sales. Michael estimates Cary Sue will spend 50% of the workday focusing on sales, and the remaining 50% will be spent on clerical and administrative duties. Michael realizes that he will have hindrance finding a person skilled in com- puter graphics to generate th e designs to be printed on the shirts.Jayne recently hired a graphics decorator in that position for Shirts and More at a rate of $500 per month plus $0. 10 for each shirt printed. Michael believes he can find a uni- versity graphics design student to work for the same rate Jayne is paying her designer. Michael was fortunate to find a commercial expression for rent near the uni- versity and the downtown area. The landlord requires a one-year lease. Although the monthly rent of $1,000 is more than Michael had anticipated paying, the structure is nice, has adequate parking, and there is room for expansion.Michael anticipates that 75% of the building will be used in the silk-screen process and 25% will be used for sales. Michaels fraternity brothers have encouraged him to advertise weekly in the Eastern University student newspaper. Upon inquiring, Michael found that a 3 3 ad would cost $25 per week. Michael also plans to run a weekly ad in the local newspaper that will cost him $75 per week. Michael wants to sell a large number of quality shirts at a reasonable price. He estimates the selling price of each customized shirt to be $16.Jayne has sug- gested that he should ask customers to pay for 70% of their purchases in the quarter purchased and pay the additional 30% in the quarter following the purchases. After talking with the insurance agent and the property valuation adminis- trator in his municipality, Michael estimates that the property taxes and insur- ance on the machinery will cost $2,240 annually property tax and insurance on display furniture and cash register will total $380 annually. ??? CA-22 case 6 Cases for Management Decision Making Jayne reminded Michael that maintenance of the machines is required for the silk-screen process.In addition, Michael realizes that he must consider the cost of utilities. The building Michael wants to rent is roughly the same size as the building occupy by Shirts and More. In addition, Shirts and More sells ap- p roximately the same number of shirts Michael plans to sell in his store. Therefore, Michael is confident that the maintenance and utility costs for his shop will be comparable to the maintenance and utility costs for Shirts and More, which are as follows inwardly the relevant range of zero to 8,000 shirts. Shirts SoldJanuary 2,000 February 2,110 March 2,630 April 3,150 May 5,000 June 5,300 July 3,920 imperious 2,080 September 8,000 October 6,810 November 6,000 December 3,000 Maintenance Costs $1,716 1,720 1,740 1,740 1,758 1,818 1,825 1,780 1,914 1,860 1,855 1,749 Utility Costs $1,100 1,158 1,171 1,198 1,268 1,274 1,205 1,117 1,400 1,362 1,347 1,193 ??? Michael estimates the number of shirts to be sold in the first five quarters, beginning January 2011, to be First quarter, year 1 Second quarter, year 1 Third quarter, year 1 fourth quarter, year 1 First quarter, year 2 8,000 10,000 20,000 12,000 18,000Seeing how determined his son was to become an entrepreneur, Michaels fa- ther offered to formalize a note for an amount up to $20,000 to help Michael open his sweatshirt shop, Sweats Galore. However, when Michael and his father ap- proached the loan officer at First Guarantee Bank, the loan officer asked Michael to produce the following budgets for 2011. Sales budget Schedule of expected collections from customers Shirt purchases budget Schedule of expected payments for purchases Silk-screen labor budget marketing and administrative expenses budget Silk-screen overhead expenses budget Budgeted income statementCash budget Budgeted balance sheet The loan officer advised Michael that the interest rate on a 12-month loan would be 8%. Michael expects the loan to be taken out as of January 1, 2011. Michael has estimated that his income tax rate will be 20%. He expects to pay the total tax due when his returns are filed in 2012. Instructions Answer the following questions. 1. Do you think it was important for Michael to stipulate his four criteria for the busi- n ess (see page CA-21), including the goal of generating a net income of at least $25,000 annually? Why or why not? ??? case 6 Cases for Management Decision MakingCA-23 2. If Michael has sales of $12,000 during January of his first year of business, deter- mine the amount of variable and fixed costs associated with utilities and mainte- nance using the high-low method for each. 3. Using the format below, prepare a sales budget for the year ending 2011. pass many Sales Budget For the socio-economic class Ended December 31, 2011 delineate 1 2 3 4 Year ?????? Expected unit sales Unit selling price x Budgeted sales revenue $ 4. Prepare a entry of expected collections from customers. SWEATS galore(postnominal) Schedule of Expected Collections from Customers For the Year finish December 31, 2011 Quarter 234 Accounts receivable 1/1/11 0 First quarter Second quarter Third quarter Fourth quarter Total collections 5. Michael learned from talking with Jayne that the supplier is so rivet o n making quality sweatshirts that many times the shirts are not available for several days. She encouraged Michael to maintain an ending inventory of shirts equal to 25% of the next quarters sales. Prepare a shirt purchases budget for shirts using the format provided. SWEATS GALORE Shirt Purchases Budget For the Year Ended December 31, 2011 ????? Quarter 1 2 3 4 Year ??????Shirts to be silk-screened Plus Desired ending inventory Total shirts required Less tooth root inventory Total shirts needed Cost per shirt Total cost of shirt purchases 6. Prepare a schedule of expected payments for purchases. SWEATS GALORE Schedule of Expected retributions for Purchases For the Year Ended December 31, 2011 Quarter 1234 Accounts account payable 1/1/11 0 First quarter Second quarter Third quarter Fourth quarter Total payments ????? ??? CA-24 case 6 Cases for Management Decision Making 7. Prepare a silk-screen labor budget. SWEATS GALORE Silk-Screen grok Budget For the Year Ended December 31, 20 11 Quarter 2 3 4 Year ?????? Units to be produced Silk-screen labor hours per unit Total required silk-screen labor hours Silk-screen labor cost per hour Total silk-screen labor cost 8. Prepare a selling and administrative expenses budget for Sweats Galore for the year ending December 31, 2011. SWEATS GALORE Selling and administrative Expenses Budget For the Year Ended December 31, 2011 Quarter 1 2 3 4 Year ?????? Variable expenses Sales commissions Total variable expenses Fixed expenses Advertising Rent Sales salaries Office salaries Depreciation airscrew taxes and insurance Total fixed expenses Total selling and dministrative expenses 9. Prepare a silk-screen overhead expenses budget for Sweats Galore for the year end- ing December 31, 2011. SWEATS GALORE Silk-Screen Overhead Expenses Budget For the Year Ended December 31, 2011 Quarter 1 2 3 4 Year ?????? Variable expenses sign Maintenance Utilities Graphics design Total variable expenses Fixed expenses Rent Maintenance Utilitie s Graphics design Property taxes and insurance Depreciation Total fixed expenses Total silk-screen overhead Direct silk-screen hours Overhead rate per silk-screen hour ??? case 6 Cases for Management Decision Making CA-25 10.Using the information found in the case and the previous budgets, prepare a bud- geted income statement for Sweats Galore for the year ended December 31, 2011. SWEATS GALORE Budgeted Income Statement For the Year Ended December 31, 2011 Sales Cost of goods sold Gross profit Selling and administrative expenses Income from trading operations Interest expense Income before income taxes Income tax expense Net income 11. Using the information found in the case and the previous budgets, prepare a cash budget for Sweats Galore for the year ended December 31, 2011. SWEATS GALORE Cash Budget For the Year Ended December 31, 2011Quarter 1234 ????? Beginning cash balance Add Receipts Collections from customers Total available cash Less Disbursements Payments for shirt purc hases Silk-screen labor Silk-screen overhead Selling and administrative expenses Payment for equipment purchase Total disbursements Excess (deficiency) of available cash over disbursements funding Borrowings Ending cash balance 12. Using the information contained in the case and the previous budgets, prepare a bud- geted balance sheet for Sweats Galore for the year ended December 31, 2011. SWEATS GALORE Budgeted Balance yellow journalism December 31, 2011 Assets CashAccounts receivable Sweatshirt inventory Equipment Less Accumulated disparagement Total assets ? ??? CA-26 case 6 Cases for Management Decision Making Liabilities and possessors Equity ? 13. (a) Accounts payable Notes payable Interest payable Taxes payable Total liabilities Michael Woods, Capital Total liabilities and owners equity Using the information contained in the case and the previous budgets, calculate the estimated contribution margin per unit for 2011. (Hint Silk-screened labor and the taxes are both fixed c osts. ) (b) Calculate the total estimated fixed costs for 2011 (including interest and taxes). c) Compute the break-even point in units and dollars for 2011. 14. (a) Michael is very disappointed that he did not have an income of $25,000 for his first year of budgeted operations as he had wanted. How many shirts would Michael have had to sell in order to have had a profit of $25