Chapter 18
Long term forsight for company, usually developed by top management
Vision and mission of strategic plan
Which discount rate will produce the smallest present value?
a. 2%
b. 6%
c. 8%
d. Not possible to determine without cash flows
c. The higher the discount rate, the lower the present value
Which of the following best describes the primary advantage of Activity-Based Costing (ABC) over traditional costing systems?
A. Lower implementation cost
B. Simplified cost allocation process
C. More accurate allocation of overhead costs
D. Reduction in total manufacturing costs
C.
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Election date
Nordstrom's is an example of which type of company strategy
Product differentiation
Leigh is evaluating two different investments. The total net cash flows and payback period are the same for both projects. Leigh's management can conclude that:
a. One project may have a positive net present value while the other's may be negative.
b. The two investments will have the same NPV.
c. The two projects are equally desirable.
d. The two investments require the same initial investment.
a. The NPVs may be very different. The NPV depends on the timing of the cash flows.
Briefly discuss what a cost driver is and give one exampe of such including how it relates to the applicable cost pool.
An activity that makes costs rise and fall. An example of one would be machine hours when the cost pool is machine maintenance and depreciation. As the machine runs more, the maintenance would go up and the machine would wear out more quickly.
What place did the men's USF basketball team finish in the conference?
FIRST
Name the elements of the balanced scorecard
Financial
Customer
Internal business processes
Learning and growth
A project has a profitabiltiy index of 1.38. The project's present value of future cash flows is $23,250. The company has a discount rate of 12%. What was the initial investment?
$16,248
Index = PV of future cash flows/initial investment
$23,250/X = 1.38
X = $16,248
Fly Ball Inc. is a sporting goods company that produces baseballs and baseball mitts and uses ABC costing. Their Manufacturing Overhead (MOH) is comprised of the following costs:
Setups $98,500 (18,000 setups)
Quality Inspections $104,620 (29,300 inspections)
Factory Supervisor Wages $122,480 (8,600 hours)
Fly Ball anticipates the production of 15,482 baseballs and 9,877 baseball mitts. Each product is used company resources in the following manner:
Product Setups Inspection Supervisor Hrs
Baseballs 9,500 11,600 3,400
Mitts 8,500 17,700 5,200
How much total overhead was allocated to the baseball product line using ABC?
1. Compute allocation rates:
Setups $98,500 / 18,000 = $5.47 per setup
Quality $104,620 / 29,300 = $3.57 per inspection
Super Wages $122,480 / 8,600 = $14.24 per hour
2. Apply to product line:
Setups: $5.47 * 9,500 = $51,965
Quality: $3.57 * 11,600 = $41,412
Super Wages: $14.24 * 3.400 = $48,416
Total allocated $141,793 / 15,482 bats = $9.16
Sam Altman
CEO of OpenAI
What are the elements of the SWOT analysis and describe when it is used
Strengths, weaknesses, opportunities, threats
Used during strategid planning
Collum is considering trading in an old machine and purchasing a new one for $248,600. Data related to the investment is:
Cash flows:
Year 1 $139,000, Year 2 $143,000, Year 3 $131,000 Year 4: $136,000
Salvage values: Old equipment: $24,500, New equipment $27,500
Initial investment in working capital: $15,000
What is the payback for the new machine?
1.7 years
Investment: Machine $248,600 + working capital $15,000 = $(263,600 total) cash out
Year 0: Salvage old machine $24,500
Year 1: Cash flow $139,000
Balance end of year 1: (100,100)
/ proceeds year 2 $143,000
= Portion of year 2 .7
1.7 years
Tara is a contractor putting together an estimate for a potential client and has determined the following activities:
Activity Cost Driver Rate Est for Job
Demo Square Footage $3.15/SF 500 SF
Install # of Hours $203/hour 5 hours
Finishing Square Footage $12.37/SF 262 SF
Tara would like to add a 20% markup to the cost to arrive at the final bid price. Using Activity-Based Costing (ABC), what is the final bid price for her potential customer?
Demo: $3.15 * 500 = $1,575
Install: $203 * 5 = 1,015
Finish: $12.37 * 262 = $3,243
Total ABC cost $5,833
Market up at 1.20 $7,000
Which award has Taylor Swift won four times?
Best Album at Grammy's
Name Porter's 5 forces
Identify the company's environment:
- Rivals
- Power of customers
- Threat of substitutes
- Threat of new entrants
- Bargaining power of suppliers
Super Industries is considering investing in a machine with a 5 year life with the following characteristics:
Initial investment: $500,000
Additional investment in working capital $10,000
Cash flows before taxes years 1 to 5: $140,000
Yearly depreciation: $90,000
Tax rate: 30%
What is the after tax cash flow in year 2?
$125,000
Before tax cash flow $140,000
Depreciation expense (90,000)
Operating income (GAAP) $50,000
Tax expense @ 30% (15,000)
After tax income GAAP $35,000
Add back depreciation 90.000
After tax cash flow $125,000
or use depreciation shield method:
Before tax cash flow $140,000
Tax expense on cash (42,000)
Cash flow before dep shield $98,000 (1)
Depreciation shield:
Depreciation expense $90.000
* tax rate @ 30% 27,000 (2)
Equals cash flow after tax $125,000 (1)+(2)
Musical Venues operates box offices and wants to implement Time-Driven Activity-Based Costing (TDABC) instead of their current traditional costing methods. They compiled the following data about their identified key activities:
Transaction Est. Time/ Activity Tickets this Year
Ticket Sales 4 minutes 84,620 tickets
Ticketed Admittance 1.5 minutes 77,844 tickets
Customer Refunds 8 minutes 4,670 tickets
Musical Venues spent $742,500 to operate the ticketing department, and these resources created a capacity of 495,000 minutes. If actual costs incurred to operate the activities are compared to the allocated costs, what is the difference, and is it over- or under allocated?
$3,591 underallocated
Rate per minute at capacity $742,500 / 495,000 = $1.50 per minute
Actual minutes spent:
Ticket sales 4 min * 84,620 = 338,480 minutes
Admitance 1.5 min * 77,844 = 116,766 minutes
Refunds 8 min * 4,670 = 37,360 minutes
Total actual minutes 492,606 minutes
* rate at capacity $1.50
= Allocated costs $738,909
Actual cost $742,500
Difference underallocated $3,591
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first woman President