Exam 2 Example Problems Lon-Capa 4: BKF.com provides banks access to sophisticated financial information and analysis via the web, enabling them to instantly evaluate both personal and commercial loan applications. To better focus on its client services, BKF.com is considering outsourcing some of its internal functions. Its controller, Jenny Lee, suggests starting with the company's internal email system. She recently attended a conference and learned that Continental Airlines, DellNet, GTE, and NBC outsource their email function to companies such as Google and Yahoo. Lee began her analysis by identifying the total costs related to last month's in-house email operation, when there were 3,965 employee mailboxes: Variable Costs [per mailbox] Email license $17,446 Virus protection license $5,551 Miscellaneous $9,516 Fixed Costs Computer hardware $38,064 Total $70,577 Lee analyzed the computer hardware costs further and determined that 40% were allocated costs that will continue even if the email system is abandoned, 15% were direct costs that will be avoided if the email system is abandoned, and the balance were monthly salaries for two, equally paid information technology staff members who worked only on the email system. Mail.com, a leading provider of internet messaging outsourcing services, offers to host BKF.com's email function for $14.50 per mailbox. BKF.com will still need the virus protection software even if it outsources the email function to Mail.com, but it will only need one of the information technology staff members to maintain the virus protection and quarantine suspicious emails. Also, another company has agreed to rent some of the computer storage space that will be available if BKF.com outsources its email function for $3,100 a month. Finally, Lee estimates that 4,155 mailboxes will be required per month next year. REQUIRED By how much will BKF.com's monthly profits change if they decide to outsource its email function to Mail.com instead of managing the service internally? (Note: if the buy costs are less than the make costs, enter the difference as a positive number; if the make costs are less than the buy costs, enter the difference as a negative number.) SOLUTION license per employee = email license/employee mailboxes = 17446/3965 = 4.4 misc per employee = misc/employee mailboxes = 9516/3965 = 2.4 Make Email license: 4.4 * x = 4.4 * 4155 = 18282 Misc: 2.4 * x= 2.4 * 4155 = 9972 FC = 38064 --> computer hardware Total = Mailbox + Misc + FC = 66318 Buy Allocated costs: .40*38064 = 15225.6 Salary for 1 employee = (Computer Hardware-Direct Cost-Allocated Costs)/2 = (38064 - 5709.6 - 15225.6)[2 = 8564.4 Mail.com hosting charge: 14.5 * x = 14.5 * 4155 = 60247.5 Receiving money from another company: 3100 (They receive 3100 so subtract from cost)Total = allocated costs + salary of 1 employee + hosting charge - receiving money = 80937.5 66318 - 80937.5 = -14619.5 Lon-Capa 5: This is a special order problem that deals with a service rather than a product. But the concepts for determining the profit from the special order remain the same. And the ultimate question still is: Should the special offer from this customer be accepted or not? For guidance, use the example in the Special Order lecture and study problems 5-A1 and 5-B1. As with almost all of the analyses that we have done, determining what costs are variable and what costs are fixed is a critical part of the analysis. Preston Concrete is a major supplier of concrete to residential and commercial builders in the Pacific Northwest. The company's general pricing policy is to set prices at $127 per cubic yard. Estimated deliveries for 2007 were 410,000 cubic yards. Estimated total costs for 2007 included: Material costs $26,035,000 Ya rd operation costs $6,150,000 Administrative costs $1,230,000 $1,476,000 of the estimated yard operation costs were fixed, and all ofthe administrative costs were fixed. In addition to the costs listed in the table, there were delivery costs estimated to be $190,000 for the year, plus $10.00 per mile and $43.50 per truck hour. The rate per mile reflects the fact that more miles result in more gas, oil, and maintenance. The rate per truck hour reflects the fact that trucks that are waiting at a job site are kept running (so the concrete mix won't solidify), and drivers continue to get paid during that time. Near the end of 2007, Fairview Construction Company asks for a delivery of 4,600 cubic yards of concrete but is unwilling to pay the regular price; it will only agree to a price of $76 per cubic ya rd. Preston estimates that the job will require 6,900 miles of driving and 280 truck hours. The housing market in the Pacific Northwest had slowed during recent months, leaving Preston with enough capacity to fill the order, but its sales manager is reluctant to commit to such a reduced price. SOLUTION 1. What is the profit or loss from the special order (enter a loss as a negative number Revenue = (price per unit) * (quantity) = 76 * 4,600 = 349,000 Direct Materials Per Unit = (material costs) / (est. deliveries) = 26,035,000 / 410,000: 63.5 (direct materials per unit) * (quantity) = (direct materials) 63.5 * 4,600: 292,100 Yard: 4,674,000 / 410,000: 11.4 * (4,600) = 52, 440 Delivery Costs = (price per mile) * (miles) + (cost per hour) * (hours) = (10 * 6,900) + (43.50 * 280): 81,180 Revenue - Variable Costs: Loss in Profits 349,600 — (292,100) - (52,440) - (81,180): -$76,820 Lon-Cappa 5: Preston Concrete is a major supplier of concrete to residential and commercial builders in the Pacific Northwest. The company's general pricing policy is to set prices at $120 per cubic yard. Estimated deliveries for 2007 were 390,000 cubic yards. Estimated costs per cubic yard for 2007 included: Material costs $52.30 Ya rd operation costs $15.00 Administrative costs $2.50 28% ofthe estimated yard operation costs were fixed, and all of the administrative costs were fixed. In addition to the costs listed in the table, there were delivery costs estimated to be fixed at $200,000 for the yea r, plus $8.50 per mile and $43.50 per truck hour. The rate per mile reflects the fact that more miles result in more gas, oil, and maintenance. The rate per truck hour reflects the fact that trucks that are waiting at a job site are kept running (so the concrete mix won't solidify), and drivers continue to get paid during that time.Near the end of 2007, Fairview Construction Company asks for a delivery of 5,400 cubic yards of concrete but is unwilling to pay the regular price; it will only agree to a price of $80 per cubic ya rd. Preston estimates that the job will require 7,300 miles of driving and 290 truck hours. The housing market in the Pacific Northwest had slowed during recent months, leaving Preston with enough capacity to fill the order, but its sales manager is reluctant to commit to such a reduced price. SOLUTION Revenue: 80*5400=432,000 Direct Materials: 52.30*5400=282,420 Ya rd Operation Costs: 390,000*15.00=5,850,000 .28*5,850,000= 1,638,000 5,850,000-1,638,000=4,212,000 <-This is your variable cost, so if you got a number for estimated ya rd operation fixed costs...use that 4,212,000/5,850,000=.72 5400*15=81,000 81,000*.72=58,320 <- This is the number you need to subtract from revenue Delivery Costs: (8.50*7300)+(43.50*290)=74,665 43 2,000-(282,420+58,3 20+74,665)= 16,595 Lon-Cappa 6: The Brisbane Manufacturing Company produces a single model of a CD player. Each player is sold for $206 with a resulting contribution margin of $72. Brisbane's management is considering a change in its quality control system. Currently, Brisbane spends $39,500 a year to inspect the CD players. An average of 2,000 units turn out to be defective - 1,600 of them are detected in the inspection process, and the rest are shipped to customers. If a defective CD player is identified in the inspection process, it costs $80 to fix it. If a defective CD player is not identified in the inspection process, the customer who receives it is given a full refund of the purchase price. Competitors are expected to improve their quality control systems in the future, so if Brisbane does not improve its system, sales volume is expected to fall by 510 CD players a year for the next five years. In other words, it will fall by 510 units in the first year, 1,020 units in the second year, etc.. The proposed quality control system has two elements. First, Brisbane would spend $820,000 immediately to train workers to better detect and correct defective units. Second, an x—ray machine would be purchased to improve detection. This machine would cost $300,000, last for five years, and have salvage value at that time of $22,000. Annual inspection costs would increase by $23,000. Both of these elements would reduce the number of defective units to 370 per yea r. 300 of these defective units would be detected and repaired at a cost of $42 per unit. Customers who received defective players would be given a refund equal to one-and-a—half times the purchase price. If Brisbane replaces its current system, it will be able to sell some of its present quality control equipment for $4,000; this equipment will not be worth anything in five years. SOLUTION 1. Year 3 Cashflow with the current system =(Cost of Inspection) + (Number detected * Cost to fix) + (Number shipped * Purchase Price) + (Sales volume decrease in year 2 * CM) =(-39500) - (1600 * 80) - (400 * 206) - (1530 * 72) = - 39500 - 128000 - 82400 — 110160 = -360060 2. Year 3 Cash flow if replacing current system = Original inspection cost + Increase in inspection cost = Annual Inspection Costs = 39500 + 23000 = 62500= Fix the defective = 300 * 42 = 12600 = Refund defective = Defective units shipped * Cost to replace = (370 - 300) * (1.5*206) = 21630 Total = —62500 — 12600 — 21630 = —96730 3. Inspection = 39500 years 1—3 repaired units = (1600*80) = 128000 refund = 400*206 = 82400 Total: 39500 + 128000 + 82400 = 5249900 510 CD's per year reduction CM=S72 Year 1 = (510x572)+249900= $286620 Year 2 = (1020x372)+249900=$323340 Year 3 = (1530x572)+249900=$360060 Year 4 = (2040x572)+249900=$396780 Year 4 = (2550x572)+249900=$433500 using the discount rate of 8% from table 1: = (—.926)*286620 - (.857)*323340 - (.794)*360060 - (.735)*396780 - (.681)*433500 = -1415246.94 4. l = (820K + 300K - 4K) = 1116000 CF yrs 1-3 = -96730 (ans you got for #2) using the present value of an annuity of 8% for 5 yea rs from table 2: -96730*(3.993) = -386242.89 (this is PV) PV-l = NPV -1116000 + 386242.89 = —1502243 Second Chance Exam: 1) X Company is considering a modification to one of its main products that would make it more attractive to customers. As a result, X Company could increase the price with no decrease in unit sales. Currently, financial information for this product is as follows: Selling price $10.80 Variable costs $4.20 Fixed costs $11,540 The modification would not result in additional variable costs, but fixed costs would increase to $15,130. Assuming that X Company could increase the selling price by $2.84, at what unit sales level would it be indifferent between modifying the product and not modifying it? make two equations and set them equal to each other, so take: 10.80—4.20= 6.60x(units sold)—11540 10.80+2.84= 13.64 13.64—4.20:9.44 so you have 6.60x - 11540 = 9.44x - 15130 then solve 2) X Company sells 62,300 units of its regular product each yea r. A company has offered to buy 5,000 units for $11.75 each. The following per-unit revenue and cost information relates to X Company's regular production andsales: Selling price $13.00 Costs: Direct materials $1.62 Direct labor 1.30 Variable overhead 2.53 Fixed overhead 2.23 Variable selling 1.48 Fixed selling 1.01 Sales commissions of 2% of sales are included in the variable selling cost. Because the special order product is slightly different than the regular product, X Company will incur $8,000 in special setup costs and $14,000 to rent some unique equipment. Finally, there will be no sales commissions on the special order. 1.48-(.02*13) which gave me 1.22 then multiply that by 5000. This gave me the right answer 3) X Company sells 65,600 units of its regular product each yea r. A company has offered to buy 4,680 units for $11.85 each. The following per-unit revenue and cost information relates to X Company's regular production and sales: Selling price $14.00 Costs: Direct materials $1.95 Direct labor 1.58 Variable overhead 3.08 Fixed overhead 2.03 Variable selling 1.38 Fixed selling 1.44 Sales commissions of 4% of sales are included in the variable selling cost. Because the special order product is slightly different than the regular product, X Company will incur $8,000 in special setup costs and $15,000 to rent some unique equipment. Finally, there will be no sales commissions on the special order. 14*65600= 918400 (1.95+1.58+3.08+2.03+1.38+1.44)*65600= 751776 918400-751776= 166624 14*64450=902300 (1.95+1.58+3.08+1.38)*64450=514955.5 (2.03+1.44)*65600= 227632 166624-159712.5=6912 Answer: 6912 4) Your friend is starting college this fall. Her grandmother has offered to give her either $4,500 at the beginning of each of the next four years to help pay tuition (option 1), or $25,000 when she graduates four years from now so she can buy her first car (option 2). lfshe can earn 8% interest at the bank, you should tell her that option 2 is more valuable than option 1 by 25000 x 0.735 (table 1 for 4 years at 8%): 17025 5) X Company must buy either Machine A or Machine B. The useful life of both machines is seven years. Machine A costs $48,000, and Machine B costs $64,000. Estimated annual cash flows with the two machines are as follows: Year Machine A Machine B
Она попыталась выбросить их из головы. Мысли ее вернулись к Дэвиду. Сьюзен надеялась, что с ним все в порядке. Ей трудно было поверить, что он в Испании.