1.The company’s warehouse has been busy taking in and shipping out vendor- supplied automotive parts. Table 6.13 shows the warehouse’s activities in eight consecutive periods, during which time the price of the parts has steadily increased.
FIFO and LIFO Computation
Period Units In Unit Price Paid ($) Units Out
1 150 100 —
2 250 120 —
3 — — 180
4 — — 100
5 100 130 —
6 — — 200
7 100 140 —
8 — — 80
a. Determine the total LIFO prices for each stock withdrawal in periods 3, 4, 6,
b. Repeat the same price computation using the FIFO technique.2. A manufacturing company makes three products, A, B, and C. The fixed FO is $60,000, consisting of $10,000 for material handling, material waste, and procurement; $30,000 for rent and utilities; and $20,000 for safety and canteen costs. Other costs are shown in Table 6.16
a. Determine the product cost for products A, B, and C, using the ABC method.
b. If products A, B, and C are sold at $400, $350, and $150 per unit, respectively, what is the gross profit for each product?
c. What is the company’s total gross profit per month if all units produced are sold?
3. You are considering a good-looking Toyota hybrid car priced at $28,000 or an elegant GM luxury car at $24,000. The fuel efficiency is rated at 50 miles per gallon for the Toyota and 25 miles per gallon for the GM. The annual maintenance cost for both cars is about 0.5% of the car price. The gasoline in the local market is selling at $2.00 per gallon. The cars are to be driven about 10,000 miles per year. You plan to keep your car for five years only. At the end of the fifth year, the resale values of the Toyota and the GM are about 40% and 30%, respectively, of their original prices. The interest rate is 6%.
Which car is the better choice from the standpoint of costs?
4. Company X manufactures automotive door panels that may be made of either sheet metal or plastic sheet molding (glass fiber-reinforced polymer). Sheet metal bends well to the high-volume stamping process and has a low material cost. Plastic sheet molding meets the required strength and corrosion resistance and has a lower weight. The plastic-forming process involves a chemical reaction and has a slower cycle time. Table 6.18 summarizes the cost components for each. Assuming that the machinery and tooling have no salvage value at the end of their respective equipment lives, what is the annual production volume that would make the plastic panel more economical?
For production volume up to 536,156 panels per year, the plastic panels are more economical.
Cost Components for Door Panels
Description Plastic Sheet Metal
Material cost ($ per panel) 5 2
DL cost ($ per hour) 40 40
FO ($ per year) 500,000 400,000
Maintenance expenses ($ per year) 100,000 80,000
Machinery investment ($) 3 million 25 million
Tooling investment ($) 1 million 4 million
Equipment life (years) 10 15
Cycle time (minutes per panel) 2 0.1
Interest rate (%) 6 6
5. Company X produces two products, A and B. Table 6.19 summarizes the cost structures of these two products over a three-month period. The company’s manufacturing operation is limited to 30,000 machine hours available per a three-month period. Furthermore, because of a prior sales commitment, the company must produce at least 1000 units of Product B. Determine the maximum profit the company can achieve in a three-month period.TABLE 6.19Cost Structures over Three MonthsProduct A Product BSelling price ($ per unit) 10 12Variable cost ($ per unit) 5 10Fixed costs ($) 600 2,000Machining time (hour per unit) 0.5 0.25Product AProduct BProduct CNumber of Units Produced Per Month (-) 250400900Total Material Costs Per Month ($) 500080004000Labor Hours Per Unit (hr)43.51.5Labor Rate Per Unit ($/hr) 252030Machine Hour Per Unit (hr) 113Sheet1Garpah for EM2 NotesWyeSelf-Leveling0606.481543.253256.483909.7105906.486276.2158556.488642.72011206.4811009.202Supply and DemandSupplyDemand ADemand B188.8.131.52184.108.40.20604.545.72562.84.530823.73530US Treasury Bills6.55Bank CD810Industrial Bonds1015Junk Bonds25TEXAS INSTRUMENTS FINANCIAL STATEMENTSTEXAS INSTRUMENTS COMPNAY INFORMAITON AND INDUSTRY DATABalance Sheets19591958December 31, 1958 and 1959(Depreciation & amortizatioin:$8,135$4,924)(thousands of dollars)(Preferred diidensdividends1020)(Other dividends1850)19591958PAST RATIOSCash$17,856$10,841Fil in 1959195819571956195519541953Receivables (net)29,05319,350Current ratio222.22.521.9Inventories23,2826,869Acid test220.127.116.11.71.31Prepaid expenses664315Total debt to total assets52.30%47.90%41.20%30.40%46.00%53.30%Payments received on govt. contracts-6,013-405Long-term debt as % of capitalization26.50%26.30%16.80%8.40%8.30%25.40%——————————Total debt to net worth18.104.22.168.40.81.1Total current assets$64,842$36,970Days’ receivables (days)75.766.382.296.781.965.5Ending inventory turnover (sales)13.47.822.214.171.124Property, plant & equiment$60,806$26,773Ending inventory turnover (cost of sales)126.96.36.199.55.74.1Accumulated depreciatoin20,08310,281Net property trunover188.8.131.525.66.9—————————–Total assets turnover184.108.40.206.51.61.8Net property account$40,72317,492Net profit to total assets11.20%10.00%8.60%8.10%7.90%8.50%Patents, etc. (net)0249Net profit to net worth23.40%19.20%14.60%11.60%14.70%18.30%Other assets42980Net proft to net sales6.50%5.60%5.10%5.50%4.90%4.70%—————————-Gross profit34.00%29.50%26.50%27.40%29,3%29.20%Total assets$105,994$53,791INDUSTRY INFORMATIONAccrued wages, pensions, taxes, etc.21,30910,696Current ratio2.3220.127.116.11.6Other current liabilities5,5892,867Acid test1.21111.10.6——————————Total debt to total assets40.00%52.80%46.10%47.20%42.60%56.10%Total Currnet liabilities$37,266$18,900Long-term debt as % of capitalization12.30%16.70%17.10%14.40%11.30%7.80%Total debt to net worth0.71.10.81.10.71.3Long-term debt12,0009,250Days’ receivables (days)444542423933Preferred stock3,2650Ending inventory turnover (sales)18.104.22.168.55.44.7Common stock3,9153,257Ending inventory turnover (cost of sales)22.214.171.124.24.43.8Paid in surplus8,2056,228Net property trunover8.710.17.18.4912.2Retained earnings41,34316,156Total assets turnover126.96.36.1992.2——————————Net profit to total assets188.8.131.52.64.45Total liabilities & net worth$105,994$53,791Net profit to net worth10.20%11.00%9.00%10.60%7.70%11.40%Net proft to net sales3.10%2.70%2.80%2.90%2.30%2.30%Gross profit22.80%21.70%20.60%23.20%18.60%19.90%Operating StatementsNumber of companies Reported:604255657360Years 1958 and 1959(thousands of dollars)NOTE:Averages of compnaies of all sizes up t tpta assets of $10 million. 1953-56 compnaies manufacturing radios,phonographs and electronic equipment, 1957-1958companies making electonic components and accessories.19591958The number of companies averaged each year is shown as the last item in each column.Net Sales$193,213$91,954Source:Derived or adapted from Robert Morris Associates, Statement Studies, 1953 through 1958.Cost of goods & services128,43460,776——————————–Gross profit64,77931,178Selling, general & admin. Expenses26,36913,844Employee profit sharing & retirement9,8314,167———————————Total Overhead36,20018,011Operating profit before interest & tax28,57913,167Other income956273———————————Total IBIT29,53513,440Interest paid680505Taxable income28,85512,935Income tax14,7126,934———————————Net income14,1436,001DebtValuationVu05520105351355013.9560135701058055Product Life CycleSalesProfit000100-102050301554027155038186041127038680283901601000-3PUSHPULLCommunicationPersonal SellingMass AdvertisingPriceHighLowProduct’s Need of Special ServiceHighLowDistributionSelectiveBroadOne of 60 CurvexF060140226317412596775839210185% Experience CurveProduction QuantityProduction Cost1120.8540.722580.614125160.522006320.4437360.377145720.32057Price-Quality CorrelationQuantityPriceQuantityTQuantityA501005502804012010100230301502014019020150301501501010040120120550509090Suppy ADemandSupply B184.108.40.206220.127.116.1104.543.12562.84.630826.5358.5ProductF1F2F3F4F4F6P1P1P3P4Your ProductP5P6P7NameIndustryPartnersActivitiesMyAircraft.comAerospaceUnited Technologiesbuy and sell parts, manageHoneywellsupply and inventory, accessI2Technologiestech expertsPaperexchange.comPaperInternational PaperBuyers and sellers negotiateprices and transact businessonlineXSAg.comAgricultureVarious agricultureProvide auction service onlinecompaniesfor chemicals and seedsChemConnectChemicalDow ChemicalBuy and sell plastics andEastern ChemicalchemicalRohm & HaasE-SteelSteelU.S. SteelBuy and sell steel products,Worthington Industriessearch industrial informationAug-96500Dec-96650Mar-97800Jun-971200Sep-971500Jan-981800Apr-982150Jul-982500Dec-983000NameNature of SiteAmazon.comProduct salesPreviewtravel.comServicesMytimes.comInformantionEbay.comCustomer valueepinion.comCustoemr empowermentThirdvoice.comCommentaryBlackboard.comEducationemusic.comDistributionMacys.comMixing online and offine storesRespond.comReverse auctionsmercata.comViral marketingBeenz.comWeb currencymysimon.comCompanion shoppingB2C199810199920200040200160200210020031902004284BCBB2BB2CGM/FordAmazonEDI NetworksDellCC2BC2CPricelineEbayAccompnayQXCWork UsersHome UsersYahoo49.70%41.50%MSN34.127.1Netscape37.724.9Excite24.121.3Lycos24.118.3Infoseek23.815.8Alta Vista22.715.6Snap138.3Hotbot9.67.9Growth of Web Sites1993501994751995100199620019971,10019984,80019998,500DimensionCustomer Relationship ManagementAdvertisingProvide infomation in response to specific customer inquiriesTargetingIdentifying and responding to specific customer behaviors and preferencesPromotions andIndividually tailored to custopmerOffering DiscountsDistribution ChannelsDirect or through intermediaries; customer’s choicePricing of products/Negotaited with each customerServicesNew Product FeaturesCreated in respponse to customer demandsMeasurements Used toCustomer intention; total value of the individual customer relationshipManage the CustomerRelationshipIH8.392Deere4.933Cataerpillar7.612PACCAR1.882IH85.931Deere75.439Caterpillar88.253PACCAR140.156IH4.4Deere6.3Caterpillar6.5PACCAR6.4IH1.60Deere1.18Caterpillar1.40PACCAR2.54Sales ($B)Net Income ($B)Gross Margin (%)19775.9750.20317.9519786.6640.18718.5718798.3920.369618.06Sales ($B)Gross Margin (%)19775.97517.9519786.66418.5719798.39218.0619773.45519783.5219793.58219772.219781.819791.719770.5719780.5219790.49Trucks47.3Agricultural Equipment35.5Construction Equipment11.92Turbo Machienery4.24United States72.68Canada8.54EU, Africa and Mid-East13.8Latin America0.66Pacific4.319852000US300,000150,000Others70,000150,000TOTAL370,000300,000ABC MODEL FOR A SMALL MANUFACTURING COMPANYForging Press Hour CostMachine Hour CostInduction Heating CostMaterial Movement CostDirectlyDepreciationDepreciationDepreciationDepreciationAttributableUtilitiesUtilitiesUtilitiesUtilitiesCostsManufacutring SuppliesManufacutring SuppliesManufacutring SuppliesManufacutring SuppliesOutside RepairsOutside RepairsOutside RepairsOutside RepairsStraight-time wagesStraight-time wagesFringe BenefitsFringe BenefitsPayroll TasesPayroll TasesOvertime PremiumOvertime PremiumShift PremiumEquipment LeasesDistributionsMaintenanceMaintenanceMaintenanceMaintenanceBuildings and GroundsBuildings and GroundsBuildings and GroundsBuildings and GroundsManufacturing EngineeringManufacturing EngineeringManufacturing EngineeringHuman ResourcesCommodity OverheadCommodity OverheadCommodity OverheadSupervisionSupervisionTotalTotal CostsTotal CostsTotal CostsTotal CostsRate$ Per Press Hour$ Per Machine Hour$ Per Heating Hour$ Per MoveEXAMPLE OF AN INCOME STATEMENT ($Million)Year 2000Year 2001Sales Revenue (Net)8,380.308,724.70Cost of Goods Sold6,181.206,728.80Gross Margin2,199.101,995.90General, Selling and AdminIstrative Expenses320.70318.80Pensions, Benefits, R&D, Insurance and Others494.60538.70State, Local and Miscellenous Taxes180.10197.10Depreciation297.20308.60EBIT (Earnings Before Interest and Tax)906.50632.70Interest and Other Costs Related to Debts82.90114.40Taxable Income823.60518.30Corporate Tax(32.05%) 264.00(20.84%) 108.00Net Income (NOPAT)559.60410.30Common Stock Dividend151.60172.80Retained Earnings408.00237.50EXAMPLE OF A BALANCE SHEET ($Million)Year 2000Year 2001ASSETSCash231.00245.70Marketable Securities450.80314.90Accounts Receivable807.10843.50Inventories1,170.701,387.10Total Current Assets2,659.602,791.20Fixed Assets11,070.4011,897.70Accumulated Depreciation6,410.706,618.50Net Fixed Assets4,659.705,279.20Long-term Receivaables and Other Investments574.80735.20Prepaid Expenses260.90362.30Total Long-term Assets5,495.406,376.70TOTAL ASSETS8,155.009,167.90LIABILITIESNotes Payable65.30144.50Accounts Payable571.20622.80Accrued Taxes346.30275.00Payroll and Benefits Payable433.70544.30Long-term Debt Due Within a Year30.4050.80Total Current Liabilities1,446.901,637.40Long-term Debt1,542.501,959.90Deferred Tax on Income288.40405.30Deferre Credits27.0036.30Total Long-term Liabilities1,857.902,401.50TOTAL LIABILITIES3,304.804,038.90Common Stock ($1.00 Par Value)81.4082.20Capital Surplus1,549.101,589.60Accumulated Retained Earnings3,219.703,457.20TOTAL OWNER’S EQUITY4,850.205,129.00TOTAL LIABILITEIS AND OWNERS’ EQUITY8,155.009,167.90EXAMPLE OF A FUNDS FLOW STATEMENT ($Million)2000-2001%SOURCESNet Income410.3024.11%Depreciation*308.6018.14%Decrease in Marketable Securities135.907.99%Increase in Notes Payable79.204.66%Increase in Accouns Payable51.603.03%Increase in Payroll and Benefits110.606.50%Increase in Deferred Tax on Income116.906.87%Increase in Long-term Debt437.8025.73%Increase in Common Stock and Capital41.302.43%Increase in Deferred Credit9.300.55%TOTAL SOURCE OF FUNDS1,701.50100%USESIncrease in Plants and Equipment928.1054.55%Dividend Paid172.8010.16%Increase in Cash14.700.86%Increase in Accounts Receivable36.402.14%Increae in Inventories216.4012.72%Increase in Long-term Receivables and Other Investments160.409.42%Increase in Accured Taxes71.304.19%Increase in Prepaid Expenses101.405.96%TOTAL USES OF FUNDS1,701.50100%* Depreciation is a non-cash expenditure, which must be added back here torepresent a source of funds avialable to the firmTYPICAL VALUES IN SELECTED INDUSTRIESMANUFACTURING FIRMSGeneral MachieneryElectric ApparatusComputerIron & SteelPERFORMANCE RATIOS1. Current Ratios (-)2.622.592.312.392. Net Income to Net Sales (%)5.163.683.76.163. Net Income to Tangible Net Worth (%)13.639.599.5416.114. Collection Perioid (Days)485778435. Fixed Asset to Tangible Net Worth (%)39.141.631.456.46. Totoal Debt to Tangible Net Worth (%)86.3101.5126.180.9Reference: “Notes on Financial Analysis,” Harvard Business Case # 206-047 (1960).Problem 3-1ABC Company Income Statement ($1000)Year 2001Year 2000Sales330,000395,000Cost of Sales*265,000280,000Gross Profit65,000115,000Selling and Administrative Expenses95,00088,000Other Expenses4,00035,000Interest2,0003,000Total Expenses101,00094,500Profit (Loss) Before Taxes(36,000)20,500Federal Income Tax010,000Net Profit (Loss)**(36,000)10,500*Includes depreciation of $15,500,000 in 2000 and $15,000,000 in 2001.**No dividents were paid in 2001ABC Company Balance SheetYear 2001Year 2000Current AssetsCash18,50017,000Marketable Securities05,000Accounts Receivables39,50028,500Inventories98,000113,000Total Current Assets156,000163,000Plant and Equipment (net)275,000290,000Other Assets3,0008,000Total Assets434,000461,500Current LiabilitiesAccounts Payable34,50018,000Note Payable20,00025,000Acrued Expenses18,50011,500Total Current Liabilities73,00054,500Morgate Payable20,00030,000Common Stock200,000200,000Earned Surplus141,000177,000Total Liabilities and Net Worth434,000461,500DebitCreditDebitCreditDebitCredit(1)(2)(3)(4)(5)(6)Explanations:(1) Purchasing raw materials(2) Putting materials into production processs(3) Production is initiated, adding value to raw materials.SOURCES OF FUNDS(4) Production is completeYear 2000-2001(5) Receiving of finished goods in storage(6) Finished goods are shipped for saleDecrease – Marketable Securities5,000Decrease – Inventories15,000Decrease – Other Assets5,000Increase – Accounts Payable16,500Increase – Accured Expenses7,000Decrease – Plant and Equipment15,000TOTAL SOURCES OF FUNDS63,500USES OF FUNDSIncrease – Cash1,500Increase – Accounts Receivable11,000Decrease – Notes Payable5,000Decrease – Mortage Payable10,000Net Loss for Period36,000TOTAL USES OF FUNDS63,500PERFORMANCE RATIOS FOR TEXAS INSTRUMENTS (1959)Current Ratio1.7Acid Test1.1Total Debt to Total Assets46.50%Long-Term Debt as Percent of Capitalization17.50%Total Debt to Net Worth0.9DaysRreceivables54.1 DaysEnding Inventory Turnover (Sales)8.3xEnding Inventory Tunove (Cost of Sales)5.5xTotal Assets Turnover1.8xNet Property Turnover4.7xNet Profit to Total Assets13.30%Net Profit to Net Sales7.30%Gross Profit (Margin)33.50%INDUSTRIAL VRSUS CONSUMER PRODUCTS1. Number of BuyersFewMany2. Target EndusersEmployersSelf3. Nature of ProductsTailor-made, TechnicalCommodity, Non-techncial4. Buyer SophisticationHighLow5. Buying FactorsTechncial, Quality, Price,Price, Convenience,Delivery, ServicePackaging, Brand6. ConsumptionOEM Parts for Resell,Direct consumptionOwn Consumption7. Producer Enduser ContactLowHigh8. Time Lag Between Demand and SupplyLargeSmall9. Segmentation TechniquesSIC (Standard IndustrialDemographic, Life Style,Classification), Size,Geogrpahy, Ethnic, Religious,Geography, Enduser,Neighborhood, BehaviorDecisioin Level10. Classification of GoodsRaw Materials, FabricatedConveniece (Household Supplies,Parts, Capital Goods,Foods), Shopping (Cameras,Accessory Equipment,Refrigeratros), Specailty (Foods,OMR Supplies, BadgedBrand Name Clothing)ProductsDebitCreditDebitCreditDebitCreditBeg. 753 (b)Beg. 22440 (f)Beg. 50198 (a)187 (c)125 (d)440 (f)430 (g)147 (e)187 (c)End. 83 (h)End. 41 (h)End. 60 (h)Explanations:(a) Purchasing raw materials by paying $198.00(b) Receiving credit for having returned some materials purchased(c) Direct materials actually shipped to WIP and used in the accounting period.(d) Direct labor used and cost assigned.(e) Factory overhead used and cost assigned.(f) Product completed and transferred out to warehouse.(g) Finished goods shipped out to customer, receiving CGS as credit.(h) The sum of ending balances in Stores, WIP and FG represents Inventoryat the end of the accounting period.ABC Model for a Service DepartmentTRADITIONALABCSalaries$621,400Key/Scan Claims$32,000Equipment161,200Analyze Claims121,000Travel Expenses58,000Suspend Claims32,500Supplies43,900Receive Provider Inquires101,500Use and Occupancy30,000Resolve Member Problems83,400Process Batches45,000Total$914,500Determine Eligibility119,000Make Copies145,000Writre Correspondence77,100attending Training158,000Total$914,500IMPACT OF INVENTORY ACCOUNTING ON CGS(Company has 5, buys 10, and uses 10 units)FIFOLIFOAverageBeginning Inventory5 * $100500500500Purchases and Value Added5 * $2001,0001,0001,0005 * $3001,5001,5001,500Ending Inventory5 * …….1,5005001,000Cost of Goods Sold (CGS)1,5002,5002,000Problem 3-3TransactionCurrent RatioWorking Capital(1)335/140 = 2.39, down y 0.11unchanged(2)unchangedunchanged(3)310/115 = 2.70, up by 0.2unchanged(4)315/130 = 2.42, down by 0.8$185,000, down by $10,000(5)335/130=2.58, up by 0.08$205,000, up by $10,000(6)315/130 = 2.42, down by 0.8$185,000, down by $10,000(7)335/145=2.31, down by 0.19$190,000, down by $5,000(8)318/130 = 2.45, down by 0.5$188,000, dowm by $7,000(9)310/127 = 2/44, down by 0.6$183,000, down by $12,000(10)341.667/130=2.62, up by 0.12$211,5667, up by $16,667Texas Instruments Income Statement (Thousands of dollars)19591958Net sales$193,213$91,954Cost of goods & services128,43460,776——————————-Gross profit64,77931,178Selling, general & admin. Expenses26,36913,844Employee profit sharing & retirement9,8314,167——————————–Total Overhead36,20018,011Operating profit before interest & tax28,57913,167Other income956273——————————–EBIT29,53513,440Interest paid680505Taxable income28,85512,935Income tax14,7126,934——————————–Net income14,1436,001TEXAS INSTRUMENTS BALANCE SHEET (THOUSANDS OF DOLLARS)19591958Cash$17,856$10,841Receivables (net)29,05319,350Inventories23,2826,869Prepaid expenses664315Payments received on govt. contracts-6,013-405—————————-Total Current Assets$64,842$36,970Property, plant & equipment$60,806$26,773Accumulated depreciation20,08310,281—————————-Net property account$40,72317,492Patents, etc. (net)0249Other assets42980—————————Total Assets$105,994$53,791Accounts payable$10,368$5,337Accrued wages, pensions, taxes, etc.$21,309$10,696Other current liabilities$5,589$2,867—————————-Total Current Liabilities$37,266$18,900Long-term debt$29,935$9,250Total Lliabilities$67,201$28,150Preferred stock$3,265$0Common stock$3,915$3,257Paid in surplus (capital surplus)8,2056,228Retained earnings23,40816,156—————————-Total Liabilities & Net Worth$105,994$53,791TEXAS INSTRUMENTS COMPANY INFORMAITON AND INDUSTRY DATA$1,959$1,958(Depreciation & amortization:$8,135$4,924)(Preferred dividends1020)(Other dividends1850)PAST RATIOSFill in 1959195819571956195519541953Current ratio222.22.521.9Acid test1.6$18.104.22.168Total debt to total assets52.30%47.90%41.20%30.40%46.00%53.30%Long-term debt as % of capitalization26.50%26.30%16.80%8.40%8.30%25.40%Total debt to net worth22.214.171.124.40.81.1Days’ receivables (days)75.766.382.296.781.965.5Ending inventory turnover (sales)13.47.8126.96.36.199Ending inventory turnover (cost of sales)188.8.131.52.55.74.1Net property turnover184.108.40.2065.66.9Total assets turnover220.127.116.11.51.61.8Net profit to total assets11.20%10.00%8.60%8.10%7.90%8.50%Net profit to net worth23.40%19.20%14.60%11.60%14.70%18.30%Net profit to net sales6.50%5.60%5.10%5.50%4.90%4.70%Gross profit34.00%29.50%26.50%27.40%29,3%29.20%INDUSTRY INFORMATIONCurrent ratio2.318.104.22.168.6Acid test1.21111.10.6Total debt to total assets40.00%52.80%46.10%47.20%42.60%56.10%Long-term debt as % of capitalization12.30%16.70%17.10%14.40%11.30%7.80%Total debt to net worth0.71.10.81.10.71.3Days’ receivables (days)444542423933Ending inventory turnover (sales)22.214.171.124.55.44.7Ending inventory turnover (cost of sales)126.96.36.199.24.43.8Net property turnover8.710.17.18.4912.2Total assets turnover188.8.131.522.2Net profit to total assets184.108.40.206.64.45Net profit to net worth10.20%11.00%9.00%10.60%7.70%11.40%Net profit to net sales3.10%2.70%2.80%2.90%2.30%2.30%Gross profit22.80%21.70%20.60%23.20%18.60%19.90%Number of companies Reported604255657360NOTE:Averages of companies of all sizes up to total assets of $10 million. 1953-56 companies manufacturingRadios, phonographs and electronic equipment, 1957-1958companies making electronic componentsand accessories. The number of companies averaged each year is shown as the last item in each column.Source:Derived or adapted from Robert Morris Associates, Statement Studies, 1953 through 1958.Product AProduct BProduct CNumber of Units Produced Per Month (-)250400900Total Material Costs Per Month ($)500080004000Labor Hours Per Unit (hr)43.51.5Labor Rate Per Unit ($/hr)252030Machine Hour Per Unit (hr)113Sheet110101515202025253030SupplyDemand AQuantityPrice ($/unit)Equilibrium Price220.127.116.11.64.5462.882Sheet2US Treasury BillsBank CDIndustrial BondsJunk BondsPercentage (%)Risk Premium6.581025Sheet30055101015152020WyeSelf-LevelingQuantity$AC Comparison606.481543.23256.483909.75906.486276.28556.488642.711206.4811009.20200202035355050606070708080ValuationVuDebt to Equity Ratio (%)Valuatoin of Firm ($/Share)Optimum Leverage5510513513.9513510555012345678910FProduct Development PeriodsNumber of ProductsOne in 60 Product Development Curve6040261712975321124816323672Production CostProduction QuantityNominal Unit Cost ($/Unit)BCG Experience Curve10.850.72250.6141250.5220060.44370.3771450.3205700101020203030404050506060707080809090100100SalesProfitProduct Life (%)$Product Life Cycle000-10501552715381841123862831600-3101010151515202020252525303030353535SupplyDemand ADemand BQuantityPrice ($/Unit)Demand Shifting Due to Product Promotion18.104.22.168.22.214.171.1245.762.84.5823.73101010151515202020252525303030353535Suppy ADemandSupply BQuantityPrice ($/Unit)Supply Shift Due to Product Innovation126.96.36.199.188.8.131.52184.108.40.20626.58.55510102020303040405050QuantityTQuantityAPrice ($/Unit)Quantity (Units)Price Implication on Quality502801002301401901501501201209090352783540035490355823567435796358863597736130Number in ‘000.Com Registration5006508001200150018002150250030001998199920002001200220032004B2CYear$BB2C Business Voume1020406010019028419931993199419941995199519961996199719971998199819991999Yearweb site Count (k)Growth of Web sites50507575100100200200110011004800480085008500IHDeereCataerpillarPACCARCompanies$ BAnnual Sales in 19798.3924.9337.6121.882IHDeereCaterpillarPACCARCompanies$ KSales/Employee in 197985.93175.43988.253140.156IHDeereCaterpillarPACCARCompanies%Net Income/Sales in 197220.127.116.11.4197719771978197819791979Sales ($B)Gross Margin (%)Years$ B and %International Harvester5.97517.956.66418.578.39218.06197719781979YearsIH Sales/Invertory Ratio3.4553.523.582IHDeereCaterpillarPACCARCompaniesSales/Asset Ratios (1979)1.5918.104.22.1687197719781979YearsIH Current Ratio22.214.171.12497719781979YearsIH Quick Ratio0.570.520.49TrucksAgricultural EquipmentConstruction EquipmentTurbo MachieneryProducts%Sales by Product Group (1979)47.335.511.924.24United StatesCanadaEU, Africa and Mid-EastLatin AmericaPacificRegions%Sales by Geographical Area (1979)72.688.5413.80.664.3USUSOthersOthersTOTALTOTAL19852000GE Employment30000015000070000150000370000300000Year%651661.5674683694706715723.973474107512767775786.579880148112.58210.5834844853.95863.9872.2884894.5905916923933942.9953963.2973983.2992.90211Problem 2-5YEARSLSOYDDELTAF = ( 1 – t ) DELTAPRESENT WORTH113333.3333333333(6/21)80000 = 228579523.814761.914329213333.3333333333(5/21)80000 = 190485714.32857.152361.28313333.3333333333(4/21)80000 =152381904.8952.4715.54413333.3333333333(3/21)80000 = 11428.6-1904.8-952.4-650.5513333.3333333333(2/21)80000 = 7619.05-5714.28-2857.14-1774.06613333.3333333333(1/21)80000 = 3809.52-9523.8-4761.9-2687.95TOTAL$2,293.31Problem 2-6YEARMAINTENANCETRADE-INACCUMULATEDTOTAL ACCUMULATEDAVERAGE ANNUAL COST OFCOSTVALUEDEPRECIATONEXPENSESOWNERSHIP & MAINTENANCE11,00024,00016,00017,00017,00022,00021,00019,00022,00011,00033,00018,00022,00028,0009,33344,00015,00025,00035,0008,75055,00012,00028,00043,0008,60066,0009,00031,00052,0008,667Problem 2-7ABCCost ($)1,2001,2001,200Weeks in Operation101013Hours in Operation1,6801,6802,184% of useful life70%70%91%Depreciation Charge ($)8408401,092TOTAL$2,772(Zero Salvage Value Assumed)Problem 2-8TYPECONVENTIONALAIR-SUPPORTEDFirst Cost ($)200,00035,000Life (years)408Annual Maintenance ($)1,5005,000Power & Fuels ($)7005,500Annual Taxes *$)1.5/1001.5/100Salvage Value ($)40,0003,000Interest Rate (-)0.080.08Problem 2-9WYESELF-LEVELINGFirst Cost5,5007,000Maintenance250500Labor Cost200+150+100+80=200+150_200+160 =530/mile710/1/.5 miles =473.3/milesN2010Problem 2-10SteamElectricFirst Cost ($)$2,600,000$2,800,000Life (years)2530Present Age (years)1830Remaining Life (years)730Present Salvage Value ($)800,0000Final Salvage Value130,000290,000Annual Expenses425,000312,500Problem 2-11Project012A-103010B-5520C-5515Prolem 2-12ABInvestment$500,000$300,000Profit year 1150,00050,000Profit Year 2200,000150,000Profit Year 3250,000200,000Profit Year 4150,000300,000Profit year 5100,000200,000Problem 2-13DesignCostMaximum Storage CapacityA$500,0001 UnitB625,0001.5 UnitsC900,0002.0 UnitsUnits Annual RainfallProbability00.100.1 to 0.50.600.6 to 1.00.151.1 to 126.96.36.199 to 2.00.042.0 or More0.01Traditional AnalysesRisk SimulationSingle-valuedx1% probablity that a given outcomeoutcome (cost,(cost, time to completion) will notTime to completion)exceed x2.Minimum Outcome (x3)Most Likely Outcome (x4)Maximum Outcome (x5)Standard Deviation as a overallmeasure of project risk (x6)STORESWIPFGSTORESWIPFG0000000000000000000000000000000000000InflationYearPercentageUS Consumer Price Index0000000000000000000000000000000000000US Consumer Price Index (Year to Year % Change)0246810121416656769717375777981838587899193959799YearPercentageInflationUS Consumer Price Index (Year to Year % Change)0246810121416656769717375777981838587899193959799YearPercentageInflationMBD0005D344.xlsChart26566676869707172737475767778798081828385858687888990919293949596979899InflationYearPercentageUS Consumer Price Index (Year to Year % Change)188.8.131.52.1653.83.91012.05756.581412.510.54184.108.40.2064.556332.8220.127.116.11investmentFOREIGN INVESTMENT UB HINA (YEAR-TOYEAR % CHANGE)3/22/99WSJ – 12/16/98%172-53224-15-126-17-4819510121117investment00000000000%MONTH IN 1998%FOREIGN INVESTMENT YEAR-TO-YEAR PERCENTAGE CHANGE (WSJ-12/16/98)00000000000ChinaTradeChina Trade Statistics3/22/99US ExportsUS Imports720.10730.70.1740.80.1750.30.2760.10.2770.20.2780.80.3791.70.6803.81.1813.61.9822.92.3832.22.28433.1853.93.9863.14.8873.56.38858.5895.812904.815.2916.219927.525.7938.831.5949.338.89511.745.6961251.59712.862.5981471991580US ExportsUS Imports832.22.28433.1853.93.9863.14.8873.56.38858.5895.812904.815.2916.219927.525.7938.831.5949.338.89511.745.6961251.59712.862.5981471991580WyeSelf-Leveling0810.1871543.20753460.1873909.7106110.1876276.2158760.1878642.72011410.18711009.202WyeSelf-Leveling00.811.54353.463.909106.116.276158.768.6422011.4111.009Inflation651661.3673.8682.8694.1706715723.8733.974107512.05767775786.579880148112.58210.5834854853.9863.8872.5884894.5905916923933942.8953963.2973983.2992.9ChinaTrade0000000000000000000000000000000000000000000000000000US ExportsUS ImportsYEAR$ BILLIONUS-CHINA TRADE (DOC)0000000000000000000000000000000000000000000000000000Hardwood00000000000000000000000000000000000000000000000000000000US ExportsUS ImportsYEAR$BChina Trade Statistics00000000000000000000000000000000000000000000000000000000Tradedeficit0000000000000000000000000000000000US ExportsUS ImportsYear$ BillionChina Trade Statistics00000000000000000000000000000000000000000000WyeSelf-LevelingMiles/YearK$/YearAnnual Cost Versus Miles/Year000000000000000000000000000000000000000000000InflationYearPercentageUS Consumer Pice Index (Year to Year % Change)00000000000000000000000000000000000HARDWOODChinese Imports(1000 cum)1997199819992000Logs28110390420Lumber833104112001300Annual1Q1Q (Logs+Lumber)19956519967519971251998116289.719993415Househod Decoration & RepairYEAR$(MM)$(MM)1991$ 736.001992$ 982.001993$ 1,472.001994$ 2,208.001995$ 3,681.001996$ 4,665.001997$ 6,135.001998$ 8,300.001999$ 10,470.002000$ 12,638.0000000000LogsLumberYEAR1000 CUMChinese Imports of Temperate Hardwood00000000000000000000000Annual1Q1Q (Logs+Lumber)Year$ MMUS Hardwood Export to China00000000000000000000000000000000000PastFutureYear$(MM)Household Decoration Expenditure00000000000000000000Trade DeficitTrade DeficitChina (+22.7%)$4.80Japan (-28.7%)$4.66Canada (+24.2%$2.71NICS (179.8%)$1.58Euro Zone (-38.6)$1.55Mexico (+13.9%)$1.43European Union (-65.5%)$1.12Newly Industrized countries: Hong Kong, South Korea, Singpore, Taiwanyears to profitTIME (YEARS)PROFITABILITY1 TO 262.53 TO 512.55 TO 708 TO 106OVER 1019POPULATION (MM)NewRiches2Yuppies60Salary Men330Working Poor8001192PopulationRetail Sales16.90%33%83.10%67%RegionsPopulationRetail SalesHigh Retails Sales16.90%33%Others83.10%67%0000000Trade DeficitCountries (% Change from Dec. 99)$ BillionUS Trade Deficit (January 1999)00000PROFITABILITYTIME (YEARS)% OF PROFITABLE VENTURESYEARS TO PROFITABILITY0000POPULATION (MM)0000PopulationRetail SalesChinese High Retail Sales Regions