Unformatted text preview: am. 1. Vonn Consulting, Inc. is a service firm. Which of the following items would appear on its balance
sheet? Write the associated letter codes on your answer sheet.
h. Accounts Receivable
Work In Process Inventory Use the following information about Community to answer questions 2 through 5.
After attending a TQM seminar, the vice-president of Community Bank, Inc. proposed a major
initiative to increase quality.
If Community undertakes this initiative, it will incur the following costs:
Community believes that the quality initiative will increase sales, decrease losses due to
accounting errors, and improved employee satisfaction. It estimates the present values of these
benefits as follows:
Decreased losses due to accounting errors
Improved employee satisfaction
Community believes it has accurately estimated costs but is less certain about future benefits. It
believes there is only a 60% chance it will increase sales. 6A:002 Spring 2010 – Midterm 1 Page 3 2. Compute the expected value of the benefits of the quality initiative. 3. (a) Based on the information above, should Community undertake the project?
(b) Compute the net expected benefit of the quality initiative. If the net benefit is negative, write your
answer in parentheses. 4. Assume that the net expected benefit of the quality initiative is $45,000. Community is concerned
that it has overestimated the present value of improved employee satisfaction. What is the smallest
this benefit could be and still result in Community wanting to undertake the initiative? 5. Ignore question 4. Instead assume that Community has reevaluated its cost estimates. It believes
there is a 25% chance it will experience a cost overrun on computer software costs. If it experiences
this cost overrun, total computer software costs will be $210,000 rather than the $175,000 it
originally estimated. Compute Community’s revised expected cost of the quality initiative. 6A:002 Spring 2010 – Midterm 1 Page 4 6....
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This note was uploaded on 09/29/2011 for the course 06A 002 taught by Professor Stuff during the Spring '11 term at University of Iowa.
- Spring '11