Sample Midterm 2011 - (twohours FirstName LastName Student...

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Unformatted text preview: Commerce 354 Mid‐term Examination (two hours) First Name: _______________________ Last Name:______________________________ Student #: _______________________ Please Circle Section 201 (8:00am) 202 (9:30 am) 203 (11:00 am) Question 1 (6 marks) From a management accounting (COMM 354) perspective what would be the key considerations Burger King would need to consider in making this decision. Prepared by J. Kroeker, 2011 © Sauder School of Business, UBC Page 1 Question 2 (22 marks) Azor Division produces medical devices used in open heart surgeries. The devices sell for $300 each. The current equipment can produce 250 units per year, is fully depreciated and working efficiently. This equipment is serviced every 50 units of production at a cost of $900 each servicing. The total costs include $1,192 per year for a patent that was bought in 2006 and is being amortized over 7 years. Year Units Total costs Average Total Cost 2006 200 $ 46,600 $ 233 2007 210 $ 49,440 $ 235 2008 190 $ 47,020 $ 247 2009 230 $ 52,180 $ 227 2010 235 $ 53,700 $ 229 Total for 5 years 1,065 $ 248,940 Annual average # 213 $ 49,788 ($248,940/1,065) = $233 Required: a) The CEO has stated that the cost per unit is $233. Identify and explain two concerns or issues you have with this statement? (4 marks) Issue #1 Issue #2 b) Provide your own estimate of the variable cost per unit? (4 marks) c) Construct a single formula (decision model) that Azor could use for planning purposes in 2011. (4 marks) Prepared by J. Kroeker, 2011 © Sauder School of Business, UBC Page 2 d) For 2011 Azor is considering the purchase of equipment costing $9,100 which, Azor estimates, would decrease variable production costs by a net amount of $18 per unit. This piece of equipment, which is environmentally engineered, is projected to create the $18 savings, in part, due to a decrease in waste and power usage. The new equipment will increase aggregate production capacity by 60 units per year, have a useful life of 7 years and require only nominal servicing costs. Should they buy the equipment or not? Explain with calculations to support your arguments? (10 marks) Prepared by J. Kroeker, 2011 © Sauder School of Business, UBC Page 3 Question 3 (22 marks) Mopani Ltd. produces shipping crates. They have been in business for 10 years. Originally they had leased equipment that had annual capacity of #5,000 units. At the start of year two they doubled their capacity by leasing an additional machine. Both leases are fixed rate leases. Inflation per year has been 5% and demand for year 11 is expected to be 8,900 units. Historically, to increase production efficiencies, production and delivery have been evenly distributed throughout the year. The selling price per crate is $240. As of year 10 Mopani had 6 customers with annual demand ranging between 800 and 2,000 units per customer. The smallest customer, Mantle Inc. was added as a customer in year 10, the remaining customers are each about the same size as each other and have been with Mopani, on average, for five years. Year Units Total Costs 1 3,578 504,360 2 5,400 830,400 3 4,587 764,360 4 5,890 983,584 5 8,700 1,442,632 6 8,900 1,545,395 7 5,542 1,082,659 8 9,979 1,885,989 9 6,543 1,371,104 10 8,087 1,727,089 a) With no inflation adjustment, estimate the variable cost per crate (2 marks) b) With no inflation adjustment , estimate the fixed cost for year 11 (2 marks) c) If inflation is real and is embedded in all of the firm’s financial numbers then why should it be removed? (4 marks) Prepared by J. Kroeker, 2011 © Sauder School of Business, UBC Page 4 d) Calculate the expected profit (wealth created) for year 11. (4 marks) e) A special order has been received from Corte Ltd. for #2,000 crates in year 11 at a price of $220 per crate from a large corporation that ships lawn furniture during the months of April, May, June and July. Provide an analysis of this order. Should they accept it? Why? (10 marks) Prepared by J. Kroeker, 2011 © Sauder School of Business, UBC Page 5 Question 4 Using tools and concepts from 354, comment on, and critique the statement that: “the Volcano’s ash was costing airlines $200 million a day”! (8 marks) Prepared by J. Kroeker, 2011 © Sauder School of Business, UBC Page 6 Question 5 (28 marks) Peer Ltd. is tracking the costs of operating its two heavy duty pieces of equipment in its factory. The market value on this equipment is nominal as it was bought in 2002. The equipment is functioning well and is used primarily to lift crates in preparation for shipping. Lifting is a time consuming and critical part of the production process. The level of lifting activity in the factory has grown by roughly 15% in each of the past two years. The manager feels that with increased lifting activity there is a corresponding increase in maintenance. The company has provided these two years of data pertaining to the equipment. It is estimated that from 2002 to 2010 the aggregate inflation was 5% in total. For 2011 it is expected that inflation will be 2%. Costs in the table include the insurance cost for the two pieces of equipment: 2002 Year 2010 2011 Estimated usage Hours (#) 9,980 16,700 18,000-20,500 Kilometers (#) 5,000 6,300 6,300 – 6,400 45 62 $ 370,000 $ 630,000 Number of clients Maintenance and Insurance Costs ($$) a) Estimate the variable and fixed costs. (4 marks) b) The company would like to estimate the total cost of “maintenance” for 2011. Calculate the projected range of maintenance cost for 2011. (6 marks). Prepared by J. Kroeker, 2011 © Sauder School of Business, UBC Page 7 c) A recent analysis shows that the company is nearing capacity of 17,000 hours and 7,000 kilometers. It has determined that they could lease a piece of heavy duty equipment which would annually add 8,500 hours and 3,400 kilometers in capacity. This equipment is very similar to the existing two pieces of equipment. There are several pieces of equipment readily available in the market at an annual fixed rate lease cost of $230,000 which would include all maintenance services. Insurance is included in the $230,000 lease cost. Peer Ltd. does not have the financial capacity nor interest in purchasing additional equipment. When Peer Ltd. began operations in 2002 leases were not an option. Now Peer management wonders if it should consider leases as an option, what would be the optimal course of action for Peer Ltd.for 2011? Provide rationale in support of your plan of action. (18 marks) What are the alternatives? No calculations. Prepared by J. Kroeker, 2011 © Sauder School of Business, UBC Page 8 Analysis (Calculations and rationale) Recommendation: Optimal plan for 2011 (be precise) Prepared by J. Kroeker, 2011 © Sauder School of Business, UBC Page 9 ...
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  • Winter '08
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  • Sauder School of Business, J. Kroeker, Sauder School

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