Mid term 2013 (Winter) - Commerce 354 Mid term...

Prepared by J. Kroeker, 2013 ©
Sauder School of Business, UBC Page 1
Commerce 354 Mid-­‐term Examination (February 5, 2013)
First Name: _______________________ Last Name:______________________________
Student #: _______________________
Please Circle Section M/W 201 (8:30am), 202 (10 am) 203 (11:30 am) T/TH 204 (11:00 am)
Question 1 (36 marks)
Shenwin Ltd produces computer parts using leased machines that each have a capacity to make #25,000
per year. Shenwin can fit a total of 8 machines in its existing factory and can lease machines conveniently
on a year -by-year basis. The cost of one machine lease in 2012 was $440,000 per machine. The factory is
owned and is being depreciated at $218,000 per year for the next 10 years.
The company always seeks to maximize profits and the CFO has indicated that inflation has been 10% but
this has not impacted direct material costs since she signed a 4 year contract with the supplier in 2010. The
labor costs were set for five years in a negotiated agreement in 2010 so there is no inflation in the labor
figures.
2010 2012
Direct Materials 910,000 1,240,000
Direct Labor 1,365,000 1,860,000
Overhead 8,458,000 11,174,000
Total Costs $ 10,733,000 14,274,000
Units Produced
& Sold # 91,000 # 124,000
"Average cost" 117.95 115.11
Industry experts expect inflation to be 3% in 2013. The selling price per unit was $119 in 2012. Shenwin
feels it can increase its selling price at the rate of inflation. Demand for 2013 is expected to be #124,000.
a) Calculate the expected contribution margin for 2013? (6 marks)

Prepared by J. Kroeker, 2013 ©
Sauder School of Business, UBC Page 2
b) Calculate the expected cost to lease one machine in 2013? (2 marks)
c) Calculate the number of units required to justify the leasing of an additional machine. (4 marks)
d) The CFO would like to know the cash flow that could be expected from 2013 if sales volume remains
the same as in 2012? (4 marks)

Prepared by J. Kroeker, 2013 ©