The government has committed to this policy for at

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Unformatted text preview: Business, UBC Page 7 Question 5 ( 24 marks) Cociente Extension All items from part 1 and 2 hold true except items identified below. The government has adopted a policy that permits 20% more logs to be purchased each year (relative to the previous year’s purchases). The government has committed to this policy for at least the next three years. Cociente has also been unable to sell the waste so it disposes of it at no charge. Grading and milling cost patterns are similar to 2006. Logs Bought Sales in Year & Processed E.F. Cost per log $ Board Meters 2007 15,000 33.9 85 508,500 2008 18,000 34.6 88 622,800 2009 21,600 33.8 90 730,080 2010 25,000 35.0 98 875,000 2011 30,000 33.8 98 1,014,000 2012 35,000 34.5 98 1,207,500 Average 24,100 34.3 92.8 826,313 Management has the opportunity to renovate the factory at a cost of $99,000. The accountant has decided that this would be amortized over 11 years. The production manager knows that with the renovation he could lease “large” machines with annual capacity of #20,000 units each. These would be annual leases at a rate of $190,000 per large machine. There is ample room in the factory for more machines. There would be a $13,000 safety training session required before Cociente employees could use the “large machines. In 2010 Cociente began selling to Japan and now has a demand constraint estimated at #2,000,000 board meters per year. Prepared by J. Kroeker, 2013 © Sauder School of Business, UBC Page 8 2013 Profit Status Quo (no renovation) Prepared by J. Kroeker, 2013 © Sauder School of Business, UBC Page 9 Cociente Extension: 2013 Profit with renovation Your recommendation for 2013 (use back of page if necessary) Prepared by J. Kroeker, 2013 © Sauder School of Business, UBC Page 10...
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This document was uploaded on 03/09/2014 for the course COMM 354 at University of British Columbia.

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