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Winkley & White Bob White leaned back and wiped his forehead with his hand. He was the president of the home oven division of Winkley &...

Hello! I need help solving the attached 'WINKLEY AND WHITE WORKSHEET'.

Please explain all your numbers. Explain where they came from and what you are doing with them.

Please make sure that all answers show all of your work including the excel function. Thank you so much in advance.
Winkley & White Bob White leaned back and wiped his forehead with his hand. He was the president of the home oven division of Winkley & White, a manufacturer of a ful line of home appliances that included refrigerators, ranges, ovens, dishwashers, disposals, dryers, washers, and range-hoods. The oven division made 24” and 26” built-in ovens, both self-cleaning (pyrolytic) and continuous clean (catalytic) models. The ovens were used mainly for home improvement, although a smal portion was used in new construction. The Winkley & White oven was regarded as a high- quality, premium product and was expensive. Winkley & White ovens were sold to independent distributors, who in turn sold to appliance stores, home improvement centers, building and remodeling contractors, and other retail outlets. Although the Winkley & White oven was a premium product and was distributed national y, it had never achieved the large volume of bet er known brands such as General Electric, Magic Chef, Caloric, or Amana. As a result, the Winkley & White oven division was only marginal y profitable due to its low volume. Last year, in order to increase volume, Winkley & White had entered into OEM1 contracts to manufacture ovens under other brand names. This was common practice in the industry, and in fact several of Winkley & White appliances (including gas ranges and disposals) were manufactured by other firms. Under one contract, Winkley & White made ovens for Samantha Stoves, a wel -known established brand that was sold by its own distribution division to appliance stores, home improvement centers, building and remodeling contractors, and other retail outlets. Under another contract, Winkley & White manufactured ovens for Mastercraft Stores, which was a mass- market retailer with over a thousand stores throughout the United States. The Samantha and Mastercraft ovens were essential y similar to the Winkley & White brand ovens. Bob White was perspiring because he had just finished a phone conference with the top executives of Samantha. The Samantha executives had demanded a 5% price cut. What bothered Bob even more was that if Samantha received a 5% price cut, word would soon leak out, and Mastercraft would soon be demanding a price cut of 5% too. Within ten minutes, Bob had his three top executives around a conference table and had relayed to them the substance of Samantha's cal . Jack Hewit , the plant manager, was saying, “The Samantha and Mastercraft ovens are basical y like our own ovens, but their wal s are not as wel insulated or as wel sealed at the door opening. The dif erence in cost is $5 for rockwool insulation and $1 for the door gasket per oven. Labor cost is the same for al three brands. “Under the contracts with Samantha and Mastercraft, their production is scheduled 90 days in advance- which al ows our ‘just-in-time’ inventory system to be implemented for raw materials. As a result, inventories of raw materials, work in process, and finished goods average about 30 days versus the 100 days of inventory we normal carry for the Winkley & White brand ovens. Sidney, what are our inventory carrying costs?” Sidney Cohen, the division control er, tapped his pencil on the table and cleared his throat. “We have careful y studied our inventory carrying costs, and these add up to double the interest rate that we pay on our short-term borrowings. We have a line of credit at two points over prime, with a compensating balance requirement of 20%. Prime rate is presently 8%. Our Sel ing, General and Administrative expenses are mainly stable year after year, and have not increased since we began making OEM ovens, Sidney continued. So, there are definitely manufacturing cost savings on our OEM ovens for Samantha and Mastercraft. Next to speak was Barbara Craig, the division sales manager. “Our terms of payment are 10 days from invoice for Samantha and Mastercraft, as compared with the normal 60 days on accounts receivable that we carry for our own distributors. Also, Winkley & White pays the freight on al truckload orders from our distributors. Samantha and Mastercraft pay the freight to ship al of their OEM ovens from here to to their central distribution points in Dal as and Chicago, respectively. Winkley & White provides a three-year warranty on labor and materials for our own brand ovens, but we do not provide warranties or warranty service on the OEM ovens. Bob White said, “Each of you has identified possible sources of lower costs on our OEM ovens versus our Winkley & White ovens. The question is whether these cost savings add up to enough to justify the lower prices that our OEM ovens sel for. If not, we may be in hot water. I seem to recal there’s a law, Robertson- Patrick or some such name, on price discrimination. I hope that’s not going to cause our distributors to sue us for price discrimination. To avoid a lawsuit we must prove that our OEM prices are lower than what we charge our own distributors, due to cost savings on OEM sales. “Sidney, would you put a report together on this right away. Then let’s al get together again this afternoon at four to see how we stand.” Sidney replied, “So they’re bringing in their lawyer, are they? Wel I don’t like to be threatened. We can bring in lawyers too. Isn’t there some law against trade conspiracies, Bob? Can’t you cal our lawyer and see if he can be here for the meeting?” Bob cal ed the Winkley & White at orney. He had a previous engagement but agreed with Bob that this appeared to include a Robinson-Patman issue, unless Winkley and White could prove that its OEM prices were lower than what it charged its own distributors because of cost savings on OEM sales. Exhibit 1 is the Income Statement for the oven division for the recently ended fiscal year. Winkley and White Corporation Home Oven Division Income Statement for the Year Ended December 31 (in $’000) ________________________________________________________ Sales (net) 30,538 % of Sales Raw materials 6,894 Factory wages 8,642 Factory overhead 7,003 Cost of goods manufactured 22,539 73.81% Add: Beginning inventories 5,079 Less: Ending inventories 5,985 Cost of goods sold 21,633 21,633 Gross profit 8,905 Less operating expenses: 1,256 1,321 958 432 1,623 329 Total operating expenses 5,919 5,919 Division income before income taxes 2,986 *Note: Corporate overhead includes interest expense. Average Total Ovens Sold Number Price Sales ($’000) Winkley and White Brand 23,673 $626.00 $14,819 Samantha OEM Brand 17,654 $407.00 $7,185 Mastercraft OEM Brand 20,966 $407.00 $8,533 Totals 62,293 $30,537 Differential costs 1. Inventory carrying cost Extra inventory carrying cost for Winkley and White Brand is: Formula Inventory carrying cost = Extra investment in days /365 * Cost of goods sold per unit * Interest % Given information as: Extra investment in days 70 100-30 (As given in the problem) Cost of goods sold per unit $462.03 Interest 10% Number of Days 365 Inventory carrying cost $8.86 2. Opportunity Cost of Debtors Formula Opportunity Cost of D Extra accounts receivables *Average price per unit* Interest % Where as Given Information: Extra accounts receiva 50 60-10 Average price per unit $626.00 Interest 10% Number of Days 365 Opportunity Cost of $8.58 3. Freigh cost Formula Freigh cost = Total freight costs/ Number of units of Winkley and White sold Where as: Total freight costs 1321000 Number of units of Winkley and W23,673 Freigh cost = Total freight costs Number of units of Winkley and White sold Freigh cost = 1321000 23,673 Freigh cost = $55.80 4. Product Waranty service costs Formula Product Waranty service costs = Total Product Waranty service costs Number of units of Winkley and White sold Where as: Total Product Waranty service cos 1256000 Number of units of Winkley and W 23,673 Product Waranty service costs = 1256000 23,673 Product Waranty service costs $53.06 =1256000/23673 53.05622 5. Material costs $6.00 Thus, total extra costs for Winkley $132.29 Note: 1) Interest cost is assumed as 10% 2) Freight outwards costs and product warranty costs are at ributable only to Winkley and White Brand as per the case facts. The lower Prices charged to OEMs are 626-4 $219.00 These prices are much higher than the cost saving which is only $132.19 Thus, Winkley and White Coporation's cost saving is lower and does not justify the lower price. In fact, they can only reduce the price to $135.00. 1OEM stands for Original Equipment Manufacturer, indicating that Winkley & White were the Original Equipment Manufacturer for Samantha and Mastercraft ovens. Assignment : You are Sidney’s assistant. He asks you to prepare his report, and to clearly and ful y explain your reasoning and your calculations. Product warranty service costs Freight out Sel ing and marketing Product advertising and promotion General and administrative Al ocated corporate overhead* Assignment : (1) You are Sidney’s assistant. He asks you to prepare his report, and to clearly and ful y explain your reasoning and your calculations:
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Winkley and White Corporation WW S M Home Oven Division Price/unit 626 Income Statement for the Year Ended Dec 31 After 5% cut 626 Total W and W Samantha Mastercraft Number of Units Sold  62,293   23,673   17,654   20,966  %  of total 38.00% 28.34% 33.66% Sales (net)  30,538,000   14,819,298  Sales After 5% Discount  29,751,721  Cost of Goods Sold Raw Material  6,894,000  Allocated based on units 6 Adj for Insulation and Gasket  231,720   (105,924)  (125,796) Adjusted for $6 difference in cost/unit Factory Wages  8,642,000  Factory Overhead  7,003,000              Current Period Manufacturing C  22,539,000  Add Beginning Inventorie  5,079,000  30 days of inventory for S and M versus 100 for WW Subtract Ending Inventor  (5,985,000)  (604,313)     Cost of Goods Sold  21,633,000  Gross Profit   8,118,721  Operating Expenses Prod Warranty Service C  1,256,000  Freight Out  1,321,000  Selling and Mkt  958,000  Prod Adv and Promotion  432,000  General and Adm  1,623,000  What is a reasonable way to allocate G/A and Corp OH among the product categories? Allocated Corporate Ove  329,000  Ignore assumption about corporate OH including interest expense.    Total Operating Expenses  5,919,000  Corporate HQ does not allocate financing costs to divisions    Income Before Taxes (based on 5% price reduction for S and M)  2,199,721  Inventory Carrying Costs % Prime Rate Plus Times Equals Inventory Carrying Cost  8.00% 2.00% 125% Inventory Carrying Cost % Table of Carrying Costs      Ovens Sold Number Avg Price Sales COGS Days of Inv Cost of Inve Inv Carry Cost Day AR Sales Receivables CC Winkley and White Brand  23,673  626  14,819,298  100 60  2,436,049  Samantha OEM  17,654  30 Master Craft Brand  20,966  30 Totals  62,293  W and W  Samantha Mastercraft Cost Per Unit Cost Of Goods Sold Operating Costs Inventory Carrying Costs Receivables Carrying Costs Total Cost Units  23,673   17,654   20,966  Cost per Unit  Note that S amd M cost per unit should be the same amount Price Per Unit BEFORE price reduction Cost Per Unit Net Margin Price Per Unit after price reduction Cost Per Unit Net Margin Comp Bal  Times 10/8
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Winkley and White Corporation Notes: The best place to begin is with the end. The end result of this analysis should confirm or refute whether the reduced price that W and W will charge Samantha and Mastercraft for essentially the same product sold to WW’s independent distributors, constitutes a violation of Robinson-Patman. That conclusion requires an analysis of the profit margins for products sold to each of the customers. At the bottom of the template provided to assist in your analysis are two boxes. One reports the net profit per unit before the price reduction and the other after the price reduction. If margins for WW products sold to independent distributors are significantly greater than the margins for products sold to Samantha and Mastercraft, then there may be sufficient grounds for arguing WW has violated Robinson-Patman and Samantha and Mastercraft have an unfair price advantage over WW’s OEM competitor customers. Are the lower prices to S and M warranted by lower costs? The task then is to compute the total cost per unit for products sold to each customer. This requires that the financial information provided in the case be disaggregated into three separate statements. One statement for products sold to WW independent distributions, one for products sold to Samantha and one for products sold to Mastercraft. For the later two, the sales figure must be computed on the basis of the new price, which represents a 5% reduction of the original price. You are given the number of units sold to each customer. The spreadsheet also provides the % of units sold to each. This % will prove to be useful in sorting out the cost of each cost line item. The next task is to determine the cost for products sold to each customer. 1. Other than insulation and gaskets, the raw materials, wages and factory overhead is the same PER UNIT for each customer. 2. Since the financial information provided is for all three products we know that the material required for Samantha and Mastercraft is $6 per unit lower. So, the material cost for S and M products must be adjusted to allocate more to WW products and less to S and M products. I have provided the numbers on the spreadsheet for you. But take a look at where the numbers came from and reason why. 3. S and M products require only a 30-day supply of RM, WIP, and FG. WW products require a 100-day supply. Therefore, only 30% of the beginning and ending inventory is associated with S and M products respectively. The rest is for WW. Note the computation provided in the spreadsheet ($604,313) is the ending inventory to support the requirements for Mastercraft products. That should help you figure out how to compute the dollar value of beginning and ending inventory for each product category. 4. The case provides information about how product warranty costs, freight out, and selling and administrative costs are incurred only for WW products. 5. General and Administrative as well as Allocated Corporate Overhead would seem to be costs required to administrate the business of WW. So, if you were looking
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for a meaningful way to allocate that cost among the products, what would you think? Are administrative costs likely to be “consumed” in the same proportion as the number or units of each product? Or, is there another more reasonable method to allocate these costs? (Activity based costing is in fact one method, but that lesson will have to wait for another lifetime). 6. The case states that allocated corporate overhead includes interest expense. We are going to ignore that note and assume instead that corporate headquarters does not allocate finance costs to operating divisions . 7. When companies acquire inventory, it takes a while before the inventory is converted into finished goods and then longer before those goods are sold and then longer still until the cash is collected from the sale of those goods. So, the longer a business ties up its cash in inventory and receivables, the more interest costs there is on funds borrowed to buy the inventory. So, the problem requires that we include in the cost of these three products, inventory and receivable carrying charges. For inventory carrying charges you must compute the effective cost of borrowing funds to finance inventory. Since compensating balances must be maintained the company does not get full use of all the funds borrowed. This essentially means that the effective cost of borrowing is greater than the rate stated on the loan. So, the 8% rate must be adjusted first by the premium over prime and then for the compensating balance (which increases the rate by 125% in this case). 8. Compute the inventory carrying costs by estimating the cost of ending inventory. For WW branded goods, that is done by dividing COGS by 365 days and then multiply by 100 days, which is the normal days supply of inventory. This result is then multiplied by carrying charge to get the inventory carrying costs. Follow the same procedure to compute the carrying charge for inventory of S and M products. 9. Receivables carrying cost is computed based on the number of days it takes to collect. Estimate the value of ending accounts receivable (sales/365)* 60 days. Multiple the results by the carrying charge for receivables (8%). 10. Now you should be able to determine the total cost for each product and then the unit cost for each product. With that detail you can now compute the net margin per unit for all three products. 11. Be careful that all of your numbers “foot and crossfoot”. Look to make sure the numbers make sense. 12. Your analysis should include a description of Robinson-Patman and what that act means in general along with what it means in this case. Is WW likely to be liable for price discrimination? Have any of the provisions of R-P been violated? 13. Explain your numbers!! Explain where they came from and what you are doing. I have tried to give you a way to organize the information and make sense of it. Feel free to modify the format of the spreadsheet to suit your needs or concerns.
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