MKTG 3700 - FINAL EXAM

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Mini Blenders Inc. estimates manufacturing unit variable cost as $6. Fixed costs are $20,000 for the year, during which 10,000 units are expected to be sold. A 50% profit margin on unit total cost is desired. What should be MBI's selling price per unit?

$12.00 per unit - Response Feedback: uvc=$6.00; ufc=$20,000/10,000 units=$2.00 therefore unit total cost= $6+$2=$8.00. desired profit=50% on unit total cost. therefore, usp, using F3 = $8*(1+50%)=$12.00

ABC mfg co has estimated breakeven volume of 50,000 units for its new widget. If fixed costs are $100,000, unit selling price is $25.00 and ABC sales force commission is 8% of selling price, what is the unit variable cost (including commission)?

$23.00 - Response Feedback: $C=TFC/#BEP=$100,000/50,000=$2.00. UVC=USP-$C=25-$2=$23. Additional information is superfluous.

It is January 2015. SIB Inc, a small manufacturer unhappy with its performance, (i) hires an independent agent (and therefore, the agent's sales force), and (ii) gets rid of its own "salary only" sales force. All other costs remaining the same, how will these changes affect SIB in 2015 versus 2014?

(i) will increase unit variable cost, and, (ii) will decrease total fixed cost - Response Feedback: Agent salesforce is typically compensated using commission, a variable cost. Own salesforce (here) is compensated using salary, a fixed cost. Therefore hiring agent icreases variable cost. Firing salesforce reduces fixed cost.

ABC mfg co has estimated breakeven volume of 50,000 units for its new widget. If fixed costs are $100,000, unit selling price is $25.00 and ABC sales force commission is 8% of selling price, what is their %contribution?

8% - Response Feedback: $C=TFC/#BEP=$100,000/50,000=$2.00. %C=$c/usp=2/25=8%. Additional information is superfluous.

You would like to determine the profit impact of adding a new product that has similarities with an existing product (same customers, same use etc.). If you use the Incremental Approach, this information is needed.

All of the above are needed for the Incremental approach - Response Feedback: All of these ARE needed. The advantage of the incremental approach is that it requires less data. Specifically, the before new product and after new product sales estimates for the existing product is not needed. See the Great Lakes, Hannibal and Turfex cases in M07.

Which of the following statements is correct?

Both c and d above. - Response Feedback: c. In general, a company's growth rate percentage is worse than the growth rate % of its best performing division. d. In general, a company's growth rate percentage is better than the growth rate % of its worst performing division.

I.M. Boss asks you to explain the difference between the Cost of Capital and Discount Rate in a multi-year Net Present Value analysis of a single project. You correctly point out that typically....

Choices (a) and (c) above are both correct - Response Feedback: Recall any of the NPV problems, say, GGK corp. There the CC% was 11% or something like that and we used that for the entire problem. However the DR for each of the 10 years was calculated as DR=1/(1+CC%)^year, so DR differed for Y1, Y2 etc. Recall that the farther the year, the lower the DR.

Project M and N are alternative investment proposals. Both have the same 10 year life span but different Cost of Capital %s. You have been hired as the consultant and have prepared a NPV worksheet. Year 10 has a Discount Rate of 0.70 for M and 0.65 for N. How would you interpret this for the client?

Each year 10 dollar is worth more today for M than N - Response Feedback: Discount Rate refers to the present value of a future dollar. Naturally, because of discounting, that $1 of the future is worth less than that today. Since M has a Year 10 DR of 0.70 vs 0.65 for N, each Year 10 M dollar is worth more (0.70) than the corresponding N dollar (0.65).

In terms of the analogy explained in class module 11, which of these NPV concepts is the equivalent of the "maximum % interest rate you could pay a loan shark for your investment amount loan and still walk away a free person at the end of the project's life span"?

Internal Rate of Return or IRR - Response Feedback: Refer to the NPV problems. e.g. A vs B or Widgets. Recall setting the %CC equal to the IRR and seeing the previously calculated NPV become zero. Therefore, IRR is that cost of capital for which the Cumulative Discounted Net Cash Flow over the Life of the Project i.e. NPV, becomes zero. We used the analogy and said the IRR is like the interest you pay the loan shark. That is why, IRR needs to be >>> %CC for a NPV problem. If it does, it is good news!

Project M has a 10 year life span and you, as the consultant, are looking at its Excel worksheet and feel quite comfortable with "the Cumulative Discounted Net Cash Flow over the life of the project." In other words, the _____ is looking good.

Net Present Value - Response Feedback: "Cumulative Discounted Net Cash Flow over the Life of the Project" is the last entry in the CDNCF column of the NPV worksheet and its short name is NPV. See the A vs B, Widgets or GGK examples in M11.

A product sells 450 units at a price of $185 each. When price is increased to $200 each, sales go down to 400. Recalling Price Elasticity of Demand (see formula sheet), here...

PED equals 1.37 and demand is elastic - Response Feedback: PED=[(new Q-old Q)/Old Q] / [(new P-old P)/Old P] Here, PED=[(400-450)/450] / [($200-$185)/$185] =-1.37=1.37 expressed as absolute value. This is > 1, therefore demand is elastic

Two projects, A and B, have an expected life span of 5 years. For both, assume that the initial investment, % cost of capital and 5 year Net Cash Flows of $10K, $20K, $30K, $40K and $50K are all identical. There is one with a key difference: Project A starts with $10K NCF in Year 1 and ends with $50K in year 5. Project B is just the opposite: $50K NCF in Y1, $10K in Y5. NPV analysis is likely to favor which investment and why?

Project B because of the larger NCFs coming in sooner - Response Feedback: B is better than A because its larger NCFs come in sooner and therefore, once discounted, yield larger present dollars.

If ABC company's growth multiplier is more than 1, the trend suggests:

The ABC company will perform better in next year than in this year. Response Feedback: See examples in Module 01!

Two projects, A and B, have an expected life span of 5 years. Both have identical initial investment, % cost of capital and raw 5 year Net Cash Flows of $10K, $20K, $30K, $40K and $50K with a key difference: Project A starts with $10K in Year 1 and ends with $50K in year 5. Project B is just the opposite: $50K in Y1, $10K in Y5. Which aspect is MOST critical here in determining the $NPV of each project?

The Discount Rate - Response Feedback: It is the Discount Rate because that determines the present value of all those future dollars, making a comparison of A and B possible in the first place.

NT Wholesalers would like to investigate the adverse profit impact of maintaining and operating their many warehouses all over the USA. They would benefit by doing say, a past 5 year comparison of.....

The dollar cost of carrying average inventory - Response Feedback: Warehouses store inventory that has value but sits idle until sold. Meanwhile it must be protected from weather, theft, damage etc. This is the cost of carrying inventory and like all other costs, must be managed well to boost profits. Therefore a trend study of cost of carrying inventory will be quite helpful.

MM Inc. plans to replace direct sales to 5,000 US retailers spread out all over the country, with indirect sales by incorporating a layer of 15 wholesalers. It would be reasonable for them to expect changes in.....

all of (a-d) above - Response Feedback: The proposed change i.e. going TO just 15 direct customers FROM 5000 customers will affect MM's average inventory i.e. stock and accounts receivable i.e. monies owed to MM by its customers. Therefore, the costs associated with inventory and a/r will also change. In fact, they will go down!

I.M. Boss, the CEO of your company asks you to explain the concept of Discount Rate. You point out, while explaining DR calculations,

choices a and d above are both correct - Response Feedback: As you know, from any of the NPV problems, e.g. GGK Corp, the Discount Rate is calculated from the Cost of Capital % using the formula DR=1/(1+CC%)^year, resulting in smaller DR for distant years and higher DR for closer years.

Demand for products like a Caribbean cruise is generally considered price-elastic. This means....

choices a and d above are both correct - Response Feedback: price-elastic means demand is very sensitive to price. When price is increased, demand falls sharply, so revenue ends up decreasing. When price is decreased, demand increases sharply, so revenue ends up increasing.

A retailer sells a product for $16 after marking up 33.33% on wholesaler selling price. The wholesaler's markup is 50% based on manufacturer selling price. In this instance, what is the correct markup chain for calculating the manufacturer selling price?

$16 / (1+33.33%) / (1+50%) - Response Feedback: Here, both retailer and wholesaler markup based on their cost i.e. %muc. Therefore, starting with $16, going backward in the channel and applying F4 twice, wholesaler cost=manufacturer selling price=$16/(1+33.33%)/(1+50%).

Adibas desires to establish retail selling price for its new skateboard on the basis of Perceived Value. The average market price for this item is $12.50. Consumers, when asked to allocate 100 points among Adibas and four other competitors, gave Adibas an average of 20 points. Your recommended PV-based Adibas retail price?

$12.50 - Response Feedback: Adibas received 20 points which is the average perception of 100/5=20 points. 20/20=100% or 1.00. Average price is $12.50. If you multiply that by 1.00, you get $12.50, which would be the suggested price according to Perceived Value Pricing.

The table shows the likelihood of NT Inc's unit sales at different prices. At a price of $20.00, a reasonable estimate of NT's expected sales in dollars is:

$148,000 - Response Feedback: At $20.00, weighted average for units sold=60%*6000+20%*8000+10%*10000+10%*12000=7,400 units. 7400*$20=$148,000 in sales

Company ABC has four different products. Based on the information in the table, what is the growth percentage for unit sales of product U, 2013-2014?

20% - Response Feedback: (12000-10000)/10000=20.00%

Cool Fan Company sells 10,000 units to wholesalers each year at $60 per unit. The materials cost $10 per fan and unit labor cost is $15. The total promotion and marketing costs are $100,000. The facility expenses are $80,000 per year and other overheads cost $20,000. What is the total $ contribution of 10,000 fans?

$ 350,000 - Response Feedback: USP=60, UVC=25, $C=35, Total $C=35*10000=$350,000

Applet sold 50,000 units of smart phones to retailers for $ 80 per unit. The unit material cost is $20 and unit labor cost is $ 30. The annual manufacturing costs are $ 1 million and the promotion and advertising cost $500,000. What is $profit for the company?

$0 - Response Feedback: $C=usp of $80- uvc of ($20+$30)=$30; TFC=($1,000+$500)=$1,500,000, #BEP=1500000/30=50,000. Since sales=50,000 units, it equals #BEP and no profits are earned.

Vegi Juice is sold in the supermarket at $12 per case. Each case has 10 bottles of Vegi Juice. The total variable costs per case are $10. What is the $C of the Vegi Juice per bottle?

$0.20 - Response Feedback: $C=12-10=$2 per case = 2/10=$0.20 per bottle.

In 2014, Star! Inc. had cash and cash equivalents of $500,000 and marketable securities worth $1,000,000. Its account payable were $600,000 and notes and short term loans payable totaled $450,000. What is the value of the company's current liabilities?

$1,050,000 - Response Feedback: Only the accounts payable and short term notes are current liabilities. $600+$450=$1050. Cash etc and securities are current assets, not liabilities.

In 2014, Star! Inc. had cash and cash equivalents of $500,000 and marketable securities worth $1,000,000. Its account payables were $600,000. What is the value of the company's current assets?

$1,500,000 - Response Feedback: Current assets only includes cash etc and marketable securities. $500+$1000=$1500. Accounts payable is a liability, not an asset.

ABC Company sells its 4G SD memory card for $ 15 per unit. The unit production cost is $ 3 and unit labor cost is $ 5. The packaging and shipping costs additional $ 2 per unit. The annual manufacturing costs are $ 60,000 and the promotion and advertising cost is $40,000. If the company sold 22,000 units last year, what is the profit of the company?

$10,000 - Response Feedback: $C=15-10=5, TFC=$100,000, #BEP=20,000. Excess=Sales-#BEP=22-20=2,000. $Profit=Excess*$C=2,000*$5=$10,000

ABC manufacturing co has estimated breakeven volume of 50,000 units for its new widget. If $unit variable cost is $23.00 and unit selling price is $25.00, what is the total fixed cost?

$100,000 - Response Feedback: #BEP=TFC/$C. Here, $C=$25-$23=$2.00. 50,000=TFC/$2.00. Therefore, TFC=$100,000.

Based on the Income Statement information below, what is the 2014 Net Income of the company?

$100,000 - Response Feedback: $800 minus all else = $100,000

Sunny Wonderland sells its books to the wholesalers at $8 each, which sells it to the retailers at the markup of $2. The retailer sells the books to the consumers at 10 % muc. What is the selling price of the retailer?

$11 - Response Feedback: Retailer buys for 8+2=$10. Then adds %muc of 10%. Therefore sells for F3: 10*(1+10%)=$11

In 2014, Star! Inc. had current assets of $1,500,000 and its fixed assets were evaluated at $800,000. The company had long-term debts totaled $900,000 and its accounts payable was $1,000,000. The owner's equity was worthy of $ 1,000,000. What total dollar amount would you expect to see on the liabilities side of their balance sheet?

$2,900,000 - Response Feedback: Exclude all assets. Therefore, $900+$1000+$1000=$2,900,000. Note that Owner's Equity is part of the liabilities side of a Balance Sheet.

ABC mfg co has estimated breakeven volume of 50,000 units for its new widget. If fixed costs are $100,000, unit selling price is $25.00 and ABC sales force commission is 8% of selling price, what is their $contribution per unit?

$2.00 - Response Feedback: #BEP=TFC/$C. Therefore $C=TFC/#BEP. Here, $C=$100,000/50,000=$2.00. The rest of the information is superfluous.

Cool Fan Company sells 10,000 units to wholesalers each year at $60 per unit. The materials cost $10 per fan and unit labor cost is $15. The total promotion and marketing costs are $100,000. The facility expenses are $80,000 per year and other overheads cost $20,000. What are the total fixed costs of 10,000 fans?

$200,000 - Response Feedback: 100+80+20=$200,000

ATT Inc. sells a cordless phone for $ 50 per unit. The unit material cost is $ 10 and unit labor cost is $ 15. The annual manufacturing overheads are $ 1 million and promotion and advertising costs are $500,000. The product line has a $ 6 million investment and the expected return on its investment is 10%. What is $BEP for the company just for recovering their total fixed costs?

$3,000,000 - Response Feedback: $C=usp $15 - uvc ($10+$15)= $25. TFC = $1.5 million (exclude R&D, a sunk cost, and $ROI since question is asking only for $BEP). #BEP=$1.5 million/$25=60,000, $BEP=60000*$50=$3,000,000

In 2014, Star! Inc. had net sales of $1,600,000 and the cost of goods sold was $500,000. The sales and administrative expenses were $450,000 and the financial expense was $300,000. What was the company's income before income taxes?

$350,000 - Response Feedback: $1600-($500+$450+$300)=$350,000

In 2014, Star! Inc. had current assets of $1,500,000 and the value of its property, plant and equipment were $2,000,000. The company's other assets were valued at $800,000 and its long-term debts totaled $900,000. How much is the company's total assets?

$4,300,000 - Response Feedback: Exclude the debt, a liability. Therefore, Total assets=$1500+$2000+$800=$4,300,000.

The following table shows the likelihood of different sales volumes at different prices. At a price of $5.00, a reasonable estimate of expected sales in dollars is:

$49,000 - Response Feedback: weighted sales = 9800 units * $5 = $49,000

Macy's sells 12 skirts at $ 50 each and it sells 5 more at $40 each. What is the total $ markdown here?

$50 - Response Feedback: Each shirt that is marked down is down $10. 5 shirts are marked down and sold, so 5*10=$50.00

Mini Blenders Inc. has come up with a unit selling price of $10.00. Their Fixed costs are $20,000 for the year, during which 10,000 units are expected to be sold. A 20% profit margin on sales is included in the selling price. What is MBI's unit variable cost?

$6 per unit - Response Feedback: Unit Total Cost, using F1=10*(1-20%)=$8.00. UFC=$20,000/10,000=$2.00. Therefore, UVC=$8-$2=$6.00

A manufacturer makes a product for $6 and adds a 25% profit on selling price. They sell to a wholesaler who sells it for 50% markup based on manufacturer selling price. The retailer marks it up by 25% on consumer purchase price and sells the product to the consumer. What is the total $ channel markup in going from manufacturer's selling price to consumer purchase price, i.e., the $ difference between the two?

$8 - Response Feedback: Manufacturer markup is 25%musp. Wholesaler markup is 50%muc. Retailer markup is 25% musp. Therefore, the correct markup chain for calculating retail selling price requires applying F2, then F3, then F2 again: {$6/(1-25%)}*(1+50%)/(1-25%) = $16. In this chain, the first link deals with the manufacturer who makes for $6 and sells for $8. The difference between manufacturer selling price and consumer purchase price is $16-$8=$8.

Sunny Wonderland sells its books to the wholesalers at $8 each, which sells it to the retailers at the 10% muc. The retailer sells the books to the consumers at 15%musp. What is the cost to the wholesalers?

$8 - Response Feedback: Wholesaler buys for $8.00

Fun! Inc. had total sales of $ 480,000 in 2014. The total cost of goods sold was $ 400,000 and the administrative and sales costs were $ 100,000. What is the gross profit of the company in 2014?

$80,000 - Response Feedback: GP=Sales minus COGS=$480-$400=$80,000

Which of the following statements about %C is not correct?

%C can never be negative. - Response Feedback: If UVC > USP, both $C and %C are negative.

Please advise Denton Snacks Inc on % Mark Up!. Typically......

%muc > %musp because Selling Price > Cost - Response Feedback: The $ markup amount is iodentical for both %muc and %musp. In %muc, that $ is divided by cost. in %musp, by selling price. Since sp is > cost, the denominator is greater in calculating %musp which, therefore, is < %muc.

Relax Inn has four types of rooms, which target at different kinds of customers. Based on the information in the table below, how will you calculate their weighted average room rate per night?

($100*40%)+ ($120*25%)+($150*20%)+($200*15%) - Response Feedback: Multiply each rate by its %, then add the results

Snowflake Inc. sells its ice skates to the wholesalers at $200 a box. Each box has 5 pairs of ice skates. The wholesalers add $10 to each pair of ice skates and sell them to the retailers. The retailers sell each pair at 10%muc. Which of the following is the correct markup chain for computing the cost per pair of ice skates to the consumer?

(($ 200 / 5) +10) * (1+ 10%) - Response Feedback: This incorporates Formula 3, * (1+10%)

Estimating the trend-based 2015 growth rate for ABC Inc, in a growth industry. Sales for 2014 = 50,000 units; 2013 = 45,000; 2012 =40,000 units. Pick the correct expression.

(50,000 - 45,000)/45,000 - Response Feedback: Growth Rate % for 2014=(2014-2013)/2013=(50,000-45,000)/45,000 =5,000/45,000=1/9 or 11.11%.. This is assumed to repeat for 2015.

Company ABC has four different products. Based on the information in the table, what is the growth percentage for $ sales of product X, 2013-2014?

25% - Response Feedback: $250 in 2014; $200 in 2013; ($250-$200)/$200=25.00%

NT Inc has registered an impressive 35% sales growth for the just concluded calendar year 2014 and expects to repeat this for 2015. This means..... (S=Sales)

(S2014-S2013)/S2013 = 35%; Growth Multiplier for 2015 = 1.35 - Response Feedback: 2014 Growth Rate % = (just concluded year 2014 - previous year 2013)/previous year 2013. This is given to be 35%. Growth Multiplier for Upcoming 2015 = 1 + Growth Rate 2014 = 1+35% = 1.35. To determine Forecast 2015, you will take S2014 and multiply by GR 2015 i.e. 1.35.

It is January 2015. You have the following data for ABC Inc. Sales for 2014 = 45,000 units; for 2013= 40,000; for 2012 =35,000. Assuming trend projection, based on the previous year, which of the following correctly computes the growth multiplier for 2015?

1 + [(45,000 - 40,000) / 40,000] - Response Feedback: Growth Rate % for 2014=(2014-2013)/2013=(45,000-40,000)/40,000 This is expected to continue for 2015. Growth Multiplier for 2015 = 1 + GR for 2015 (which is the same as GR for 2014, above). Therefore GM 2015=1+(45,000-40,000)/40,000.

Company ABC has four different products. Based on the information in the table, what is the growth multiplier for dollar sales of product S, in forecasting 2015 based on trend?

1.20 - Response Feedback: 1 + ($600-$500)/$500=1.20

Company ABC has four different products. Based on the information in the table, what is the growth multiplier for dollar sales of product T, in forecasting 2015 based on trend?

1.25 - Response Feedback: 1 + ($1000-$800)/$800=1.25

Panda 6 Inc. has three divisions. The following table shows the sales revenues for each division in 2013 and 2014. Please calculate the Division Three's growth rate percentage in 2014.

10% - Response Feedback: $220 in 2014, $200 in 2013. ($220-$200)/$200=10.00%

LilGuy Inc has manufacturing variable cost of $8.00 per unit, fixed costs of $20,000 and anticipated sales of 10,000 units. What must have been the desired %ROI on an investment of $300,000, if the selling price has been set at $13?

10% - Response Feedback: uvc=$8.00; ufc=$20,000/10,000=$2.00. therefore, unit total cost=$10.00 usp=$13.00, so $ROI added per unit must be $13-$10=$3.00. $ROI for 10,000 units=$30,000 This is 10% of the investment of $300,000

Panda 6 Inc. has three divisions. The following table shows the sales revenues for each division in 2013 and 2014. Please calculate the company's growth rate percentage in 2014.

10.26% - Response Feedback: $430 in 2014, $390 in 2013. ($430-$390)/$390=10.26%

Star Inc. sells the children's toys to the retailers at the % muc of 15%, what is its % musp?

13.04% - Response Feedback: Cost=100, mu=15, sp=115. Therefore %musp=15/115=13.04% or use Formula 5.

The American market for memory cards is about $ 1,500 million a year and ABC Company had total sales of $250 million last year, while one of its competitors has total revenue of $ 505 million. What is the company's market share?

16.67% - Response Feedback: ABC's $250 mill/total market $1,500 mill=16.67%. Note that this is Market Share % in Dollars.

Company ABC has four different products. Based on the information in the table, what is the growth percentage for unit sales of product S, 2013-2014?

20% - Response Feedback: (120-100)/100=20%

A manufacturer sells a product for $5 per unit to a wholesaler who sells it at a markup of 37.5%, based on retailer purchase price. The retailer adds another $2 and sells the product to the consumer. What is the retailer's markup?

25%muc, 20%musp - Response Feedback: wholesaler buys for $5 and marks up 37.5% on retailer purchase price i.e. %musp for wholesaler. Using F2, wholesaler selling price=retailer cost=$5/(1-37.5%) = $8. Retailer adds $2 markup so retailer sp=8+2=$10. %muc retailer=2/8=25%; %musp retailer=2/10=20%

A manufacturer sells a product for $5 per unit to a wholesaler who sells it at a markup of 60%, based on manufacturer selling price. The retailer adds another $2 and sells the product to the consumer. What is the retailer's markup?

25%muc, 20%musp - Response Feedback: wholesaler buys for $5 and marks up 60% on manufacturer selling price i.e. %muc for wholesaler. Using F3, wholesaler selling price=retailer cost=$5*(1+60%) = $8. Retailer adds $2 markup so retailer sp=8+2=$10. %muc retailer=2/8=25%; %musp retailer=2/10=20%

Company ABC has four different products. Based on the information in the table, what is the growth percentage for $ sales of product U, 2013-2014?

30% - Response Feedback: $780 in 2014; $600 in 2013; ($780-$600)/$600=30.00%

Estimating trend-based 2015 sales for ABC Inc, in a growth industry. Sales for 2014 = 50,000 units; 2013 = 45,000; 2012 =40,000 units. Pick the correct expression.

50,000 * 1.1111 - Response Feedback: Growth rate % for 2014=(2014-2013)/2013=(50,000-45,000)/45,000 =5,000/45,000=1/9 or 11.11%. This is expected to repeat for the upcoming 2015. Therefore, Growth Multiplier for 2015=1+GR% for 2014 =1+11.11%=1.1111. And sales for 2015=2014*GM=50,000*1.1111.

ABC manufacturing company sells each of its tractors at $20,000 directly to the retailers. ABC pays each of its ten salespersons $60,000 per year. Each salesperson also receives a 5% commission for every tractor sold. The direct labor and material cost $ 8,500. What is ABC's %C for each tractor?

52.50% - Response Feedback: $C=$10,500. %C=10/500=20000=52.50%

Panda Toys Inc. plans to sell one line of its panda toys for $ 20. The material cost per unit is $ 4 and unit labor cost is $ 6. The annual overhead fixed costs are $ 500,000 and the promotion and advertising cost is $100,000. If the unit labor cost is dropped to $ 5, what is the #BEP for the company?

54,546 - Response Feedback: new $C=usp of $20- uvc of ($4+$5)=$11; new #BEP=TFC of $600,000/$11=54,546, rounded up.

Based on the Income Statement information below, what is the rounded 2014 index number for COGS?

60 - Response Feedback: Net Sales=$860-$10=$850. COGS Index # = $510/$850=60

New Concept notebook Inc. sells its pocket pc (PPC) to retailers at $50 each. The retailers add 10 %muc and sell the PPC to the consumers. NC's direct labor and material cost are $20 for every PPC. What is the %C of each PPC to New Concept?

60% - Response Feedback: $C=50-20=$30. %C=30/50=60%

Panda Toys Inc. plans to sell one line of its panda toys for $ 20. The material cost per unit is $ 4 and unit labor cost is $ 6. The annual overhead fixed costs are $ 500,000 and the promotion and advertising cost is $100,000. How many units must be sold to break even?

60,000 - Response Feedback: $C=usp of $20- uvc of ($4+$6)=$10, TFC=500+100=$600,000. #BEP=$600,000/10=60,000

In 2014, ABC Company had net sales of $500,000 and a gross margin of $ 300,000. The total overhead costs were $ 100,000 and the promotion costs were $80,000. The company sold 100,000 units. What was #BEP of the company in 2014?

60,000 - Response Feedback: $C=$300,000/100,000=$3. TFC=100+80=$180,000. #BEP=$180,000/$3=60,000

The table below provides raw score performance information on three students in a class that carries a total of 1,000 semester points. Which student has the highest grade? (Note: 90% or above =A; 80%-89% = B; 70%-79% = C; 60%-69% = D; and 59% and below = F)

Student C - Response Feedback: Student C has the highest total of 855/1000

ATT Inc. is developing a new type of cordless phone that would be sold for $ 50 per unit. The unit material cost is $ 10 and unit labor cost is $ 15. The R&D costs incurred so far for the prototype are $ 500New Concept notebook Inc. sells its pocket pc (PPC) to retailers at $50 each. The retailers add 10 %muc and sell the PPC to the consumers. NC's direct labor and material cost are $20 for every PPC. What is the %C of each PPC to New Concept?,000. The annual manufacturing costs are $ 1 million and the promotion and advertising costs are expected to be $500,000. What is #BEP for the company?

60,000 - Response Feedback: $C=usp $15 - uvc ($10+$15)= $25. TFC = $1.5 million (exclude R&D, a sunk cost). #BEP=$1.5 million/$25=60,000

Company ABC has four different products. Based on the information in the table, what is the forecast 2015 sales of product T, based on trend? (must choose best answer)

62,500 units, $1,250,000 i.e. b and d are both correct - Response Feedback: 50,000 in 2014 * gm of 1.25=62,500 units in 2015; $1,000,000 in 2014 * gm of 1.25 = $1,250,000 in 2015. Both are true!

Panda Toys Inc. plans to sell one line of its panda toys for $ 20. The material cost per unit is $ 4 and unit labor cost is $ 6. The annual overhead fixed costs are $ 500,000 and the promotion and advertising cost is $100,000. If the advertising costs are increased by $ 50,000, what is the #BEP for the company?

65,000 - Response Feedback: $C=usp of $20- uvc of ($4+$6)=$10, rvs TFC=500+100+50=$650,000. rvs #BEP=$650,000/10=65,000

The table shows the likelihood of NT Inc's unit sales at different prices. At a price of $20.00, a reasonable estimate of NT's expected sales in units is:

7,400 - Response Feedback: At $20.00, weighted average for units sold=60%*6000+20%*8000+10%*10000+10%*12000=7,400 units.

Panda Inc. had total sales of $24,000 from bamboo bowls in 2014. The company sold 6,000 units of bamboo bowls and the total variable costs were $6,000. What is the %C of each bamboo bowl?

75% - Response Feedback: Total $C=24000-6000=$18,000. %C=18000/24000=75%

The table shows the likelihood of NT Inc's unit sales at different prices. At a price of $10.00, a reasonable estimate of NT's expected sales in units is:

8,000 - Response Feedback: At $10.00, weighted average for units=40%*6000+30%*8000+20%*10000+10%*12000=8,000 units

Golden State Petroleum Company is running a coupon promotion to popularize its motor oil. They forecast to sell 66,000 cases of which 55% are expected to be coupon sales. When the 55% is broken down further, 75% of that is expected to be new sales. Assuming that each coupon and non-coupon transaction result in positive $C and knowing what you do about the relevant issue here, which of the following part(s) of the breakup of the forecast sales is the main source of adverse profit impact for GSPC?

9,075 cases - Response Feedback: Coupon transactions bring in lower $C than non coupon transactions. However, coupon transactions that are +ve $C (like here) and bring in new customers are OK because they are building the company's customer base. Here 66,000*55% = 36,300 cases coupon sales. Of the 36,300, 75% are new customers. The remaining 25% or 36,300*25%=9,075 cases are existing customers who use a coupon i.e., cannibalize it. They, therefore generate lower $C each than they would have without the coupon.

The following table shows the likelihood of different sales volumes at different prices.

9,800 - Response Feedback: weighted unit sales at $5 price=9,800

Snacko! is still evaluating "Spicies", a proposed new snack for 2015. First year breakeven requirements and market share implications would naturally play a key role in their decision to go ahead or scrap the idea. In the analyses involved, Snacko! should include, i.e. consider relevant, which of the following costs?

All except a. i.e., b, c and d are all relevant and should be included. - Response Feedback: Cost of already produced samples have to be written off, if the product is not introduced. A sunk cost. All the other items are relevant costs which will only be incurred after the decision to go ahead is made.

Which of the following items on Income Statements are considered fixed costs?

All of (a-d) above - Response Feedback: See Module 02

Which of the following statements about average inventory is correct?

All of (a-d) above - Response Feedback: See Module 02

In BEP/RLS analysis for NT Inc, you may encounter "required" or "desirable" profit objective as:

All of (a-d) above are possibilities - Response Feedback: All have been encountered. Also see M04 Slides 37-48 for an explanation of all possibilities of profit goal in breakeven analysis.

In a new automobile of specific make and model, which of the following items are fixed costs?

All of (a-d) above. - Response Feedback: All of these do not vary on a per car basis but remain fixed for a certain volume of output.

Which of the following statements on index numbers is correct?

All of (a-d) above. - Response Feedback: See M02. All of these apply to Index #s.

Percentages are likely to be used in reporting the following marketing data:

All of (a-d) above. - Response Feedback: See examples in Module 01!

Consumers buy swimming goggles at $20 per pair. The retailer sells the goggles at a 20 %musp. The manufacturer adds $ 2 to its cost and sells it to the wholesaler. What is the selling price of the manufacturer?

Cannot calculate. - Response Feedback: wholesaler sp=retailer cost=using F1, 20*(1-20%)=$16.00. However, we do not know the wholesaler markup, $ or %. Likewise, we know the $mu of manufacturer but not their cost, so sp of manufacturer cannot be calculated.

Consumers buy swimming goggles at $20 per pair. The retailer sells the goggles at a 20 %musp. The manufacturer adds $ 2 to its cost and sells it to the wholesaler. What is the cost of the wholesaler?

Cannot calculate. - Response Feedback: wholesaler sp=retailer cost=using F1, 20*(1-20%)=$16.00. However, we do not know the wholesaler markup, $ or %. Likewise, we know the $mu of manufacturer but not their selling price. So, wholesaler cost cannot be determined.

You point out to I.M. Boss, your CEO, that in NPV analysis, an approximate idea of the Payback Period (based on class/M11 discussion) can be usually inferred once THIS information has been calculated and is available for each period (e.g. year) of the project. THIS=?

Cumulative Discounted Net Cash Flow - Response Feedback: Look at any of the NPV examples: AvsB, XvsY, Widgets, GGK. Payback is that year or period in which CDNCF reaches zero. Recall that we identified that year in which CDNCF went from negative to positive and then precisely estimated the decimal part.Therefore the CDNCF column is key to Payback Period.

NT Inc has registered an impressive 40% sales growth for the just concluded calendar year 2014 and expects to repeat this for 2015. Therefore, (S=Sales).

Growth Rate for 2015 = (S2014-S2013)/S2013 = 40% - Response Feedback: 2014 Growth Rate % = (just concluded year 2014 - previous year 2013)/previous year 2013. This is given to be 40% and assumed to repeat for 2015.

A while back, an American professor, on an overseas assignment in a developing country (DC), was told that overhead transparencies are rarely used there and hence expensive. Instead, the prof would be assigned a salaried assistant who would wash and dry used ones for re-use. Upon return to the USA, the same professor was asked "NOT to waste time" washing and drying transparencies, but simply use new ones instead. This.....

Illustrates both b and d above - Response Feedback: Cost of transparencies is likely to be "so many $ per class session" kind of item, like a variable cost. Paying a salary to a "cleaning assistant" is like a fixed cost. That person is paid regardless of whether and how much work they did. In the developing country, country, labor is cheap. Someone is hired just to do the cleaning. At the same time, they find the cost of transparencies prohibitve. This is the opposite of the situation in the USA.

When a product manager and their consultant evaluate the market potential of a new product using breakeven analysis, which of the following costs should they NOT include in the analysis?

The fee paid to the consultant - Response Feedback: This is a sunk cost. Review the Athens case in M04.

Coupon promotions for consumer non-durable, such as packaged frozen foods, are often money losing propositions for manufacturers such as P&G. That is, the revenue from the promotions does not cover their costs. This results from....

Inability to prevent coupon redemption by existing as opposed to new customers - Response Feedback: Coupon promotions often end up losing money because of cannibalization by existing customers who get hold of the coupon and use it, although it was not intended for them. However, coupon promotions also bring in lots of new customers whose subsequent purchases without coupon and therefore at higher $C are likely to erase those losses, if any, from the coupon promotion itself. See the Baja Foods case in M08.

Typically, NT Inc's ________ is accurate, while their _____ is approximate.

Income statement; pro-forma IS - Response Feedback: Income Statement is based on past, firm data = more accurate. Proforma Income Statement is based on projections that rely on assumptions = approximate, less accurate.

Which of the following statements about net sales is correct?

It is equal to gross sales minus sales adjustments. - Response Feedback: See Oswald Eye wear IS example in Module 02

It is January 1, 2015. Forecasting skills are likely to be of critical importance to NT Inc (NTI) in preparing this document.

NTI's 2015 proforma income statement - Response Feedback: Forecasting means 2014 is irrelevant. January 2015 means NTI would like to know what might happen during 2015. This requires proforma income statement.

A product sells 450 units at a price of $185 each. When price is increased to $200 each, sales decrease to 300. Recalling Price Elasticity of Demand (see formula sheet), here...

PED equals 4.11 and demand is elastic - Response Feedback: PED=[(new Q-old Q)/Old Q] / [(new P-old P)/Old P] Here, PED=[(300-450)/450] / [($200-$185)/$185] =-4.11=4.11 expressed as absolute value. This is > 1, therefore demand is elastic.

NT Inc sells Product A for $80, with unit variable cost of $18. They also sell Product B for $90 and its UVC is $16. Which product is relatively MORE profitable and why?

Product B. Higher %C - Response Feedback: $C for A = 80-18=$62.00. %C=62/80=77.50% $C for B = 90-16=$74.00. %C=74/90=82.22%. %C is higher for B and therefore it is relatively more profitable

Mighty Widget Manufacturers Inc. sells each unit for $7 to Widget Wholesalers who then sell it for $10 to Robust Retailers Inc (RR). Therefore, what is RR's % markup?.

RR's %muc and %musp cannot be calculated - Response Feedback: While we know RR's cost, we do not know either RR's selling price or their $markup. Therefore, it is not possible to calculate %muc or %musp.

Which of these items is likely to be relatively accurately estimated, when preparing the 2015 pro-forma Income statement for NT Inc., in an uncertain economy?

Rent on corporate headquarters - Response Feedback: In an uncertain economy, sales forecast is uncertain. Therefore all things related to that are also iffy. Rent is based on a lease and must be paid according to predetermined schedule, regardless of anything else. Therefore that rent estimate in a Proforma Income Statement is likely to be quite accurate, regardless of the state of the economy.

IKEA is planning to celebrate its newest store opening in November in Denton by giving away an IKEA 8oz ceramic coffee mug, that they normally sell, free with each purchase. The promotion would be announced by distributing a glossy color multi-page Sunday insert, costing $2 apiece, in area newspaper for a month prior to the IKEA opening. In assessing the financial viability of proposed promotional campaign, how should IKEA treat the cost of the mug and the newspaper inserts?

The mug as a variable cost, the insert as a fixed cost - Response Feedback: The mug, being offered with every purchase, is clearly a variable cost (one unit=one purchase). The money spent on the flier announcement is lump sum (regardless of how many purchases really take place). Like advertising, it is a fixed cost.

The sales manager for Tetsu, Inc., a Japanese maker of electronic components has just returned from the very price-sensitive USA market, searching for an exclusive distributor. The most promising USA prospect insists on a markup of 25% based on Tetsu's selling price. In Japan, Tetsu is used to typical markup of 20% based on their distributor's selling price to the distributor's customers. What would you recommend to resolve the matter?

There is no difference in the two cited markups. They are equivalent. - Response Feedback: Prospect is insisting on 25%muc. Tetsu is offering 20%musp based on prospect's selling price. You can use F5 or F6 to verify that these two %mus are the same. For a given channel entity, i.e. the prospect, 25 %muc = 20% musp.

You are explaining the similarities between income statement and contribution analysis to a client. Unit Cost of Goods Sold may be treated as approximately equivalent to:

Unit Variable Cost - Response Feedback: Unit COGS and UVC are approximately equivalent. See end of Module 04 for a comparison of Income Statement and Contribution Analysis.

Advising NT Inc., you point out that weighted averaging may be done in the context of..

all of (a-d) above. - Response Feedback: All four situations could be simplified by applying weighted average. For instance, if you know the % of unit or dollar sales for each product, these could be used as weights to calculate weighted average of selling prices, packaging costs, material costs or shipping costs.

Which of these items is unlikely to be relatively accurately estimated, when preparing the 2015 pro-forma Income statement for NT Inc., in an uncertain economy?

all of the above will at best be approximate estimates in such an economy - Response Feedback: In an uncertain economy, sales forecast is uncertain. Therefore all things related to that are also iffy. Note that gross margin is sales minus COGS. Since they are unlikely to be firm estimates, so too would Gross Margin.

For 2016, ABC Company would like to compare the implication of using a coupon promotion for a particular product versus increasing the sales force commission for the product. You point out that such questions can be easily addressed using the following analysis.

breakeven analysis - Response Feedback: Review the BFV10 valve case in M08 for an illustration

Mighty Widget Manufacturers Inc. sells each unit for $7 to Widget Wholesalers who then sell it for $10 to Robust Retailers Inc. Therefore, Widget Wholesaler's......

choices (b) and (c) are both correct - Response Feedback: WW buy for $7 and sell for $10, so $mu=10-7=$3. %muc=3/7=42.86%; %musp=3/10=30%.

You are wondering how to explain price elasticity of demand to the management of the Houston Astros baseball team, in user-friendly language. As you know, price elasticity may be calculated using the formula in which the numerator is... [(New Quantity - Old Quantity) / Old Quantity] ---------------------------------------------------------- [(New Price - Old Price) / Old Price]

choices a and c above are both correct - Response Feedback: Numerator is relative change in Q, which is also the % change in Q.

Which of the following is NOT the correct way to calculate company market share?

choices a and c are both incorrect methods - Response Feedback: Market share is always company divided by industry. Company's slice of the pie divided by size of total pie. Sum of other competitors in the denominator is incorrect.

Assuming no change in other relevant aspects, which of the following could increase the Break Even Point?

choices b and d are both correct answers - Response Feedback: Decreases in either could affect either #BEP or $BEP or both. Review M04 and the BEP formula sheet.

How do you figure out %musp, given %muc

choices b and d are both correct answers. - Response Feedback: see markup formula sheet. using cost=100 is also a good method.

SIB Inc, a small company, hires salespeople whom it plans to motivate to give their best. At the same time, the company also wishes to protect the salespeople from income uncertainty and anxiety. Your advice on how the SIB salespeople should be paid?

combination of a and b above - Response Feedback: Salary provides secure, certain, income. Commission % motivates, challenges the salesforce towards better performance and commensurate rewards. Therefore, incorporating both features in the compensation plan is a good idea, given SIB's objectives.

This is very likely to be strongly influenced by forces beyond the control of NT Inc. Hence, it must be carefully estimated for an accurate pro-forma income statement which is CRITICALLY dependent on this.

estimated sales forecast and hence, sales revenue - Response Feedback: The company's sales forecast is impacted and determined by many external forces and therefore, is usually beyond the control of the the company.

Which of the following costs are not sunk costs?

pre-launch television advertising - Response Feedback: This is money spent AFTER a decision to launch has been already made. Hence NOT a sunk cost. The others are pre-decision expenditures, so sunk costs.

Jane is investigating the prospects for a Vista Ridge mall outlet in 2015 that would sell only silk ties. As her professional consultant, please help her, as she tries to figure first year break-even sales for her store. Which of these is NOT treated as a sunk cost?

utility, flier and salary are not sunk costs (consulting fee is) - Response Feedback: Your consulting fee is a "Sunk Cost" that is irrelevant to and hence should not be included as a fixed cost item in Breakeven Analysis. All the other items ARE relevant fixed costs. see M04 discussion on sunk costs as part of the Athens case.

A manufacturer sells $8/unit to wholesalers who mark up by 25% on manufacturer selling price. Afterwards, the retailers mark up by 33.33% on consumer purchase price. Here,

wholesaler markup is based on cost, retailer markup on selling price - Response Feedback: wholesaler markup is based on manufacturer selling price, i.e., %muc for the wholesaler. retailer markup is based on consumer purchase price, i.e., %musp.

A manufacturer sells $8/unit to wholesalers who mark up by 25% on retailer purchase price. Afterwards, the retailers mark up by 33.33% on wholesaler selling price. Here,

wholesaler markup is based on selling price, retailer markup on cost - Response Feedback: Wholesaler markup is based on retailer purchase price i.e %musp for wholesaler. Retailer markup is based on wholesaler selling price i.e. %muc for the retailer.


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