Sebolt Wire Company heats copper ingots to very high temperatures

2-19 High-low and scattergraph analysis

Sebolt Wire Company heats copper ingots to very high temperatures by placing the ingots in a large heat coil. The heated ingots are then run through a shaping machine that shapes the soft ingot into wire. Due to the long heat-up time, the coil is never turned off. When an ingot is placed in the coil, the temperature is raised to an even higher level, and then the coil is allowed to drop to the “waiting” temperature between ingots. Management needs to know the variable cost of power involved in heating an ingot and the fixed cost of power during “waiting” periods. The following data ingots processed and power costs are available:

Month                                                     # of ingots

Power Cost

Jan                                                            110


Feb                                                             90


Mar                                                             80


Apr                                                            100


May                                                            130


Jun                                                            120


Jul                                                             70


Aug                                                             60


Sep                                                             50


Oct                                                             40



1. Using the high low method, estimate a cost formula for power cost. Express the formula in the form Y= a+bx.

2. Prepare a scattergraph by plotting ingots processed and power cost on a graph.

Draw a straight line through the two data points that correspond to the high and low levels of activity. Make sure your line intersects the Y-axis.

3. Comment on the accuracy of your high-low estimates assuming a least-squares regression anaylsis estimated the total fixed costs to be $1,185.45 per month and the variable cost to be $37.82 per ingot. How would the straight line that you drew in requirement 2 differ from a straight line that minimizes the sum of the squarederrors?

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Golden Company’s total overhead cost at various levels of activity

2-21 high-low method: predicting cost

Golden Company’s total overhead cost at various levels of activity are presented below:

Month                                                        Machine Hours

Total Overhead Cost

Mar                                                            50,000


Apr                                                             40,000


May                                                            60,000


Jun                                                             70,000


Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance.
The breakdown of these costs at the 40,000 machine-hour level of activity is as follows:

Utilities (variable)                                             $52,000

Supervisory salaries (fixed)                                      60,000

Maintenance (mixed)                                               58,200

Total overhead cost                                             $170,200

The company wants to break down the maintenance cost into its variable and fixed cost elements.

1. Estimate how much of the $241,600 of overhead cost in June was maintenance cost.
(Hint; to do this, it may be helpful to first determine how much of the $241,600 consisted of utilities and supervisory salaries.
Think about the behavior of variable and fixed costs within the relevant range.)
2. Using the high-low method, estimate a cost formula for maintenance.
3. Express the company’s total overhead cost in the form Y=a + bX
4. What total overhead cost would you expect to be incurred at an activity level of 45,000 machine-hours?

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Problem 2-24 Heritage Company manufacuring a beautiful (Answer Key)

Problem 2-24 cost classification and cost behavior

Heritage Company manufacuring a beautiful bookcase that enjoys widespread

popularity. The company has a backlog of orders that is large enough to keep

production going indefinitely at the plant’s full capacity of 4,000 bookcase per year. Annual cost data at full capacity follow:


Direct materials used (wood and glass)              $430,000

Administration office salaries                      $110,000

Factory supervision                                  $70,000

Sales commissions                                    $60,000

Depreciation, factory building                      $105,000

Depreciation, administrative office equipment         $2,000

Indirect materials factory                           $18,000

Factory labor (cutting and assembly)                 $90,000

Advertising                                         $100,000

Insurance, factory                                    $6,000

Adminstrative office supplies (billing)               $4,000

Property taxes, factory                              $20,000

Utilities, factory                                   $45,000



1. Prepare an answer sheet with the column headings shown below. Enter each cost item on your answer sheet, placing the dollar amount under the appropriate headings. As examples, this has been done already for the first two items in the list above. Note that each cost item is classified in two ways; first, as either variable or fixed with respect to the number of units produced and sold; and second, as either a selling and adminstrative cost or a product cost. (If the item is a product cost, it should also be classified as either direct or indirect as shown.)

Cost Behavior                                                                Product Cost
Cost Item            Variable           Fixed       Selling/Administrative Cost    Direct            Indirect

Materials used    $430,000                                                                        $430,000
office salaries                            $110,000      $110,000

2. Total the dollar amounts in each of the columns in (1) above. Compute the average product cost per bookcase.

3. Due to a recession, assume that production drops to only 2,000 bookcases per year. Would you expect the average product cost per bookcase to increase, decrease, or remain unchanged? Explain. No computations are necessary.

4. Refer to the original data. The president’s next-door neighbor has considered making himself a bookcase and has priced the necessary materials at a building supply store. He has asked the president whether he could purchase a bookcase from the Heritage Company “at cost,” and the president has agreed to let him do so.

a. Would you expect any disagreement between the two men over the price the neighbor should pay? Explain. What price does the president probably have in mind? The neighbor?
b. Because the company is operating at full capacity, what cost term used in the chapter might be justification for the president to charge the full, regular price to the neighbor and still be selling “at cost”? Explain.

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FIN 550 Week 9 Homework (A+ Guaranteed)

3. June Klein, CFA, manages a $100 million (market value) U.S. government bond portfolio for an institution. She anticipates a small parallel shift in the yield curve and wants to fully hedge the portfolio against any such change.

Security    Modified Duration    Basis Point Value    Conversion       Factor for    Cheapest to    Deliver Bond    Portfolio Value/ Future Contact Price
Portfolio    10 Years                    $100,000.00              Not Applicable                                                                          $100,000,000.00
U.S. Treasury bond futures contract    8 Years    $75.32     1                                                                                       94-05

a. Discuss two reasons for using futures rather than selling bonds to hedge a bond portfolio. No calculations required.

b. Formulate Klein’s hedging strategy using only the futures contract shown. Calculate the number of futures contracts to implement the strategy. Show all calculations.
c. Determine how each of the following should change in value if interest rates increase by 10 basis points as anticipated. Show all calculations.
d. State three reasons why Klein’s hedging strategy might not fully protect the portfolio against interest rate risk.
e. Describe a zero-duration hedging strategy using only the government bond portfolio and options on U.S. Treasury bond futures contracts. No calculations required.

4. A bond speculator currently has positions in two separate corporate bond portfolios: a. long holding in Portfolio 1 and a short holding in Portfolio 2. All of the bonds have the same credit quality. Other Relevant information on these positions include:

Portfolio    Bond    Market Value (Mil)    Coupon Rate    Compounding Frequency    Maturity    Yield to Maturity
1    A    $6.00     0.00%    Annual    3 yrs.    7.31%
B    4    0.00%    Annual    14 yrs.    7.31%
2    C    11.5    4.60%    Annual    9 yrs.    7.31%

Treasury bond futures (based on $100,000 face value of 20 year T-bonds having an 8 percent semi coupon) with a maturity exactly six months from now are currently priced at 109-24 with a corresponding yield to maturity of 7.081 percent. The “yield betas” between the futures contract and Bonds A, B, and C are 1.13, 1.03, and 1.01, respectively. Finally, the modified duration for the T-bond underlying the futures contract is 10.355 years.

a. Calculate the modified duration (expressed in years) for each of all yields increase by 60 basis points on an annual basis?
b. Without performing the calculations, explain which of the portfolios will actual have its value impacted to the greatest extent (in absolute terms) by the shift yields. (Hint: This explanation requires knowledge of the concept of bond convexity).
c. Assuming the bond speculator wants to hedge her net bond position, what is the optimal number of futures contracts that must be bought or sold? Start by calculating the optimal hedge ratio between the futures contract and the two bond portfolios separately and then combine them.

6. As a relationship officer for a money-center commercial bank, one of your corporate accounts has just approached you about a one-year loan for $1,000,000. The customer would pay a quarter interest expense based on the prevailing level of LIBOR at the beginning of each three-month period. As is the bank’s convention on all such loans, the amount of the interest payment would then be paid at the end of the quarterly circle when the new rate for the next cycle is determined. You observe the following LIBOR yield curve in the cash market:

90-day LIBOR 4.60%
180-day LIBOR 4.75%
270-day LIBOR 5.00%
360-day LIBOR 5.30%

a. If 90-day LIBOR rises to the levels “predicted” by the implied forward rates, what will the dollar level of the bank’s interest receipt be at the end of each quarter during the one-year loan period?
b. If the bank wanted to hedge its exposure to falling LIBOR on this loan commitment, describe the sequence of transactions in the futures market it could undertake.

c. Assuming the yields inferred from the Eurodollar futures contract prices for the next three settlement periods are equal to the implied forward rates, calculate the annuity value that would leave the bank indifferent between making the floating-rate loan and annuity value in both dollar and annual (360-day) percentage terms.

9. Alex Andrew, who manages a $95 million large- capitalization U.S. equity portfolio, currently forecasts that equity markets will decline soon. Andrew prefers to avoid the transaction costs of making sales but wants to hedge $15 million of the portfolio’s current value using S&P 500 futures.
Because Andrew realizes that his portfolio will not track the S&P 500 Index exactly, he performs a regression analysis on his actual portfolio returns versus the S&P 500 futures returns over the past year. The regression analysis indicates a risk-minimizing beta of 0.88 with an R2 of 0.92.

Future Contract Data
S&P 500 futures price            1,000
S&P 500 index                999
S&P 500 index multiplier            250

a. Calculate the number of future contracts required to hedge $15 million of Andrew’s portfolio, using the data shown. State whether the hedge is long or short. Show all calculations.
b. Identify two alternative methods (other than selling securities from the portfolio or using futures) that replicate the strategy in Part a. Contract each of these methods with the futures strategy.

10. The treasurer of a middle market, import-export Company has approached you for advice on how to best invest some of the firm’s short-term cash balances. The company, which has been a client of the bank that employs you for a few years, has $250, 000 that is able to commit for a one year holding period. The treasurer is currently considering two alternatives: (1) invest all the funds in one year U.S. Treasury bill offering a bond equivalent yield of 4.25 percent, and (2) invest all the funds in a Swiss government security over the same horizon, locking in the spot and forward currency exchanges in the FX market. A quick call to the bank’s FX desk gives the following two-way currency exchange quotes.

Swiss Francs per U.S. Dollar       U.S. Dollar per Swiss Franc (CHF)

Spot     1.5035    0.6651
1 – year CHF futures                                 -    0.6586

a. Calculate the one-year bond equivalent yield for the Swiss government security that would support the interest rate parity condition.
b. Assuming the actual yield on a one-year Swiss government bond is 5.50 percent, which strategy would leave the treasurer with the greatest return after one year?
c. Describe the transactions that an arbitrageur could use to take advantage of this apparent mispricing, and calculate what the profit would be for a $250, 000 transaction.

11. Bonita Singer is a hedge fund manager specializing in futures arbitrage involving stock index contracts. She is investigating potential trading opportunities in S&P 500 index futures to see if there are any inefficiencies that she can exploit. She knows that the S&P 500 stock index is currently trading at $1100.

a. Assume that the Treasury yield curve is flat at 3.2 percent and the annualized dividend yield on the S&P index is 1.8 percent. Using the cost of carry model, demonstrate what the theoretical contract price should be for the futures position expiring six months from now.

b. Described the set of transactions that Bonita would have to undertake to take advantage of an actual futures contract price and was (1) substantially higher or (2)substantially lower than the theoretical value you established in Part a.
c.    Assuming that total round-trip arbitrage transaction costs are $20 for the set trades described in Part b, calculate the upper and lower bounds for the theoretical contract price such that arbitrage trading would not be profitable.

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FIN 550 Week 10 Homework (A+ Guaranteed)

PROBLEM 22-3(a-d)               
Assuming that a one-year call option with an exercise price of $38 is available for the stock of the DEW Corp., consider the     following price tree for DEW stock over the next year:

a.If the sequence of stock prices that DEW stock follows over the year is $40.00, $42.00, $40.32, and $38.71,             describe the composition of the initial riskless portfolio of stock and options you wuold form and all the subsequent    adjustments you would have to make to keep this portfolio riskless.  Assume the one-year risk-free rate is 6 percent.

b.Given the initial DEW price of $40, what are the probabilities of observing each of the four terminal stock prices in one year?  (Hint:  In arriving at your answer, it will be useful to consider (1) the number of different ways that a particular terminal price could be achieved and (2) the probability of an up or down movement.)

c.Use the binominal option model to calculate the present value of this call option.

d.Calculate the value of a one-year put option on DEW stock having an exercise price of $38; be sure your answer is consistent with the correct response to Part c.

PROBLEM 22-5 GMBA 767-Security Analysis and Portfolio Management ARB Inc.

Consider the following questions on the pricing of options on the stock of ARB Inc.:

a. A share of ARB stock sells for $75 and has a standard deviation of returns equal to 20 percent per year.  The current risk-free rate is 9 percent and the stock pays two dividends:

(1) a $2 dividend just prior to the option’s expiration day, which is 91 days from now (ie, exactly one-quarter of a year), and (2) a $2 dividend 182 days from now (ie., exactly one-half year).  Calculate the Black-Shoules value for a European -style call option with an exercise price of $70.

b. What would be the price of a 91-day European-style put option on ARB stock having the same exercise price?
c. Calculate the change in a call option’s value that would occur if ARB’s management suddenly decided to suspend dividend payments and this action had no effect on the price of the company’s stock.

d. Briefly describe (without calculations) how your answer in Part a would differ under the following separate circumstances: (1) volitility of ARB stock increases to 30 percent, (2) the risk-free rate decreases to 8 percent.

PROBLEM 22-7 Suppose the current value of a popular stock index is 653.50 and the dividend yield on the index is 2.8%. Also, the yield curve is flat at a continuously compounded rate of 5.5%.

a.If you estimate the volatility factor for the index to be 16%, calculate the value of an index call option with an exercise price of 670 and an expiration date in exactly three months.

b.If the actual market price of this option is $17.40, calculate its implied volatility coefficient.

c.Besides volatility estimation error, explain why your valuation and the option’s traded price might differ from one another.


PROBLEM 22-12  

In developing the butterfly spread position, we showed that it could be broken down into two call option money spreads.  Using the price    data for SAS sock options from Exhibit 22.17, demonstrate how a butterfly profit structure similar to that shown in Exhibit 22.30 could be created using put options.  Be specific as to the contract positions involved in the trade and show the expiration date net payoffs for the combined transation.

PROBLEM 24-3 Consider the recent performance of the Closed Fund, a closed-end fund devoted to finding undervalued,thinly traded stocks:

a.Calculate the average return per period for an investor who bought 100 shares of the Closed Fund at the initiation and then sold her position at the end of Period 4.

b.What was the average periodic growth rate in NAV over that same period?
c.Calculate the periodic return for another investor who bought 100 shares of Closed Fund at the end of Period 1 and sold his position at the end of Period 2.
d.What was the periodic growth rate in NAV between Periods 1 and 2?

PROBLEM 24-6 Suppose that at the start of the year, a no-load mutual fund has a net asset value of $27.15 per share. During the year it pays its shareholders a dividend distribution of $1.12 per share and finishes the year with an NAV of $30.34.

a.What is the return to an investor who holds 257.876 shares of this fund in his (nontaxable) retirement account?
b.What is the after-tax return for the same investor if these shares were held in an ordinary savings account? Assume that the investor is in the 30 percent tax bracket.
c.If the investment company allowed the investor to automatically reinvest his cash distribution in additional fund shares, how many additional shares could the investor acquire? Assume that the distribution occurred at year end and that the proceeds from the distribution can be reinvested at the year-end NAV.

PROBLEM 24-8 Mutual funds can effectively charge sales fee in one of three ways: front-end load fees, 12b-1 (i.e., annual) fees, or deferred
(i.e., back-end) load fee. Assume that the SAS Fund offers its investors the choice of the following sales fee arrangement:
(1) a 3% front-end load, (2) a 0.50% annual deduction, (3) a 2% back-end load, paid at the liquidation of the investor’s position. Also, assume that SAS Fund averages NAV growth of 12% per year.

a.If you start with $100,000 in investment capital, calculate what an investment in SAS would be worth in three years under each of the proposed sales fee schemes. Which scheme would you choose?
b.If your investment horizon were 10 years, would your answer in Part a change? Demonstrate.
c.Explain the relationship between the timing of the sales charge and your investment horizon. In general

PROBLEM 24-10 Peter and Andrew Mueller have built up their $600 000 investment portfolio over many years through regular  purchases of mutual funds holding only U.S. securities. Each purchase was based on personal research but without consideration of their other holdings. They would now like advice on their total portfolio, which follows:

a.Preference for “minimal volatility”
b.Equity diversification
c.Asset allocation (including Cash flow needs)

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FIN 550 Final Exam Part 1 and 2 (A+ Guaranteed)

Fin 550 Final Exam Part 1 and 2

Question 1

The five major classes of ratios include the following, except

Question 2

Which of the following statements regarding financial risk and business risk is true?

Question 3

Which of the following is not a flow ratio?

Question 4

Which of the following ratios is not a measurement of the firm’s liquidity?

Question 5

A common-size income statement expresses all income statement items

Question 6

The growth rate of equity earnings without external financing is equal to

Question 7

The most appropriate discount rate to use when applying the Operating Free Cash Flows model is the firm’s

Question 8

All of the following are ways in which a firm can increase its growth rate of equity earnings without any external financing except

Question 9

Which of the following is an underlying assumption of the constant growth dividend discount model (DDM)?

Question 10

Dividend growth is a function of

Question 11

The dividend payout ratio for the aggregate market is 65 percent, the required rate of return is 13 percent, and the expected growth rate for dividends is 8 percent. Compute the current earnings multiple.

Question 12

The correlation of stock market returns between the U.S. and Japan is ____ and ____.

Question 13

Which of the following economic series are included in the NBER lagging indicator series?

Question 14

The growth rate will most likely increase if the:

Question 15

If, for the S&P Industrials Index, the profit margin was .25 and the equity turnover ratio was 12, the ROE would be:

Question 16

At what stage in the industrial life cycle is there an influx of competition?

Question 17

To estimate earnings per share an analyst will start by estimating

Question 18

During a recession,

Question 19

In which industrial life cycle stage do sales correlate highly with an economic series or the economy in general?

Question 20

Which of the following is not characteristic of the “decline” phase of the industry life cycle?

Question 21

A speculative stock possesses a ____ probability of ____ return and is currently ____.

Question 22

Which of the following is not considered when looking at free cash flow to equity technique?

Question 23

Under the present value of operating free cash flow technique, the firm’s operating free cash flow to the firm is discounted at the firm’s

Question 24

In Berkshire Hathaway annual reports Warren Buffett highlights financial tenets that he believes are important. Which of the following is not a financial tenet of Warren Buffett?

Question 25

Which of the following statements concerning SWOT analysis is false?

Fin 550 Final Exam Part 2

Question 1

A stock currently sells for $75 per share. A put option on the stock with an exercise price $70 currently sells for $0.50. The put option is

Question 2

Which of the following is consistent with put-call-spot parity?

Question 3

An advantage of a forward contract over a futures contract is that

Question 4

The cost of carry includes all of the following except

Question 5

A call option in which the stock price is higher than the exercise price is said to be

QuestiOn 6

The basis (Bt,T) at time t between the spot price (St) and a futures contract expiring at time T (Ft,T) is

Question 7

The bond that maximizes the difference between the invoice price and the delivery price is referred to as the

Question 8

An investor who wants a long position in a ____ must first place the order with a broker, who then passes it on to the trading pit or electronic network. Details of the order are then passed on to the exchange clearinghouse.

Question 9

When F0,T > E(ST) it is known as

Question 10

According to the cost of carry model the relationship between the spot (S0) and futures price (F0,T) is

Question 11

A vertical spread involves buying and selling call options in the same stock with

Question 12

In a money spread, an investor would

QuestiOn 13

In the Black-Scholes option pricing model, an increase in time to expiration (T) will cause

Question 14

The Black-Scholes model assumes that stock price movements can be described by

Question 15

Which of the following is not a variable required to determine an option’s value in the Black-Scholes valuation model?

Question 16

Investment companies or mutual funds that continue to sell and repurchase shares after their initial public offerings are referred to as

Question 17

Investing in emerging markets can be viewed as a global application of

Question 18

The Securities Act of 1933

Question 19

Which of the following are guiding principles for ethical behavior in the asset management industry as put forward by the CFA Center for Financial Market Integrity?

Question 20

An investment vehicle that acts like a mutual fund of hedge funds, and allows investors access to managers that might otherwise be unavailable is known as

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On July 1st, Harding Construction purchases a bulldozer for $228,000 (ANSWER KEY)

On July 1st, Harding Construction purchases a bulldozer for $228,000. The equipment has a 8 year life with a residual value of $16,000. Harding uses straight-line depreciation.

(a) Calculate the depreciation expense and provide the journal entry for the first year ending December 31st.

(b) Calculate the third year’s depreciation expense and provide the journal entry for the third year ending December 31st.

 (c) Calculate the last year’s depreciation expense and provide the journal entry for the last year.

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BUS 515 Midterm Exam (A+ Guaranteed)


Question 1

Managing the transformation of inputs into goods and services is:

apost industrial era process.
a direct contributor to the curved earth syndrome.
as old as time.
a twenty-first century developed process
a design of Frederick Taylor.

Question 2
What percentage of total non-farm jobs in the U.S. economy comes from service-producing industries?


Question 3
Who popularized the moving assembly line?

James Watt
Adam Smith
Eli Whitney
Frederick W. Taylor
Henry Ford

Question 4
Which of the following concepts is linked the least with Henry Ford?

Scientific management
Mass production
Mass customization
interchangeable parts

Question 5

Which of the following is not primarily performed by the operation management function?

job design and work measurement
advertising strategy
location analysis
quality management
facility layout

Question 6
How does Federal Express maintain its ability to compete on time during peak demand periods?

it subcontracts overload to other firms
it purchases more planes
it uses a very flexible part-time workforce
it purchases more vans

Question 7
Order winners and qualifiers:

are consistent between manufacturing and service organizations
only matter when responding to formal competitive bid requests
remain constant over time
change over time
only apply to quasi-manufacturing firms

Question 8
Vericol, Inc. manufactures drugs using workers and automated machines. The firm has decided to replace two workers with a new machine, while the output per day is not expected to change. Which of the following cannot be true?

labor productivity will increase
machine productivity will decrease
labor productivity will decrease
multifactor productivity will increase
multifactor productivity will decrease

Question 9
Suppose that a plant has a total productivity measure of 0.85. What can we conclude?

the plant is not earning profits
the plant should lay off workers
the plant is highly automated
the daily productivity is excellent

Question 10
What are the three primary types of technology?

product technology, process technology, and information technology
product technology, process technology, and environmental technology
product technology, process technology, and safety technology
information technology, environmental technology, and safety technology
environmental technology, information technology, and process technology

Question 11
Which of the following is not characteristic of intermittent operations?

capital intensive
general purpose equipment
volume of goods produced directly tied to number of customer orders
workers need to be able to perform different tasks depending on the processing needs of the product
produce many different products with varying processing requirements

Question 12
With respect to competitive priorities, intermittent operations compete more on _____________ compared to repetitive operations.

durability and features
cost and features
availability and reliability
durability and cost
flexibility and delivery

Question 13
Which of the following is not a guideline for design for manufacture?

simplify operations
design parts for different products
use modular design
minimize parts
rely on automated equipment

Question 14
What is a type of automation system that provides the flexibility of intermittent operations with the efficiency of repetitive operations?


Question 15
Which product and service strategy is used to produce standard components that can be combined to customer specifications?


Question 16
What is an extension of an intranet to include suppliers and customers called?

supply chain net

Question 17
Which of the following is not considered to be a characteristic of partnership relations?

Have a long-term orientation
Are strategic in nature
Are “arms-length” in nature
Share a common vision
Share short- and long-term plans

Question 18
Benetton is well known for the practice of assembling all white sweaters and waiting to dye them much closer to the time of sale. This is an example of what?


Question 19
Which of the following is a “buyer-side,” typically industry-specific solution?

automated order entry systems
electronic data interchange
electronic storefronts
net marketplaces
advertising revenue model

Question 20
Companies want a supply chain that makes it possible to:

manage all suppliers’ development costs.
manage and adapt to all of the business dynamics.
manage distribution display
manage distribution outlet retail prices.
manage customer demands

Question 21
One TQM mistake companies make is believing that the responsibility for quality and elimination of waste lies

with the supplier
with the return and repair shop
with the supply chain
with all employees but top management
with top management alone.

Question 22
Which of the following is not attributed to Philip Crosby?

The concept of the quality trilogy
The phrase “Do it right the first time.”
Stressed the idea of prevention of defects
The notion of zero defects
The phrase “Quality is free.”

Question 23
The Union of Japanese Scientists and Engineers named its quality award after _____________.

Genichi Taguchi
Kaoru Ishikawa
Joe Juran
Phillip Crosby
W. Edwards Deming

Question 24
The Malcolm Baldrige Award criteria category that includes continuous improvement programs, employee training, and functioning of teams is

Strategic planning
Information and analysis
Human resource development and management
Business results

Question 25
Increases in international trade during the 1980s created a need for the development of ____________ standards of quality.


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The marketing department of Jessi Corporation has submitted the following sales

The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):

1st Quarter     2nd Quarter     3rd Quarter     4th Quarter
Budgeted unit sales     12,000             14,000             13,000             11,000

The selling price of the company’s product is $18.00 per unit. Management expects to collect 65% of sales in the quarter in which the sales are made, 30% in the following quarter, and 5% of sales are expected to be uncollectible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $70,200.

The company expects to start the first quarter with 1,650 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 15% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,850 units.


1. Prepare the company’s sales budget. Prepare the schedule of expected cash collections.

2. Prepare the company’s production budget for the upcoming fiscal year.

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Homestead Jeans Co. has an annual plant capacity

Homestead Jeans Co. has an annual plant capacity of 65,000 units, and current production is 45,000 units. Monthly fixed costs are $54,000, and variable costs are $29 per unit. The present selling price is $42 per unit. On November 12, 2014, the company received an offer from Dawkins Company for 18,000 units of the product at $32 each. Dawkins Company will market the units in a foreign country under its own brand name. The additional business is not expected to affect the domestic selling price or quantity of sales of Homestead Jeans Co.

What is the minimum price per unit that would produce a positive contribution margin? Round your answer to two decimal places

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