Wormwood, Ltd., produces a variety of furniture products

Wormwood, Ltd., produces a variety of furniture products. The planning committee wants to prepare an aggregate plan for the next six months using the following information:

MONTH
1    2    3    4    5    6
Demand    160    150    160    180    170    140
Capacity
Regular    150    150    150    150    160    160
Overtime    10    10    0    10    10    10

Cost Per Unit
Regular   time    $50
Overtime    75
Subcontract    80
Inventory, per period    4  


Subcontracting can handle a maximum of 10 units per month. Beginning inventory is zero. Develop a plan that minimizes total cost. No back orders are allowed. (Negative amounts should be indicated by a minus sign. Leave no cells blank – be certain to enter “0″ wherever required. Omit the “$” sign in your response.)

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Manager T. C. Downs of Plum Engines, a producer of lawn mowers and leaf blowers

Manager T. C. Downs of Plum Engines, a producer of lawn mowers and leaf blowers, must develop an aggregate plan given the forecast for engine demand shown in the table. The department has a normal capacity of 130 engines per month. Normal output has a cost of $60 per engine. The beginning inventory is zero engines. Overtime has a cost of $90 per engine.

Month
1    2    3    4    5    6    7    8    Total
Forecast    120    135    140    120    125    125    140    135    1,040

a. Develop a chase plan that matches the forecast and compute the total cost of your plan. (Negative amounts should be indicated by a minus sign. Leave no cells blank – be certain to enter “0″ wherever required. Omit the “$” sign in your response.)

b. Compare the costs to a level plan that uses inventory to absorb fluctuations. Inventory carrying cost is
$2 per engine per month. Backlog cost is $90 per engine per month. (Negative amounts should be indicated by a minus sign. Leave no cells blank – be certain to enter “0″ wherever required. Omit the “$” sign in your response.)

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A fast-growing firm recently paid a dividend of $0.40 per share

Variable Growth

A fast-growing firm recently paid a dividend of $0.40 per share. The dividend is expected to increase at a 25 percent rate for the next four years.  Afterwards, a more stable 11 percent growth rate can be assumed. If a 12.5 percent discount rate is appropriate for this stock, what is its value? 

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A firm recently paid a $0.60 annual dividend

Value of Future Cash Flows

A firm recently paid a $0.60 annual dividend.  The dividend is expected to increase by 12 percent in each of the next four years.  In the fourth year, the stock price is expected to be $110. If the required return for this stock is 14.5 percent, what is its current value?

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New York Times Co. (NYT) recently earned a profit of $1.21 per share

P/E Ratio Model and Future Price

New York Times Co. (NYT) recently earned a profit of $1.21 per share and has a P/E ratio of 19.59.  The dividend has been growing at a 7.25 percent rate over the past six years. If this growth rate continues, what would be the stock price in five years if the P/E ratio remained unchanged?  What would the price be if the P/E ratio increased to 22 in five years? 

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BusServ.com Corporation provides business-to-business services

Effects of Changes in Sales, Expenses, and Assets on ROI
BusServ.com Corporation provides business-to-business services on the Internet. Data concerning the most recent year appear below:
Sales ………………………………………………….    $8,000,000
Net operating income ……………………….        $800,000
Average operating assets ………………….     $3,200,000

Required:
Consider each question below independently.  Carry out all computations to two decimal places.
Compute the company’s return on investment (ROI).
The entrepreneur who founded the company is convinced that sales will increase next year by 150% and that net operating income will increase by 400%, with no increase in average operating assets.  What would the company’s ROI?
The Chief Financial Officer of the company believes a more realistic scenario would be a $2 million increase in sales, requiring an $800,000 increase in average operating assets, with a resulting $250,000 increase in net operating income.  What would be the company’s ROI in this scenario?

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Midlands Design Ltd. Of Manchester, England, is a company specializing

Residual Income
Midlands Design Ltd. Of Manchester, England, is a company specializing in providing design services to residential developers.  Last year the company had net operating income of £400,000 on sales of £2,000,000.  The company’s average operating assets for the year were £2,200,000 and its minimum required rate of return was 16%.  (The currency in the United Kingdom is the pound, denoted by £)

Required:
Compute the company’s residual income for the year.

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Air Meals is a company that prepares in-flight meals for airlines in its kitchen

Prepare a Report Showing Activity Variances
Air Meals is a company that prepares in-flight meals for airlines in its kitchen located next to the local airport.  The company’s planning budget for December appears below:

Air Meals
Planning Budget
For the Month Ended December 31
Budgeted meals (q) ……………………………………………………..               20,000
Revenue ($3.80 q) ……………………………………………………….             $76,000
Expenses:
Raw Materials (2.30q) ………………………………………………..             46,000
Wages and Salaries ($6,400 + $0.25q) ………………………..             11,400
Utilities (2,100 + $0.05q) …………………………………………….              3,100
Facility Rent ($3,800) ………………………………………………….              3,800
Insurance ($2,600) ………………………………………………………              2,600
Miscellaneous ($700 + $0.10q) ……………………………………              2,700
Total expenses ……………………………………………………………….            69,600
Net operating income …………………………………………………….          $  6,400

In December, 21,000 meals were actually served.  The company’s flexible budget for this level of activity follows:

Air Meals
Flexible Budget
For the Month Ended December 31
Budgeted meals (q) ……………………………………………………..               21,000
Revenue ($3.80 q) ……………………………………………………….             $79,800
Expenses:
Raw Materials (2.30q) ………………………………………………..             48,300
Wages and Salaries ($6,400 + $0.25q) ………………………..             11,650
Utilities ($2,100 + $0.50q) ………………………………………….                3,150
Facility Rent ($3,800) …………………………………………………                3,800
Insurance ($2,600) ………………………………………………………              2,600
Miscellaneous ($700 + $0.10q) ……………………………………              2,800
Total expenses ……………………………………………………………….            72,300
Net operating income …………………………………………………….          $  7,500

Required:

Prepare a report showing the company’s activity variances for December.
Which of the activity variances should be of concern to management? Explain

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The direct labor budget of Krispin Corporation for the upcoming fiscal year

Manufacturing Overhead Budget
The direct labor budget of Krispin Corporation for the upcoming fiscal year includes the following budgeted direct labor-hours.

1st quarter   2nd quarter  3rd quarter  4th quarter
Budgeted direct labor-hours……….                5,000            4,800            5,200           5,400
The company’s variable manufacturing overhead rate is $1.75 per direct labor-hour and the company’s fixed manufacturing overhead is $35,000 per quarter. The only noncash item included in fixed manufacturing overhead is depreciation, which is $15,000 per quarter.

Required:

Construct the company’s manufacturing overhead budget for the upcoming fiscal year.
Compute the company’s manufacturing overhead rate (including both variable and fixed manufacturing overhead) for the upcoming fiscal year.  Round off to the nearest whole cent.

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Chrystal Telecom has budgeted the sales of its innovative mobile phone

Production Budget
Chrystal Telecom has budgeted the sales of its innovative mobile phone over the next four months as follows:

Sales in Units
July………………………………………………………………………30,000
August………………………………………………………………….45,000
September…………………………………………………………..60,000
October……………………………………………………………….50,000

The company is now in the process of preparing a production budget for the third quarter.  Past experience has shown that end-of-month finished goods inventories must equal 10% of the next month’s sales.  The inventory at the end of Jun was 3,000 units.

Required:
Prepare a production budget for the third quarter showing the number of units to be produced each month and for the quarter in total.

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