1. Selling Expenses and Variance Analysis
Green-Bicycles Company uses the following reports to evaluate the performance of marketing managers. The division has a practical capacity of 12,000 units for sales.
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Actual
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Master Budget
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Sales units
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9,000
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10,000
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Sales Revenue
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729,000
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800,000
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Fixed selling expenses
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115,000
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120,000
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Industry total sales in units
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420,000
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500,000
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1. Evaluate the performance of the division manager on sales revenue. Show revenue market-size and market-share variances and briefly comment on the overall performance of the marketing team.
Market-size variance =
Market-share variance=
Overall performance:
2. List two most critical improvements that you would make to the evaluation system of the fixed selling expenses of the marketing. Please be specific.
2. Value & Performance
You have reformulated your balance sheet and income statement of a newspaper company (Washington Daily) as follows. All dollar amounts are in millions:
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12/31/14
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Operating Assets
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$4,800
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Operating liabilities
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1,700
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Net Operating Assets
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3,100
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Financial Obligations
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300
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Fnancial Assets
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600
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Net Financial Obligations
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-300
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Common shareholders' Equity
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?
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Sales Revenue
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$4,400
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Operating Income (after taxes)
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400
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Net Financial Income (after taxes)
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20
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Use the 2014 balance sheet amounts as a denominator where appropriate (as 2013 data were not available). Round up to a dollar and a 3-decimal point.
1. Washington Daily bought back $200 (in millions) of its own stocks during the fiscal year 2014 and it borrowed the same amount from a bank. The reformulated financial statements above did NOT include the effects of the stock repurchases (which reduce shareholders' equity) and additional borrowing. Compute the new financial leverage ratio (FLEV) and show the following equation works after the stock repurchases.
The stock repurchases reduced net financial income from $20 to $10.
ROE = RNOA + [FLEV x (RNOA - NBC)]
Briefly discuss how the stock repurchases might affect the earnings per share (EPS) and the (intrinsic) value of Washington Daily.
2. If the Washington Daily could reduce operating expenses (after taxes) through Activity-Based Management that could increase 5 percent of the operating profit margin ratio (PM) in 2014 (for example, a 5% of PM increases to a 10% of PM), what could be the new RNOA and residual operating income (ReOI) in 2014? The required return for operations is 10%.
3. What will you do to improve the (intrinsic) value of Washington Daily? Please list two most critical improvements that you will make. Your answer should be specific to Washington Daily.
4. Washington Daily currently evaluates the senior executives based on ROE and considers new performance measures, as it will introduce a Balanced Scorecard. It has been pursuing its strategic advantage of customer solution. List one most critical "financial" performance measure (excluding RNOA and ReOI) and two most critical "non-financial" performance measures for Customer and internal perspectives that Washingon Daily should include on the balanced scorecard to align with its strategy.
Financial:
Non-Financial:
5. This question is not related to Washington Daily above. The following is extracted from the balance sheet of Home Plus at December 31, 2014 (in millions of dollars).
Net operating assets?
Net financial assets $9,000
Common shareholders' equity $4,800
Managers are forecasting Net Income of $2,625 (in million) and Net Financial Income of $360 (in millions) for the year ending December 31, 2015. Forecast the Operating Income and the Residual Operating Income (ReOI) for 2015 (first find the Net Operating Assets in 2014 from data above). Use Net Operating Assets in 2014 and a required return of 10% for operations for ReOI (for simplicity).