Treynor Pie Company is a food company specializing in high-calorie snack foods. It is seeking to diversify its food business and lower its risks. It is examining three companies-a gourmet restaurant chain, a baby food company, and a nutritional products firm. Each of these companies can be bought at the same multiple of earnings. The following represents information about all the companies. Company Treynor Pie Company Gourmet restaurant Baby food company Nutritional products company Treynor Pie Company Gourmet restaurant Baby food company Nutritional products company Correlation with Treynor Pie Company +1.0 +0.4 +0.4 -0.7 Coefficient of Variation a-2. Which company is the least risky? Traunar Din Campani O Nutritional products company O Baby food company O Gourmet restaurant Sales ($ millions) $ 170 a-1. Compute the coefficient of variation for each of the four companies. (Enter your answers in millions (e.g., $100,000 should be entered as "10"). Round your answers to 3 decimal places.) 64 53 71 Expected Earnings ($ millions) $8 5 6 Standard Deviation in Earnings ($ millions) $2.0 1.3 1.8 3.6

Treynor Pie Company is a food company specializing in high-calorie snack foods. It is seeking to diversify its food business and lower its risks. It is examining three companies-a gourmet restaurant chain, a baby food company, and a nutritional products firm. Each of these companies can be bought at the same multiple of earnings. The following represents information about all the companies. Company Treynor Pie Company Gourmet restaurant Baby food company Nutritional products company Treynor Pie Company Gourmet restaurant Baby food company Nutritional products company Correlation with Treynor Pie Company +1.0 +0.4 +0.4 -0.7 Coefficient of Variation a-2. Which company is the least risky? Traunar Din Campani O Nutritional products company O Baby food company O Gourmet restaurant Sales ($ millions) $ 170 a-1. Compute the coefficient of variation for each of the four companies. (Enter your answers in millions (e.g., $100,000 should be entered as "10"). Round your answers to 3 decimal places.) 64 53 71 Expected Earnings ($ millions) $8 5 6 Standard Deviation in Earnings ($ millions) $2.0 1.3 1.8 3.6

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter18: Pricing And Profitability Analysis

Section: Chapter Questions

Problem 10E

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INA United has 2 companies of the same size, company I sells computers and company II in the restaurant business. The CFO of INA United believes that independent restaurants typically have a WACC of 8%, while independent computer companies typically have a WACC of 12%. He also believes that the two companies have the same risks as other competing companies. INA United estimates that the company's WACC is 10%. A consultant has suggested using an 8% hurdle rate for restaurant companies and a 12% hurdke rate for computer companies. However, the CFO of INA United disagreed, and set a 10% WACC for all projects in both companies. Which of the following statements is TRUE? a. INA United's CFO's decision not to use the risk-adjusted WACC according to the consultant's recommendation will result in him accepting more projects in computer companies and fewer projects in restaurants. This does not affect the intrinsic value of the company. b. INA United's CFO's decision not to adjust the…
Honey Bun Limited is a food processing company listed on the Jamaica Stock Exchange (JSE). They usethe systems development life cycle to develop the capability to analyze what type of pastries sell best with different beverages honey Bun Limited and other food manufacturers have been using GAAP in preparing their financial statements. Recently, the JSE mandated that all companies should implement the IFRS system in addition to GAAP. Because Honey Bun Limited current system cannot handle the IFRS requirements, the financial reporting system must be modified.
Henrys Cafe is a local restaurant that is growing quickly. While the company does not yet have a balanced scorecard, Henry has mentioned that being efficient in producing meals is a high priority of his business and appears to be a significant driver of profits. Henry tells you he gathers the following data: sales, cost of labor, employee turnover, labor hours, cost of ingredients, overhead costs, average training hours per employee, number of erroneous meals prepared, the time when orders were made (e.g., at 12:43 PM), the time when orders were delivered, and number of customers per day. a. Under which performance perspective on the balanced scorecard should Henrys strategic objective to efficiently produce meals be placed? b. Based on the data collected, what are at least three performance metrics Henry could develop to measure his strategic objective to efficiently produce meals? c. Identify whether the performance metrics you suggested in part (b) are leading or lagging indicators relative to a performance metric total cost of production per meal.
At the beginning of the last quarter of 20x1, Youngston, Inc., a consumer products firm, hired Maria Carrillo to take over one of its divisions. The division manufactured small home appliances and was struggling to survive in a very competitive market. Maria immediately requested a projected income statement for 20x1. In response, the controller provided the following statement: After some investigation, Maria soon realized that the products being produced had a serious problem with quality. She once again requested a special study by the controllers office to supply a report on the level of quality costs. By the middle of November, Maria received the following report from the controller: Maria was surprised at the level of quality costs. They represented 30 percent of sales, which was certainly excessive. She knew that the division had to produce high-quality products to survive. The number of defective units produced needed to be reduced dramatically. Thus, Maria decided to pursue a quality-driven turnaround strategy. Revenue growth and cost reduction could both be achieved if quality could be improved. By growing revenues and decreasing costs, profitability could be increased. After meeting with the managers of production, marketing, purchasing, and human resources, Maria made the following decisions, effective immediately (end of November 20x1): a. More will be invested in employee training. Workers will be trained to detect quality problems and empowered to make improvements. Workers will be allowed a bonus of 10 percent of any cost savings produced by their suggested improvements. b. Two design engineers will be hired immediately, with expectations of hiring one or two more within a year. These engineers will be in charge of redesigning processes and products with the objective of improving quality. They will also be given the responsibility of working with selected suppliers to help improve the quality of their products and processes. Design engineers were considered a strategic necessity. c. Implement a new process: evaluation and selection of suppliers. This new process has the objective of selecting a group of suppliers that are willing and capable of providing nondefective components. d. Effective immediately, the division will begin inspecting purchased components. According to production, many of the quality problems are caused by defective components purchased from outside suppliers. Incoming inspection is viewed as a transitional activity. Once the division has developed a group of suppliers capable of delivering nondefective components, this activity will be eliminated. e. Within three years, the goal is to produce products with a defect rate less than 0.10 percent. By reducing the defect rate to this level, marketing is confident that market share will increase by at least 50 percent (as a consequence of increased customer satisfaction). Products with better quality will help establish an improved product image and reputation, allowing the division to capture new customers and increase market share. f. Accounting will be given the charge to install a quality information reporting system. Daily reports on operational quality data (e.g., percentage of defective units), weekly updates of trend graphs (posted throughout the division), and quarterly cost reports are the types of information required. g. To help direct the improvements in quality activities, kaizen costing is to be implemented. For example, for the year 20x1, a kaizen standard of 6 percent of the selling price per unit was set for rework costs, a 25 percent reduction from the current actual cost. To ensure that the quality improvements were directed and translated into concrete financial outcomes, Maria also began to implement a Balanced Scorecard for the division. By the end of 20x2, progress was being made. Sales had increased to 26,000,000, and the kaizen improvements were meeting or beating expectations. For example, rework costs had dropped to 1,500,000. At the end of 20x3, two years after the turnaround quality strategy was implemented, Maria received the following quality cost report: Maria also received an income statement for 20x3: Maria was pleased with the outcomes. Revenues had grown, and costs had been reduced by at least as much as she had projected for the two-year period. Growth next year should be even greater as she was beginning to observe a favorable effect from the higher-quality products. Also, further quality cost reductions should materialize as incoming inspections were showing much higher-quality purchased components. Required: 1. Identify the strategic objectives, classified by the Balanced Scorecard perspective. Next, suggest measures for each objective. 2. Using the results from Requirement 1, describe Marias strategy using a series of if-then statements. Next, prepare a strategy map. 3. Explain how you would evaluate the success of the quality-driven turnaround strategy. What additional information would you like to have for this evaluation? 4. Explain why Maria felt that the Balanced Scorecard would increase the likelihood that the turnaround strategy would actually produce good financial outcomes. 5. Advise Maria on how to encourage her employees to align their actions and behavior with the turnaround strategy.
Honey Bun Limited is a food processing company listed on the Jamaica Stock Exchange (JSE). They usethe systems development life cycle to develop the capability to analyze what type of pastries sell best with different beverages honey Bun Limited and other food manufacturers have been using GAAP in preparing their financial statements. Recently, the JSE mandated that all companies should implement the IFRS system in addition to GAAP. Because Honey Bun Limited current system cannot handle the IFRS requirements, the financial reporting system must be modified. Question:
Honey Bun Limited is a food processing company listed on the Jamaica Stock Exchange (JSE). They use the systems development life cycle to develop the capability to analyze what type of pastries sell best with different beverages honey Bun Limited and other food manufacturers have been using GAAP in preparing their financial statements. Recently, the JSE mandated that all companies should implement the IFRS system in addition to GAAP. Because Honey Bun Limited current system cannot handle the IFRS requirements, the financial reporting system must be modified. 1.Explain what types of activities would occur in each of the five phases of the systems development life cycle in preparation for reporting financial results according to IFRS. 2.As part of effective IT planning in the systems development life cycle, the systems analyst recommends an economic feasibility analysis. Its purpose is report qualitative benefits that are difficult to quantify on an income statement. How would you…
Honey Bun Limited is a food processing company listed on the Jamaica Stock Exchange (JSE). They use the systems development life cycle to develop the capability to analyze what type of pastries sell best with different beverages honey Bun Limited and other food manufacturers have been using GAAP in preparing their financial statements. Recently, the JSE mandated that all companies should implement the IFRS system in addition to GAAP. Because Honey Bun Limited current system cannot handle the IFRS requirements, the financial reporting system must be modified. 4.Some members of the project management team of Honey Bun Limited believe that there needs to be a change of scope for the implementation of the IFRS phase, when should the project manager and project sponsor approve scope changes? When should they deny scope changes?
Carlton's Pizzas is a chain of pizza stores. Pizzas are made fresh in-store, and then delivered to customers by a fleet of drivers. The senior management team has identified the strategic priorities for the business as on-time delivery and product quality. i) If the company is successful in achieving challenging targets for these performance measures, will it also necessarily achieve high profitability? And For each of the strategic priorities, suggest three performance measures.
Proctor & Gamble (PG) and Church & Dwight (CHD) are two iconic American consumer products companies with histories dating back to the mid-1800s and producing familiar products such as Tide, Bounty, Crest, Arm and Hammer, OxiClean, and Waterpik. Both companies primarily sell their products to retailers such as grocery stores, drug stores and other mass merchants In evaluating the two companies, it was determined that PG is approximately 15 times larger than CHD based on sales. A convenient way to analyze financial results when companies are of different sizes is through ratio analysis. Obtain the financial statements of PG for the year ended June 30, 2021, and CHD for the year ended December 31, 2021, and compute the following ratios for both companies. 1. Accounts receivable turnover for 2021 2. Inventory turnover for 2021 3. P/E (price/earnings) ratio using the 2021 diluted EPS and the most current stock price of the company (attach a screenshot of the current stock price…
Proctor & Gamble (PG) and Church & Dwight (CHD) are two iconic American consumer products companies with histories dating back to the mid-1800s and producing familiar products such as Tide, Bounty, Crest, Arm and Hammer, OxiClean, and Waterpik. Both companies primarily sell their products to retailers such as grocery stores, drug stores and other mass merchants In evaluating the two companies, it was determined that PG is approximately 15 times larger than CHD based on sales. A convenient way to analyze financial results when companies are of different sizes is through ratio analysis. Obtain the financial statements of PG for the year ended June 30, 2021, and CHD for the year ended December 31, 2021, and compute the following ratios for both companies. 1. Gross Profit % for 2021 and gross profit 2020 2. Income from operations (operating income) as a % of net sales for 2021 and for 2020. 3. Current ratio for 2021 and 2020 See following information for CHG company CHURCH…
Bubba’s Western Wear is a western hat retailer in Lubbock, Texas. Although Bubba’s carries numerous styles of western hats, each hat has approximately the same price and invoice (purchase) cost, as shown in the following table. Sales personnel receive a commission to encourage them to be more aggressive in their sales efforts. Currently, the Lubbock economy is really humming, and sales growth at Bubba’s has been great. The business is very competitive, however, and Bubba, the owner, has relied on his knowledgeable and courteous staff to attract and retain customers who otherwise might go to other western wear stores. Because of the rapid growth in sales, Bubba is also finding the management of certain aspects of the business more difficult, such as restocking inventory and hiring and training new salespeople. Sales price $ 80.00 Per unit variable expenses Purchase cost 26.50 Sales commissions 28.50 Total per unit variable costs $ 55.00 Total annual fixed expenses…
Bubba’s Western Wear is a western hat retailer in Lubbock, Texas. Although Bubba’s carries numerous styles of western hats, each hat has approximately the same price and invoice (purchase) cost, as shown in the following table. Sales personnel receive a commission to encourage them to be more aggressive in their sales efforts. Currently, the Lubbock economy is really humming, and sales growth at Bubba’s has been great. The business is very competitive, however, and Bubba, the owner, has relied on his knowledgeable and courteous staff to attract and retain customers who otherwise might go to other western wear stores. Because of the rapid growth in sales, Bubba is also finding the management of certain aspects of the business more difficult, such as restocking inventory and hiring and training new salespeople. Sales price $ 80.00 Per unit variable expenses Purchase cost 26.50 Sales commissions 28.50 Total per unit variable costs $ 55.00 Total annual fixed expenses…