1.
Compute the income in case only the results of the financial plan are considered.
1.
Answer to Problem 52P
Income of IT and SM regions are $54,945,900 and $65,937,500 respectively.
Explanation of Solution
Business Sustainability:
Business sustainability is increasing the business worth for a long term, by analyzing and managing threats and opportunities of the organization for achievement of organizational strategic plans and communicating the results transparently.
Computation of income:
Particulars | IT ($) | SM ($) |
Year one | 9,000,000 | 5,000,000 |
Year two | 9,900,000 | 7,500,000 |
Year three | 10,890,000 | 11,250,000 |
Year four | 11,979,000 | 16,875,000 |
Year five | 13,176,900 | 25,312,500 |
Total operating income | 54,945,900 | 65,937,500 |
Table (1)
Thus, income of IT and SM regions are $54,945,900 and $65,937,500, respectively and based on the results of financial plan only, SM region should be chosen as the operating income is higher in this region.
Working Notes:
Income of IT region is computed by adding 10% of the income of the previous year. Income of SM region is computed by adding 50% of the income of the previous year.
2.
Compute the impact on operating income, according to the results of business sustainability analysis.
2.
Answer to Problem 52P
Income would reduce by $15,000,000 and $36,000,000 in IT and SM regions due to the four key stakeholders.
Explanation of Solution
Computation of impact on operating income:
Particulars | IT ($) | SM ($) |
Suppliers: | ||
Creation of adequate supply chain | 10,000,000 | |
Employees: | ||
Training of store managers | 10,000,000 | |
Regulators: | ||
Environmental regulations | 5,000,000 | |
Ethical training | 15,000,000 | |
Local community: | ||
Spending on community | 7,500,000 | |
Approvals | 3,500,000 | |
Reduction in operating income | 15,000,000 | 36,000,000 |
Table (2)
Thus, income would reduce by $15,000,000 and $36,000,000 in IT and SM regions due to the four key stakeholders. Therefore, operating income would reduce by $21,000,000
3.
Compute operating income in both the options considering both the financial plan as well as key stakeholder’s impact.
3.
Answer to Problem 52P
Adjusted income would be $39,945,000 and $29,937,600 in IT and SM regions respectively.
Explanation of Solution
Computation of impact on operating income:
Particulars | IT ($) | SM ($) |
Operating income: | ||
Year one | 9,000,000 | 5,000,000 |
Year two | 9,900,000 | 7,500,000 |
Year three | 10,890,000 | 11,250,000 |
Year four | 11,979,000 | 16,875,000 |
Year five | 13,176,900 | 25,312,500 |
Total operating income (A) | 54,945,900 | 65,937,500 |
Reduction in operating income: | ||
Less: Impact due to suppliers: | ||
Creation of adequate supply chain | 10,000,000 | |
Less: Impact due to employees: | ||
Training of store managers | 10,000,000 | |
Less: Impact due to regulators: | ||
Environmental regulations | 5,000,000 | |
Ethical training | 15,000,000 | |
Less: Impact due to local community: | ||
Spending on community | 7,500,000 | |
Approvals | 3,500,000 | |
Total Reduction in operating income (B) | 15,000,000 | 36,000,000 |
Adjusted operating income | 39,945,000 | 29,937,600 |
Table (3)
Adjusted income would be $39,945,000 and $29,937,600 in IT and SM regions respectively. Therefore, IT region would be selected since it would have higher operating income.
4.
Discuss one qualitative factor that could be considered before making the decision. Also, explain how the factor could potentially affect the answer computed based on the quantitative data.
4.
Explanation of Solution
A qualitative factor that could be considered before making the decision is lack of completion in SM region. Also, since, the region is less developed; incurring costs to provide value addition to the community, conducting ethical training and establishing supply chain management would benefit the society which would have positive impact on
Therefore, company may opt for SM region after considering all these factors.
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Chapter 13 Solutions
Managerial Accounting: The Cornerstone of Business Decision-Making
- Global Reach, Inc., is considering opening a new warehouse to serve the Southwest region. Darnell Moore, controller for Global Reach, has been reading about the advantages of foreign trade zones. He wonders if locating in one would be of benefit to his company, which imports about 90 percent of its merchandise (e.g., chess sets from the Philippines, jewelry from Thailand, pottery from Mexico, etc.). Darnell estimates that the new warehouse will store imported merchandise costing about 16.78 million per year. Inventory shrinkage at the warehouse (due to breakage and mishandling) is about 8 percent of the total. The average tariff rate on these imports is 5.5 percent. Required: 1. If Global Reach locates the warehouse in a foreign trade zone, how much will be saved in tariffs? Why? (Round your answer to the nearest dollar.) 2. Suppose that, on average, the merchandise stays in a Global Reach warehouse for nine months before shipment to retailers. Carrying cost for Global Reach is 6 percent per year. If Global Reach locates the warehouse in a foreign trade zone, how much will be saved in carrying costs? What will the total tariff-related savings be? (Round your answers to the nearest dollar.) 3. Suppose that the shifting economic situation leads to a new tariff rate of 13 percent, and a new carrying cost of 6.5 percent per year. To combat these increases, Global Reach has instituted a total quality program emphasizing reducing shrinkage. The new shrinkage rate is 7 percent. Given this new information, if Global Reach locates the warehouse in a foreign trade zone, how much will be saved in carrying costs? What will the total tariff-related savings be? (Round your answers to the nearest dollar.)arrow_forwardWinnebagel Corp. currently sells 28,100 motor homes per year at $73,500 each and 7,100 luxury motor coaches per year at $115,500 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 23,100 of these campers per year at $19,500 each. An independent consultant has determined that if the company introduces the new campers, it should boost the sales of its existing motor homes by 2,700 units per year and reduce the sales of its motor coaches by 860 units per year. What is the amount to use as the annual sales figure when evaluating this project? Net sales: $______arrow_forwardBliss Bar is a company that sells deluxe chocolate and candy bars based in Illinois. The company is considering launching a new product line featuring protein bars coated with their deluxe chocolate flavors. Bliss Bar has spent $75,000 developing a new protein bar line as a part of the company’s product diversification plan. It also spent another $40,000 for market research on flavors to produce. Based on market research, Bliss Bar expects first year sales of 1,200,000 protein bars at a price of $2.45 per unit with an expected annual growth of 3% in sales volume each year of the six-year project. The variable costs per unit are $0.80, and the annual fixed costs are $30,000. Bliss Bar estimates that the net working capital will be 8% of next year’s sales. The launch of this new product line is expected to cannibalize the sales of an existing candy bar, Choco-O! by 10,000 units per year. Choco-O! is sold at a price of $2 per unit and has variable costs of $0.50 per unit. To expand…arrow_forward
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