Use the following information to answer the next five questions: A small business called The Grandmother Calendar Company began selling personalized photo calendar kits. The kits were a hit, and sales soon sharply exceeded
13. Corporate Borrowing lf the firm was so successful at selling, why wouldn’t a bank or some other lender step in and provide it with the cash it needed to continue?
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- Bannister Company, an electronics firm, buys circuit boards and manually inserts various electronic devices into the printed circuit board. Bannister sells its products to original equipment manufacturers. Profits for the last two years have been less than expected. Mandy Confer, owner of Bannister, was convinced that her firm needed to adopt a revenue growth and cost reduction strategy to increase overall profits. After a careful review of her firms condition, Mandy realized that the main obstacle for increasing revenues and reducing costs was the high defect rate of her products (a 6 percent reject rate). She was certain that revenues would grow if the defect rate was reduced dramatically. Costs would also decline as there would be fewer rejects and less rework. By decreasing the defect rate, customer satisfaction would increase, causing, in turn, an increase in market share. Mandy also felt that the following actions were needed to help ensure the success of the revenue growth and cost reduction strategy: a. Improve the soldering capabilities by sending employees to an outside course. b. Redesign the insertion process to eliminate some of the common mistakes. c. Improve the procurement process by selecting suppliers that provide higher-quality circuit boards. Required: 1. State the revenue growth and cost reduction strategy using a series of cause-and-effect relationships expressed as if-then statements. 2. Illustrate the strategy using a strategy map. 3. Explain how the revenue growth strategy can be tested. In your explanation, discuss the role of lead and lag measures, targets, and double-loop feedback.arrow_forwardMercury, Incorporated, produces cell phones at its plant in Texas. In recent years, the company's market share has been eroded by stiff competition from overseas. Price and product quality are the two key areas in which companies compete in this market. A year ago, the company's cell phones had been ranked low in product quality in a consumer survey. Shocked by this result, Jorge Gomez, Mercury's president, initiated an intense effort to improve product quality. Gomez set up a task force to implement a formal quality improvement program. Included on this task force were representatives from the Engineering, Marketing, Customer Service, Production, and Accounting departments. The broad representation was needed because Gomez believed that this was a companywide program and that all employees should share the responsibility for its success. After the first meeting of the task force, Holly Elsoe, manager of the Marketing Department, asked John Tran, production manager, what he thought of…arrow_forwardIs the answer I have for b correct? The software keeps telling me I'm wrongarrow_forward
- Henderson Designs provides basic interior design services in a small town in the Rocky Mountain area. Lately, the growth in the business has slowed considerably and the managers have been looking at new services that might improve their prospects. The sales manager has suggested that adding some landscape design services would be a nice complement to their existing offerings. The manager put the analysis together and then suddenly quit. You have been asked to reconstruct the analysis. The last known spreadsheet with the analysis is shown as follows. You recall that, in the last meeting, the sales manager estimated that Henderson would probably have to hire some additional employees to do the extra work. The analysis included an estimate that the new service would add about $21,825 to the annual labor costs. Required: Complete the below table by filling in the blank cells. Note: Enter all amounts as positive values. Sales revenue Costs Equipment lease Labor Rent Depreciation Utilities…arrow_forwardThai manufacturing Inc. began operations five years ago producing a new diagnostic instrument, it hoped to sell to doctors, dentists, and hospitals. The demand for the instrument far exceeded initial expectations, and the company was unable to produce enough of the instrument to meet the demand. Thai was manufacturing the instrument using equipment it built at the start of the operations, but it needed more efficient equipment to meet demand. Company management decided to design and build the equipment, because no equipment currently available on the market was suitable for producing the instrument. In 2018, a section of the plant was devoted to development of the new equipment and a special staff of personnel was hired. Within six months, a machine was developed at a cost of $170,000 that increased production and reduced labour cost substantially. Sparked by the success of the new machine, the company built three more machines of the same type at a cost of $80,000 each. Required: 1)…arrow_forwardMorgan Williams Ltd (MWL) is a long-established department store in central Wellington and was for many years highly profitable. One way in which it rewarded its directors was to employ their children, who were students, over the summer break. The company paid these student-employees wages far in excess of market rates. In recent years, MWL became heavily reliant on cruise ship passengers to maintain its business. Due to the Covid 19 pandemic, the last cruise ship visited in March 2020. MWL was slow to develop an online presence. Also, many people, whose offices are in central Wellington, started to work from home. By June 2020, MWL’s sales were down by 90%, and by September 2020, MWL was in serious financial difficulty. December is usually MWL’s best month for sales, but December 2020 was a disaster and the company started to lay off staff. In March 2021, MWL failed to pay its GST and other tax liabilities. Southpac, the company’s bank, threatened to seize MWL’s stock, in terms of a…arrow_forward
- Manuel Inc. produces textiles in many different forms. After recording lower than anticipated profits last year, Manuel has decided to shut down one of its divisions that is not performing well. The accounting manager has compiled the following data on the two divisions being considered for closing and has asked you to evaluate the short-term and long-term effects on profits of closing each division. Which division should be closed if Manuel is most concerned with increasing long-run profits? Winter Outerwear High-End Suits Net revenues $ 1,200,000 $ 5,200,000 Variable costs 660,000 2,160,000 Contribution margin 540,000 3,040,000 Controllable fixed costs 0 2,020,000 Controllable margin 540,000 1,020,000 Noncontrollable fixed costs 770,000 1,540,000 Contribution by division $ (230,000 ) $ (520,000 ) multiple choice Winter Outerwear High-End Suits Closing either would have the same…arrow_forwardAt the BlueFin Bank corporate headquarters, management was discussing the potential of outsourcing the processing of credit card transactions to DataEase, an international provider of banking operational services. Processing of the transactions at BlueFin has been a costly element of the annual profit and loss statement and the continual investment in equipment to keep up to date has been draining capital reserves. Based upon initial study and negotiations, DataEase will charge $0.02 more per transaction than BlueFin’s cost per transaction, and DataEase will want $12 million per year to cover equipment and overhead costs associated with the contract. BlueFin has yet to develop an estimate for the annual overhead and fixed costs associated with processing the transactions. These costs include supervision, administrative support, maintenance, equipment depreciation, and overhead. If BlueFin must process 20 million transactions per year, how high must those fixed costs be before it would…arrow_forwardExeter Group is a large retail company that has brick-and-mortar outlets throughout the Southeast. They have been in business for many years, but two years ago started an online sales channel to offset slowing in-store sales. The human resources (HR) department at Exeter handles tasks for the two divisions that make up Exeter: Retail and Online. Retail Division manages the company's traditional business line. This business, although still profitable, is currently not growing and may be shrinking slightly. Online Division, on the other hand, has experienced double-digit growth from the beginning. The cost allocation system at Exeter allocates all corporate costs to the divisions based on a variety of cost allocation bases. HR costs are allocated based on the average number of employees in the two divisions. There are two basic activities in the HR Department. The first is employee maintenance (payroll administration, benefits, and so on), which is an ongoing activity and requires the…arrow_forward
- Exeter Group is a large retail company that has brick-and-mortar outlets throughout the Southeast. They have been in business for many years, but two years ago started an online sales channel to offset slowing in-store sales. The human resources (HR) department at Exeter handles tasks for the two divisions that make up Exeter: Retail and Online. Retail Division manages the company’s traditional business line. This business, although still profitable, is currently not growing and may be shrinking slightly. Online Division, on the other hand, has experienced double-digit growth from the beginning. The cost allocation system at Exeter allocates all corporate costs to the divisions based on a variety of cost allocation bases. HR costs are allocated based on the average number of employees in the two divisions. There are two basic activities in the HR Department. The first is employee maintenance (payroll administration, benefits, and so on), which is an ongoing activity and requires the…arrow_forwardDuring the beginning of the 21st century, the growth in computer sales declined for the first time in almost two decades. As a result, PC makers dramatically reduced their orders of computer chips from Intel and other vendors. Explain why computer manufacturers such as Dell are likely to write relatively short contracts for computer chips.arrow_forwardThe current power outages are affecting productivity of ABC Ltd. Even though demand is high, they cannot produce enough to meet the needs of their customers. The best option is to buy a generator but they have other very urgent issues to resolve with money primary among them been payment of salaries. Management does not know how long the outages will last and the possible reactions of the staff should they fail to pay them. Use financial techniques to support your decision.arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning