Bsg quiz 2 answer key

1. Given the following Year 12 balance sheet data for a footwear company:

Balance Sheet Data

Cash on Hand

2,000

Total Current Assets

78,000

Total Assets

315,000

Overdraft Loan Payable

4,000

1-Year Bank Loan Payable

8,000

Current Portion of Long-Term Loans

13,000

Total Current Liabilities

48,000

Long-Term Bank Loans Outstanding

105,000

Shareholder Equity:

Year 11 Balance

Year 12 Change

Common Stock

10,000

0

10,000

Additional Capital

100,000

0

100,000

Retained Earnings

30,000

22,000

52,000

Total Shareholder Equity

140,000

+22,000

162,000

Based on the above figures and the formula for calculating the debt-assets ratio found on the Help screen for p. 5 of the Footwear Industry Report, the company’s debt-assets ratio (where debt is defined to include both short-term and long-term debt) is

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None of these.

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37.5%.

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40.0%.

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33.3%.

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41.3%.

2. In supplying private-label footwear to chain retailers, the sizes of a company's margins over direct costs should be viewed as

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how much the company received from private-label sales over and above materials costs and direct labor costs—these dollars can be used to help cover the company's income taxes and dividend payments.

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the net profit a company earns on private-label sales.

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how much the company received from private-label sales over and above materials costs and direct labor costs— these dollars thus represent a “cash contribution” that can be used to pay down any loans outstanding or to add to the company's retained earnings account.

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how many dollars the company had available from private-label sales to help cover the company's administrative expenses and interest costs and contribute to the company's bottom line (if the company's margins on branded footwear were sufficient to cover administrative expenses and all interest costs, then the margins over direct costs represent pre-tax profit).

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free cash flow, which management can use for any purpose it sees fit.

3. Assume a company has 10 million shares of stock outstanding and that its Income Statement for Year 12 is as follows:

Income Statement Data

Year 12 (in 000s)

Net Revenues from Footwear Sales

$ 290,000

Cost of Pairs Sold

180,000

Warehouse Expenses

16,000

Marketing Expenses

42,000

Administrative Expenses

8,000

Operating Profit (Loss)

44,000

Interest Income (expenses)

(10,000)

Pre-tax Profit (Loss)

34,000

Income Taxes

10,200

Net Profit (Loss)

$ 23,800

Based on the above income statement data, the company's operating profit margin and EPS are

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None of the above.

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15.2% and $2.38.

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11.7% and $3.40.

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15.2% and $4.40.

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15.2% and $3.40.

4. If a company pays a production worker a base wage of $2,800 and a piecework incentive of $0.30 per pair, if a production worker's annual productivity is 2,500 pairs per year, and if a plant's reject rate averages 4%, then the average annual compensation of production workers would be

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$3,520 (because workers do not receive a piecework incentive on pair rejected due to defects).

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$2,950.

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None of the above.

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$3,550.

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$3,050.

5. The accounts payable entry on the company's balance sheet represents

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25% of the year's materials costs incurred in making branded and private-label footwear that are owed to suppliers and that will be paid for in the first quarter of the upcoming year (payments for materials delivered by suppliers are not due and payable for 90 days following delivery).

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the amounts due for interest on loans outstanding that becomes due in the first quarter of the upcoming year.

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the amounts due to production workers for incentive bonuses.

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the amounts due shareholders for dividends declared the prior-year and payable in the current year.

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the amounts due for income taxes on prior-year profit.

6. Based on information on the Help Screen for the Plant Operations Report (see the Plant Investment section), if a company adds new plant capacity at a cost of $30 million, then its annual depreciation costs will rise by

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$1,500,000.

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$1,200,000.

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$120,000.

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$150,000.

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None of these.

7. Assume a company's Income Statement for Year 12 is as follows:

Income Statement Data

Year 12 (in 000s)

Net Revenues from Footwear Sales

$ 320,000

Cost of Pairs Sold

200,000

Warehouse Expenses

17,000

Marketing Expenses

45,000

Administrative Expenses

8,000

Operating Profit (Loss)

50,000

Interest Income (expenses)

(10,000)

Pre-tax Profit (Loss)

40,000

Income Taxes

12,000

Net Profit (Loss)

$ 28,000

Based on the above income statement data (assume interest income is zero) and the formula for calculating the coverage ratio presented on the Help screen for p. 5 of the Footwear Industry Report, the company’s interest coverage ratio is

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None of the above.

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2.80.

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320.0.

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4.00.

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5.00.

8. Assume a company's Income Statement for Year 12 is as follows:

Income Statement Data

Year 12 (in 000s)

Net Revenues from Footwear Sales

$ 290,000

Cost of Pairs Sold

180,000

Warehouse Expenses

16,000

Marketing Expenses

42,000

Administrative Expenses

8,000

Operating Profit (Loss)

44,000

Interest Income (expenses)

(10,000)

Pre-tax Profit (Loss)

34,000

Income Taxes

10,200

Net Profit (Loss)

$ 23,800

Based on the above data, which of the following statements is false?

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Interest expenses are 3.4% of net revenues.

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Marketing costs are 14.5% of net revenues.

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Administrative expenses are 2.8% of net revenues.

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Cost of pairs sold are 65.3% of net revenues.

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Warehouse expenses are 5.5% of net revenues.

9. As is explained on both the Help screens for the Branded Sales Report and the Private-Label Sales Report, an exchange rate shift that causes the Sing$ to be stronger versus the Brazilian real - signaled by apositive percentage number for the Exchange Rate Impact on Cost of Pairs shipped from an Asian-Pacific plant to Latin America (R per Sing$) in the Exchange Rate box on your Corporate Lobby screen

· http://www.bsg-online.com/images/transparent.gifweakens the cost-competitiveness of footwear made in Asia-Pacific plants and exported to Latin American distribution centers for sale to footwear customers in Latin America.

· http://www.bsg-online.com/images/transparent.gif http://www.bsg-online.com/images/transparent.gifshould be interpreted as meaning the footwear produced in Latin American plants is less profitable per pair than footwear produced in Europe-Africa plants.

· http://www.bsg-online.com/images/transparent.gif http://www.bsg-online.com/images/transparent.gifshould be interpreted as meaning that footwear produced in Latin American plants is more profitable per pair than footwear produced in Asia-Pacific plants.

· http://www.bsg-online.com/images/transparent.gif http://www.bsg-online.com/images/transparent.gifhas the effect of lowering the costs of all footwear that is made in Asia-Pacific plants and then exported to Latin American distribution centers for sale to footwear customers in Latin America.

· http://www.bsg-online.com/images/transparent.gif http://www.bsg-online.com/images/transparent.gifimmediately increases the cash flows a company receives when it ships pairs made in Asia-Pacific plant to its distribution center in Latin America.

10. According to the cost allocation procedures discussed on the Help screens for the Private Label Sales Report and the Marketing and Admin Report, which one of the following is not included as part of a company’s production costs for private-label footwear?

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Expenditures for styling/features for newly-produced models

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Plant supervision costs

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Administrative expenses

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Production run set-up costs

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Expenditures for best practices training

11. According to the cost allocation principles used in the company’s accounting systems (that are explained on the Help screen for the Marketing and Admin Report), if a company spends $5 million on advertising in a given geographic region, sells 600,000 branded pairs online in the region, and sells 2.4 million branded pairs to footwear retailers in the region, then

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advertising costs per pair sold online would be $1.00.

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25% of the company's advertising expenditures would be allocated to Internet marketing.

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advertising costs per branded pair sold to retailers would be $0.80.

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20% of the company's advertising expenditures would be allocated to Internet marketing and advertising costs per online pair sold would be $1.67.

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advertising costs per online pair sold would be $1.50.

12. Given the following Year 12 Financial Statement data for a footwear company:

Income Statement Data

Year 12 (in 000s)

Net Revenues from Footwear Sales

$ 300,000

Operating Profit (Loss)

50,000

Net Profit (Loss)

$ 28,000

Balance Sheet Data

Cash on Hand

10,000

Total Current Assets

70,000

Total Assets

313,000

Overdraft Loan Payable

5,000

1-Year Bank Loan Payable

10,000

Current Portion of Long-term Loans

17,000

Total Current Liabilities

48,000

Long-Term Bank Loans Outstanding

90,000

Shareholder Equity:

Year 11 Balance

Year 12 Change

Common Stock

10,000

0

10,000

Additional Capital

123,000

0

123,000

Retained Earnings

29,000

13,000

42,000

Total Shareholder Equity

162,000

+13,000

175,000

Other Financial Data

Depreciation

$11,650

Dividend payments

$15,000

Based on the above figures and the formula for calculating the default-risk ratio found on the Help screen for p. 5 of the Footwear Industry Report and p. 28 of the Player’s Guide, the company’s default-risk ratio in Year 12 was

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None of these.

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0.77.

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1.20.

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1.38.

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0.87.

13. If a company wants to enhance the profitability of differentiating its branded product offering from rivals by offering say 500 models, then it should seek to reduce the costs associated with producing 500 models at its plants by

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cutting the percentage use of superior materials and conserving on expenditures for TQM/Six Sigma quality controls.

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instituting plant upgrade option B and perhaps consolidating the production of branded footwear in just one plant (to only incur the payment of production run setup costs one time).

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instituting plant upgrade options C and D at each of the plants where 500 models are being produced.

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instituting plant upgrade option C and also building plants in all four geographic regions.

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instituting plant upgrade options A and D.

14. Based on information on the Help screen for the Marketing and Admin Report (see the section on Administration Expenses), which of the following statements regarding your company's administrative costs is false?

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Administrative costs are allocated between branded production and private-label production according to their respective percentages of total revenue generated.thus, if 90% of the company.s revenues come from branded sales then 90% of annual administrative costs are allocated to branded footwear.

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Administrative expenses are allocated to each region based on each region's percentage of total companywide branded sales; thus, if 18% of the company's branded sales are in Latin America, then Latin America is allocated 18% of companywide administrative expenses.

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The “Other Corporate Overhead” category of administrative costs always averages $1 per pair of plant capacity (not including overtime); other Corporate Overhead changes by $1 per pair in the same year as any new plant capacity comes online (new or used) and in the same year that any capacity is sold off to the merchants of used footwear-making equipment.

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No administrative expenses are allocated to private-label footwear; the company's accounting system allocates all administrative expenses to branded footwear.

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General administrative expenses increase at the rate of 3% annually.

15. Given the following Year 12 Financial Statement data for a footwear company:

Income Statement Data

Year 12 (in 000s)

Net Revenues from Footwear Sales

$ 340,000

Operating Profit (Loss)

80,000

Net Profit (Loss)

$ 49,000

Balance Sheet Data

Cash on Hand

3,000

Total Current Assets

70,000

Total Assets

310,000

Overdraft Loan Payable

1,000

1-Year Bank Loan Payable

16,000

Current Portion of Long-term Loans

10,000

Total Current Liabilities

51,000

Long-Term Bank Loans Outstanding

70,000

Shareholder Equity:

Year 11 Balance

Year 12 Change

Common Stock

10,000

0

10,000

Additional Capital

120,000

0

120,000

Retained Earnings

30,000

29,000

59,000

Total Shareholder Equity

160,000

+29,000

189,000

Based on the above figures and the formula for calculating return on average equity found on p. 30 of the Player’s Guide, the company’s Return on Average Equity (the definition of ROE used in scoring company performance) in Year 12

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None of these.

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28.1%.

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25.9%.

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42.3%.

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14.0%.

16. As explained on the Help screen for the Cash Flow Statement, if a company generates revenues of $240 million in Year 11, revenues of $280 million in Year 12, and revenues of $300 million in Year 13, then its cash receipts from footwear sales will be

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one-third of Year 12 revenues and two-thirds of Year 13 revenues for a total cash inflow of $280 million in Year 14.

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25% of Year 12 revenues and 75% of Year 13 revenues for a total cash inflow of $295 million in Year 13.

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$820 million in Year 14.

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$200 million in Year 12, $240 million in Year 13, and $260 million in Year 14.

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50% of Year 12 revenues and 50% of Year 13 revenues for a total cash inflow of $290 million in Year 14.

17. Given the following exchange rate changes:

Year 1

Year 2

Euros (€) per US$

0.8210

0.8155

Sing$ per Brazilian real

0.5760

0.5710

Brazilian real per euro (€)

3.7050

3.7250

US$ per Sing$

0.5935

0.5980

Then, as explained on the Help screen for the Branded Sales Report, it follows that:

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The US$ has grown stronger versus the Sing$.

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The Sing$ has grown weaker against the Brazilian real.

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The Brazilian real has grown weaker versus the euro.

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The euro has grown weaker versus the US$.

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The Brazilian real has grown stronger against the Sing$.

18. Which one of the following actions is certain not to result in lower production costs per branded pair at one of your company's plants?

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A lower percentage use of superior materials

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The installation of plant upgrade option C

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Reducing expenditures for TQM/Six Sigma quality control

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The installation of plant upgrade option B

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A 3% increase in the annual base wage that is accompanied by a 2.0% increase in worker productivity

19. As is explained on both the Help screens for the Branded Sales Report and the Private-Label Sales Report, when exchange rate shifts result in a weaker US$ and a stronger euro, then the euros collected on footwear sales in Europe-Africa, when converted into US$, result in

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foreign exchange gains that have the effect of enhancing company revenues and profits.

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foreign exchange gains that have the effect of reducing company revenues and profits.

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None of the above is accurate.

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foreign exchange losses that have the effect of reducing company revenues and profits.

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foreign exchange losses that have the effect of enhancing company revenues and profits.

20. Based on information on both the Help screens for the Plant Operations Report and the Private-Label Sales Report, which of the following statements regarding how plant costs are allocated between branded and private-label footwear is false?

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Annual depreciation costs are allocated between branded production and private-label production according to their respective percentages of total pairs produced—thus, if 85% of the total pairs produced at a plant are branded then 85% of annual depreciation costs are allocated to branded production.

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The total amount the company spends for production-run set-up is allocated between branded production and private-label production according to their respective percentages of total pairs produced—thus, if 80% of the total pairs produced at a plant are branded then 80% of total production run set-up costs are allocated to branded production.

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Total plant maintenance costs are allocated between branded production and private-label production according to their respective percentages of total pairs produced—thus, if 90% of the total pairs produced at a plant are branded then 90% of total plant maintenance costs are allocated to branded production.

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The total amount the company spends for best practices training is allocated between branded production and private-label production according to their respective percentages of total pairs produced—thus, if 88% of the total pairs produced at a plant are branded then 88% of best practices training costs are allocated to branded production.

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Annual plant supervision costs are allocated between branded production and private-label production according to their respective percentages of total pairs produced—thus, if 95% of the total pairs produced at a plant are branded then 95% of annual plant supervision costs are allocated to branded production.