Question & Answer

Incentives and risk management Part A In the early 1980s, Bernard Hancock built a small brewery on his 150-acre property in the Macedon Ranges. The brewery, named Mountain Mist Brewery, was designed with ales in mind and Bernard introduced a number of cutting edge and innovative technologies to make the well-known, popular pale ale Misty Hop and others such as Hazy Heidi, Mountain Maid and Sunny Sherpa. The brewery’s highest selling pale ale (Misty Hop) is widely recognised as a high quality boutique beer and is sold, along with the brewery’s other ales, to clubs and restaurants around Australia. All Mountain Mist Brewery ales are distributed in kegs (large containers) and 12-bottle cartons through its Victorian and national wholesalers. The brewery has continued to expand capacity on its site to meet growing consumer demands.   Bernard’s vision for Mountain Mist Brewery is to: ·           grow profitably with incremental investment into selected markets to become one of the top six breweries in Australia ·           continuously improve perceived consumer quality by improving taste, freshness, package integrity and package appearance ·           enhance distributor service with better lead times, accurate order fills and lower product damage ·           continuously lower company costs per litre of beer so Mountain Mist can maintain resources for long-term productivity and success ·           continuously improve business performance through engaging and developing employees.                            Given recent sound performance, Bernard is pleased he had made the decision to expand Mountain Mist’s production interstate. This decision was made in line with Bernard’s key objective to be one of the top six national competitors. Mountain Mist currently holds seventh position. With its nearest competitor, Little Creatures, expanding into the eastern market from its Western Australian base, Bernard wants to ensure Mountain Mist will not only maintain market share but grow in size to take Little Creatures’ sixth position. Bernard wants to improve Mountain Mist’s brand presence in the western region, as well as reduce the transportation costs of moving beer across Australia. A local presence in Western Australia would also help reduce reliance on national retail distribution channels. A production site has been selected. A production manager from the Macedon Ranges site has been given the role of overseeing the operational set-up and staying on to manage the new operation. Others, such as microbiologists from the Mountain Mist laboratory, have also been offered the opportunity to move interstate. Thus, Bernard is moving some expertise from the Macedon Ranges and employing more staff at both sites to meet the new staffing requirements. As well as wanting a smooth manufacturing set-up, Bernard argues that it is vital for the Mountain Mist beer to be 100 per cent comparable between manufacturing sites. For Bernard, there are many issues still to contend with in relation to sourcing raw materials.   Bernard also needs to employ a manager to oversee the sales side of the Western Australia venture. He has offered the role of Western Australia Sales Manager to Matt Jerome. Matt is in his late 20s and had been working for Mountain Mist for about four years in the administration area as an accounts clerk. He has recently spent time on the administrative side of the new Western Australian operations. Bernard is pleased with Matt’s work and knows he is keen to move from administration and account keeping into managing sales at the new facility. While he has not had any previous sales experience, Bernard is keen to offer Matt this personal development opportunity.   Matt’s salary comprised a base salary and an incentive based on sales performance. While Mountain Mist had the corporate balanced scorecard (described earlier), they did not link scorecard results to their sales managers’ incentive plans. Bernard was concerned that the balanced scorecard measures would not drive the innovation and risk he required of his sales team. For example, Bernard wanted his sales team to continue to have the flexibility to make last minute changes if their customers required. He thought if they were influenced by rigid balanced scorecard performance measures, they might, in fact, be demotivated. He was also worried that they would work to the measure rather than profit maximisation through meeting customers’ unique, changeable and often immediate needs. Thus, Matt was able to earn a bonus based on the sales generated in the Western Australian region. Matt was also given the autonomy to hire his own sales and administration staff to help manage this new sales division. In addition, Bernard left Matt responsible for overseeing both sales and bookkeeping roles. After all, Matt had excelled at his administrative role in the past.   Bernard has contemplated varying remuneration options for Matt. Although Matt will have assets under his control, Bernard decides to reward Matt based on the following incentive structure: ·           base salary — $120 000 per annum ·           individual bonus — based on the Western Australian division’s EBIT (capped at $50 000 per annum) ·           corporate bonus — based on Mountain Mist’s corporate performance (2 per ·           cent share of ‘above budget’ corporate profit pool) ·           other — 50 per cent of private health insurance cost, relocation expenses for Matt’s family.   Matt has moved his family from the Macedon Ranges to Western Australia and begun to promote Mountain Mist Brewery. The aim is to have manufacturing operations and sales in place for summer 2010–11.   Required (a) Discuss the benefits and limitations of Matt’s incentive scheme proposed by Bernard. (b) It is mentioned in the case that Matt has assets under his control. What performance measurement alternatives could Bernard have used? How might they improve (or otherwise) on the scheme proposed by Bernard? (LO2, 3, 4 and 6)

The current date in the production calendar is day 14. There are three orders (A, B, and C) to be processed at a particular work center. The orders arrived in the sequence A-B-C at the work center. For order A, the remaining process time = 8 days, and the due date is day 24. For order B, the remaining process time = 14 days, and the due date is day 33. For order C, the remaining process time = 6 days, and the due date is day 26. Determine the sequence of the orders that would be scheduled using (a) first-come-first-serve, (b) earliest due date, (c) shortest processing time, (d) least slack time, and (e) critical ratio.

Using the facts from the previous problem, how would your answer change if instead, Duff adopted the cash method of accounting to allow him to better control the timing of his cash receipts and disbursements?

Name the principal groups of processes included in fusion welding.

Cooke Company has a fiscal year ending on September 30. Selected data from the September 30 worksheet are presented below.   Instructions (a) Prepare a complete worksheet. (b) Prepare a classified balance sheet. (Note: $10,000 of the mortgage payable is due for payment in the next fiscal year.) (c) Journalize the adjusting entries using the worksheet as a basis. (d) Journalize the closing entries using the worksheet as a basis. (e) Prepare a post-closing trial balance.

Tawana owns and operates a sole proprietorship and has a 40 percent marginal tax rate.  She provides her son, Jonathon, $8,000 a year for college expenses.  Jonathon works as a pizza delivery person every fall and has a marginal tax rate of 15 percent.  a. What could Tawana do to reduce her family tax burden?  b.How much pretax income does it currently take Tawana to generate the $8,000 after-taxes given to Jonathon?  c. If Jonathon worked for his mother’s sole proprietorship, what salary would she have to pay him to generate $8,000 after taxes (ignoring any Social Security, Medicare, or self-employment tax issues)?  d.How much money would this strategy save?

The power source in a particular welding operation generates 125 Btu/min, which is transferred to the work surface with heat transfer factor = 0.8. The melting point for the metal to be welded = 1800°F and its melting factor = 0.5. A continuous fillet weld is to be made with a cross-sectional area = 0.04 in2. Determine the travel speed at which the welding operation can be accomplished.

1. What effect will trade have on the price of capital in developing and developed countries? 2. It is sometimes claimed that trade with developing countries is unjust because it leads to the importation of goods produced at pitifully low wages. How can the Heckscher–Ohlin theory be used to refute this claim? Is there any validity in the claim? (see Box 24.3)

Indicate some of the limitations of using surface roughness as a measure of surface texture

Linda Berstler Company sponsors a defined benefit pension plan. The corporation’s actuary provides the following information about the plan. January 1, December 31, 2014 2014 Defi ned benefi t obligation $2,500 $3,300 Plan assets (fair value) 1,700 2,620 Discount rate 10% Pension asset/liability 800 ? Service cost for the year 2014 400 Contributions (funding in 2014) 700 Benefi ts paid in 2014 200 Instructions (a) Compute the actual return on the plan assets in 2014. (b) Compute the amount of other comprehensive income (G/L) as of December 31, 2014. (Assume the January 1, 2014, balance was zero.)

Determine the value of the strain-hardening exponent for a metal that will cause the average flow stress to be 3/4 of the final flow stress after deformation

Shin Corporation had a projected benefit obligation of $3,100,000 and plan assets of $3,300,000 at January 1, 2014. Shin also had a net actuarial loss of $465,000 in accumulated OCI at January 1, 2014. The average remaining service period of Shin’s employees is 7.5 years. Compute Shin’s minimum amortization of the actuarial loss.

The weekly demand and supply schedules for t-shirts (in millions) in a free market are as follows: Price (£) 8 7 6 5 4 3 2 1 Quantity demanded 6 8 10 12 14 16 18 20 Quantity supplied 18 16 14 12 10 8 6 4            (a)  What are the equilibrium price and quantity?          (b)  Assume that changes in fashion cause the demand for t-shirts to rise by 4 million at each price. What will be the new equilibrium price and quantity? Has equilibrium quantity risen as much as the rise in demand? Explain why or why not.          (c)  Now plot the data in the table and mark the equilibrium. Also plot the new data corresponding to (b).

The U.S. Treasury attempted to resolve the credit crisis by establishing a plan to buy mortgage-backed securities held by financial institutions. Explain how the plan could improve the situation for MBS. (LO5)

To illustrate these figures, draw the demand curve corresponding to the following table.  P (£) TE (£) 2.50 5.00 10.00 20.00 40.00 400 200 100 50 25 1000 1000 1000 1000 1000                            If the curve had an elasticity of –1 throughout its length, what would be the quantity demanded (a) at a price of £1; (b) at a price of 10p; (c) if the good were free?

For what is the bend allowance intended to compensate?

Consider a turning operation performed on steel whose hardness = 225 HB at a speed = 3.0 m/s, feed = 0.25 mm, and depth = 4.0 mm. Using values of thermal properties found in the tables and definitions of Section 4.1 and the appropriate specific energy value from Table 21.2, compute an estimate of cutting temperature using the Cook equation. Assume ambient temperature = 20°C.

The financial statements of P&G are presented in Appendix 5B. The company’s complete annual report, including the notes to the financial statements, can be accessed at the book’s companion website, www. wiley.com/college/kieso. Instructions Refer to P&G’s financial statements and the accompanying notes to answer the following questions. (a) Were there changes in accounting principles reported by P&G during the three years covered by its income statements (2009–2011)? If so, describe the nature of the change and the year of change. (b) What types of estimates did P&G discuss in 2011?

Hardaway earned $100,000 of compensation this year. He also paid (or had paid for him) $3,000 of health insurance (not through an exchange). What is Hardaway’s AGI in each of the following situations? (Ignore the effects of Social Security and self-employment taxes.)

The value of the dollar is monitored by bond market participants over time. a. Explain why expectations of a weak dollar could reduce bond prices in the United States. b. On some occasions, news of the dollar’s weakening has not had any impact on the bond markets. Assuming that no other information offsets the weakening dollar, explain why the bond markets may not have responded to the dollar’s decline. (LO2)

1.      : Vote to reduce each of the three students’ penalties. Instead of a zero, each student will receive only half of the possible total points for the project, which would be an F. You’re still holding students responsible for the group project, but not imposing catastrophic punishment. This compromise both undercuts the professor’s policy and punishes “innocent” team members to some extent, but not as severely.

As part of the year-end accounting process and review of operating policies, Cullen Co. is considering a change in the accounting for its equipment from the straight-line method to an accelerated method. Your supervisor wonders how the company will report this change in accounting. It has been a few years since he took intermediate accounting, and he cannot remember whether this change would be treated in a retrospective or prospective manner. Your supervisor wants you to research the authoritative guidance on a change in accounting policy related to depreciation methods. Instructions Access the IFRS authoritative literature at the IASB website (http://eifrs.iasb.org/). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations.) (a) What are the accounting and reporting guidelines for a change in accounting policy related to depreciation methods? (b) What are the conditions that justify a change in depreciation method, as contemplated by Cullen Co.?

The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/assets/downloads/Marks-and- Spencer-Annual-report-and-financial-statements-2012 pdf. Instructions Refer to M&S’s financial statements and the accompanying notes to answer the following questions. (a) Were there changes in accounting policies reported by M&S during the two years covered by its income statements (2011–2012)? If so, describe the nature of the change and the year of change. (b) What types of estimates did M&S discuss in 2012?

Franco converted a building from personal to business use in May 2021 when the fair market value was $55,000. He purchased the building in July 2018 for $80,000. On December 15 of this year, Franco sells the building for $40,000. On the date of the sale, the accumulated depreciation on the building is $5,565. What is Franco’s recognized gain or loss on the sale?

In a tensile test on a metal specimen, true strain = 0.08 at a stress = 265 MPa. When true stress = 325 MPa, true strain = 0.27. Determine the strength coefficient and the strain-hardening exponent in the flow curve equation.