FINALEXAM by stariya



Answer the 5 questions a word file with embedded spreadsheets. Answer all
problems fully with all supporting calculations in spreadsheet format. The format
should be prepared as if you were handing it to your CFO. Email the exam as an
attachment to no later than Sunday, April 28, at 11pm. This is an
individual exam. Do not use input from classmates or others. You should limit the
time you spend on the exam to a maximum of 2 hours.


   1. Lois and Linda are considering leaving their firm and opening a consulting company
      which they plan to name LL Systems, Inc.
      They now currently each earn $140,000. During the first year they will need to spend
      considerable time on client acquisitions and developing the organizational policies
      procedures and information systems. During that year they each plan to draw a salary of
      $25,000. They expect to incur additional fixed selling and administrative costs of
      $150,000. They also expect to have variable costs of 10% of the cost of consulting
      engagements. The average consulting job has a fee of $20,000.

       Lois and Linda have invested enough cash in the business to finance the acquisition of
       the assets needed to start up and borrowed an additional $100,000 to cover any shortfall
       in cash flow during the startup period. Help Lois and Linda with their financial planning
       by answering the following questions:

       a. During the first year, assuming that consulting jobs average revenue of $20,000 each,
           how many jobs will LL need to attract in order to just cover their $25,000 draws.
          Ignore interest and tax.

       b. Lois and Linda each invested $100,000 in the business. How much revenue will the
          business need in order to earn them a salary equal to their current salary plus pay
          interest of 12% on the $80,000 loan and provide them with a 20% return on their
          investment. Ignore income tax.

   2. The break-even sales for two competing firms (firm A and firm B) are $10,000,000 and
      $9,000,000, respectively. Firm A has fixed costs of $5,000,000 and based on current
      sales has profits of $2,000,000. Firm B has fixed costs of $2,700,000 and based on
      current sales has profits of $1,500,000. The CEO of firm B is concerned that, if sales for
      the two firms continue to grow in an equal amount, the profits of firm A will quickly
      begin to be much larger than the profits of firm B. The CEO also recognizes that if sales
      for the two firms decline in an equal amount, the reverse scenario will occur. At this
      juncture, the CEO is wondering whether or not to trade-off fixed costs for variable costs
      (an option which is available through automation). Before making any decision on the
      matter, the CEO asks you to address the following two issues:

       How much must the sales decrease for each firm in order for both the profits and sales of
       the two firms to become equal? (show all work)
     3. What are the four perspectives of performance on the balanced scorecard? For each of the
        perspectives give two possible performance measures and explain how they drive
        shareholders value.

4. URI Corporation has three divisions, which operate autonomously. Their results for 19x1
were as follows:

                                          Bay               Kingston         Jones
Sales                                   $16,000,000        $27,000,000    $ 4,000,000
Contribution margin                       3,440,000          1,700,000        500,000
Operating income                            300,000          1,250,000        400,000
Investment base                          19,000,000         10,000,000      4,000,000

The company’s weighed average cost of capital is 12%.


a.      Compute each division’s ROI.
b.      Computer each division’s residual income
c.      Prepare a written report to the CEO comparing performance of the 3 divisions.

5. Henry Company manufactures two models of pen knives, a standard and a deluxe model.
Three activities have been identified as cost drivers and the related overhead costs ($192,000)
pooled together to arrive at the following information:
                     Number        Number          Number
                        of           of                of
Product              Setups      Components          DLH

Standard               11        400                  75
Deluxe                 14        600                  45

Costs per pool        $48,000 $115,200            $28,800

A.     What is the total amount of overhead costs assigned to the standard model assuming
       activity-based costing is used?
       a. $85,2000         b.$106,800 c.$120,000 d. $72,000 e. none of the above, it is:$______

B.     What is the total amount of overhead costs assigned to the deluxe model assuming activity-
       based costing is used?
       a. $85,200 b.$106,8 c.$120,000 d. $72,000 e. none of the above, it is

C.     What is the total amount of overhead costs assigned to the standard model assuming a
       traditional costing applying overhead costs based on direct labor hours is used?
       a. $85,200 b.$106,800 c. $72,000 d.$120,000 e. none of the above it is:$_________

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