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Print Name __________________________ Owen Graduate School of Management Vanderbilt University Final Examination Management 413a Final must be completed on or before 4:00 p.m. May 6, 2004 You are allowed to take three hours to complete this exam; you must use the three hours in one block. You may use any materials we covered in the course, and you may use any notes you took in the class. Total points on this exam: 148 This exam has two parts: Questions you answer, and supplemental materials you need for some of the questions. Please sign the following statement after you have completed the exam. I have followed all requirements of the Owen School honor code in completing this exam, and I used no more than three hours to complete the exam. Name _______________________________________ Please return the exam directly to Germain Böer or to his secretary, Alice Horton Question I (45 Points) Use the information in the supplemental materials for Question I (Dell Computer and Ann Taylor Stores Corp.) to answer the following questions. Use the most recent year for all your calculations. Consider each question separately unless one question specifically refers to another one. ______________ 1. Compute the break-even point for Dell Computer for the most recent year using revenues and expenses related to operations only. ______________ 2. Compute the break-even point for Ann Taylor Stores Corp. for the most recent year using revenues and expenses related to operations only. 3. Which company will add the most to profit from a $1 million increase in sales? Circle the name of the company that will get the biggest profit increase and explain why that company will get the biggest profit increase. Dell Computer Ann Taylor Stores Corp 1 4. Complete the following table and then compute the cash gap for each company. Place your cash gap answer in the blank below the table. Dell Computer Average number of days in receivables Ann Taylor 27 Average number of days in payables 26 Average number of days in inventory 4 Compute the cash gap for each store ______________ Dell Computer cash gap ______________ Ann Taylor cash gap ______________ 5. How much would the before tax operating income be for Dell if the company had the same gross profit percentage that Ann Taylor has? 2 6. Ann Taylor plans to increase advertising by $10 million, and its marketing managers think this will increase sales by $15 million. How much will profits change if Ann Taylor decides to make the added expenditure on advertising? ___________________ Profit change (Indicate whether it is positive or negative.) Should the company increase its advertising by $10 million? Why? 7. Use the following graph to answer the question below the graph. Profit Graph 20,000 Profit 15,000 10,000 5,000 0 Sales Volume Which line represents which company? __________________ Upper line __________________ Lower line 3 28,323 25,491 22,659 19,826 16,994 14,162 11,329 8,497 5,665 2,832 0 -5,000 8. Assume Ann Taylor introduces a new line of products that target the consumer interested in low prices. The product line is a big hit and within months of introduction the product makes up one-half of all sales for the company. Assume that the sales of this product amount to $793,854,000 for the latest year and that cost of goods sold for these sales amounts to $555,697,800 and that everything else on the income statement remains the same. Will the break-even point go up or down from the current one? Why? 9. Executives at Ann Taylor are examining the following report (see following page) for their product lines. How much will company profit change if they drop the Accessories line? _______________ Profit Change (Indicate whether it is positive or negative.) Justify your answer in the remaining space on this page. 4 Ann Taylor Stores Total $1,587,708 Shoes $476,312 Clothing $714,469 Accessories $ 238,156 Cosmetics $158,771 Variable costs 721,463 223,654 274,156 129,863 93,790 Contribution margin Operating expenses traceable to products: Administrative Marketing: Special programs Advertising 866,245 252,659 440,313 108,293 64,981 60,000 18,000 24,000 18,000 - 122,957 300,000 18,444 75,000 61,479 135,000 24,591 75,000 18,444 15,000 75,000 15,000 24,000 26,250 9,750 557,957 126,444 244,479 143,841 43,194 308,288 $126,215 $195,834 $(35,549) $21,787 Revenue Promotions Total Traceable Costs Product Contribution Company Costs Common to All Products Selling, general and administrative Marketing costs 45,000 35,000 New Product Development 60,000 Total operating expenses Operating income Income before income taxes 140,000 168,288 168,288 Provision for income taxes Net income 67,346 $100,942 5 Question II (60 Points) Use the budget schedules from K&R to answer these questions. Consider each question separately unless one question specifically refers to another. ______________ 1. Ignore the constraint report for this question. What is the minimum number of tables that K&R must plan to sell in order to cover all the budgeted direct (traceable) costs of tables for the six-month period? Show computations to support your answer. ______________ 2. Compute a new break-even point for the East Territory for July if the unit costs for all three products increase by one dollar. ______________ 3. If K&R dropped its prices by 10% and increased sales volume by 20%, how much would the company six month profit change? Ignore the constraint report in answering this question, and assume fixed costs remain the same as now for the six month period. Transportation will still be 2% of sales, and commissions will still be 5% of sales. 6 4. You have the following actual data on sales for Mary Smith for the month of August. Actual data for August: Mary Smith Foot Stool Royal Bench Majestic Table 400 500 400 Total dollar sales $70,000 Variable marketing costs Transportation Commissions $ 1,400 3,500 Fixed marketing costs Administration $ 900 Promotion 450 Calculations using actual units sold Sales (target prices) $73,400 Var. production costs at unit standard cost 41,400 Answer the following questions using the K&R budget schedules and the above data: ___________________ How much did profit change because actual units sold differed from budgeted units? ___________________ The proportions of units actually sold differs from that budgeted; how much does this impact profits? ___________________ How much did actual prices in total differ from the target prices for the products. 7 ______________ 5. How much will budgeted company profit change for the month of July if the Foot Stool is dropped from the product line? _______________ 8. If the cost of gray paint rises by 20%, what will be the impact on Mary Smith's segment contribution for the six month period? Give the amount, indicate whether it is an increase or a decrease, and show computations to support your answer. ______________ 9. Income statement, page 22, December, fixed costs: The $12,500 marketing ad/promo costs traceable to territories is, in fact, the sum of some figures that appear on other budgets. What are the components of this cost, and what is the lowest organizational level to which the components are traceable? (Using page numbers to indicate organizational levels is fine.) 8 10. Explain why there are no fixed costs of production on pages 23 and 24, but some fixed costs of production are deducted on pages 29, 30, and 31. _______________ 11. Suppose the company decides to spend another $5,000 monthly on advertising, how much will the total six-month sales have to increase to cover this added expense? _______________ 12. Assume K&R uses an overhead rate of $12 per direct labor hour worked to assign fixed overhead to inventory. Compute the December ending finished goods inventory the company would use in external financial reports if actual units equal budgeted units. Ending inventory in units is on pages 8 and 9 of the budget schedules. 9 Question III (13 Points) How does XBRL help companies to increase profits? --------------------------------------------Stop writing at this line------------------------------------------ 10 Question IV (30 Points) Barbara has started a company that prepares healthy meals for people who do not have the time to prepare meals. This service appeals to healthy conscious individuals and to twoearner households that have limited time to prepare food. The recipe for one batch (100 portions) of the most popular meal is shown below. Chicken breast Broccoli Brown sugar Wheat flour Bread slices Quantity 25 600 6 10 200 Unit of Measure Pounds Pieces Pounds Pounds Slices 20 pieces per package 20 slices per loaf Barbara had no beginning inventory, and her ending inventory was also zero. A tabulation of her purchase invoices showed the following quantities purchased for the past week: Chicken breast Broccoli Brown sugar Wheat flour Bread slices 155 150 30 50 50 Pounds Packages Pounds Pounds Packages She served 500 portions of this meal for the past week (5 batches). Do you see any problems anywhere? Explain. 11 Supplemental Materials Management 413a Using Financial Systems to Create Value Final Exam October 14, 2003 Financial Statements for Dell Computer DELL COMPUTER CORPORATION CONSOLIDATED STATEMENT OF INCOME (in millions, except per share amounts) Net revenue Cost of revenue Gross margin Fiscal Year Ended -----------------------------------------January 31, February 1, February 2, 2003 2002 2001 ---------------------------------$ 35,404 $ 31,168 $ 31,888 29,055 25,661 25,445 ---------------6,349 5,507 6,443 ---------------- Operating expenses: Selling, general and administrative Research, development and engineering Special charges Total operating expenses Operating income Investment and other income (loss), net Income before income taxes and cumulative effect of change in accounting principle Provision for income taxes Income before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle, net Net income $ 3,050 2,784 3,193 455 452 482 -----3,505 -----2,844 183 482 -----3,718 -----1,789 (58) 105 -----3,780 -----2,663 531 -----3,027 -----1,731 -----3,194 905 -----2,122 485 -----1,246 958 -----2,236 - - 59 -----2,122 ------ $ 1 -----1,246 ------ $ -----2,177 ------ DELL COMPUTER CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in millions) January 31, 2003 -------------- February 1, 2002 -------------- ASSETS Current assets: Cash and cash equivalents Short-term investments Accounts receivable, net Inventories Other 4,232 406 2,586 306 1,394 -----Total current assets 8,924 Property, plant and equipment, net 913 Investments 5,267 Other non-current assets 366 -----Total assets $ 15,470 -----LIABILITIES AND STOCKHOLDERS EQUITY Current liabilities: Accounts payable Accrued and other $ Total current liabilities Long-term debt Other Commitments and contingent liabilities (Note 6) Total liabilities Stockholders equity: Preferred stock and capital in excess of $.01 par value; shares issued and outstanding: none Common stock and capital in excess of $.01 par value; shares authorized: 7,000; shares issued: 2,681 and 2,654, respectively Treasury stock, at cost; 102 and 52 shares, respectively Retained earnings Other comprehensive income (loss) Other Total stockholders $ equity Total liabilities and stockholders equity 5,989 2,944 -----8,933 506 1,158 - $ 3,641 273 2,269 278 1,416 -----7,877 826 4,373 459 -----$ 13,535 ------ $ 5,075 2,444 -----7,519 520 802 - -----10,597 ------ -----8,841 ------ - - 6,018 5,605 (4,539) (2,249) 3,486 (33) (59) -----4,873 -----$ 15,470 1,364 38 (64) -----4,694 -----$ 13,535 2 Financial Statements for Ann Taylor Stores Corp. Ann Taylor Stores Corp. CONSOLIDATED STATEMENTS OF INCOME For the Fiscal Years Ended January 31, 2004, February 1, 2003 and February 2, 2002 Fiscal Years Ended -------------------------------January 31, February 1, February 2, 2004 2003 2002 --------------------------(in thousands, except per share amounts) Net sales Cost of sales Gross margin Selling, general and administrative expenses Amortization of goodwill Operating income Interest income Interest expense Income before income taxes Income tax provision Net income $ 1,587,708 721,463 ----------866,245 694,590 $ 1,380,966 633,473 ----------747,493 612,479 $ 1,299,573 651,808 ----------647,765 576,584 -----------171,655 3,298 6,665 ----------168,288 67,346 ----------$ 100,942 ----------- -----------135,014 3,279 6,886 ----------131,407 51,249 ----------$ 80,158 ----------- 11,040 ----------60,141 1,390 6,869 ----------54,662 25,557 ----------$ 29,105 ----------- 3 Ann Taylor Stores Corp. CONSOLIDATED BALANCE SHEETS January 31, 2004 and February 1, 2003 January 31, February 1, 2004 2003 ------------------(in thousands) ASSETS Current assets Cash and cash equivalents Accounts receivable Merchandise inventories Prepaid expenses and other current assets $ Total current assets Property and equipment, net Goodwill, net Deferred financing costs, net Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable Accrued salaries and bonus Accrued tenancy Gift certificates and merchandise credits redeemable Accrued expenses Total current liabilities Long-term debt, net Deferred lease costs and other liabilities Stockholders' equity Common stock, $.0068 par value; 120,000,000 shares authorized; 49,465,620 and 48,932,860 shares issued, respectively Additional paid-in capital Retained earnings Deferred compensation on restricted stock Treasury stock, 4,087,620 and 4,050,972 Shares respectively, at cost Total stockholders' equity Total liabilities and stockholders' 4 337,087 12,476 172,058 55,747 ----------577,368 265,569 286,579 4,886 17,471 ----------$ 1,151,873 ----------- 212,821 10,567 182,984 46,599 ----------452,971 247,115 286,579 4,170 17,691 ----------$ 1,008,526 ----------- $ $ 52,170 23,714 11,185 32,120 $ 54,558 27,567 10,808 25,637 42,431 ----------161,620 125,152 34,465 30,325 ----------148,895 121,652 23,561 336 516,824 393,926 (6,148) ----------904,938 332 500,061 296,113 (3,968) ----------792,538 (74,302) ----------830,636 ----------$ 1,151,873 ----------- (78,120) ----------714,418 ----------$ 1,008,526 -----------