(1) XXX has three bottling plants throughout the country. Bottling occurs at the regional level because of the high cost of transporting bottled soft drinks. The parent company supplies each plant with the syrup. The bottling plants combine the syrup with carbonated soda to make and bottle the soft drinks. The bottled soft drinks are then sent to regional grocery stores. The bottling plants are treated as costs centers. The managers of the bottling plants are evaluated based on minimizing the cost per soft drink bottled and delivered. Each bottling plant uses the same equipment, but some produce more bottles of soft drinks because of different demand. The costs and output for each bottling plant are: A B C Units Produced 10,000,000 20,000,000 30,000,000Variable Costs $ 200,000 $ 450,000 $ 650,000Fixed Costs $1,000,000 $1,000,000 $1,000,000a. Estimate the average cost per unit for each plant. b. Why would the manager of plant A be unhappy with using the average cost as the performance measure? c. What is an alternative performance measure that would make the manager of plant A happier? d. Under what circumstances might the average cost be a better performance measure? (2) An YYY has the following profitability analysis of its services: AAA BBB CCC Revenues $5,000,000 $10,000,000 $3,000,000 Commissions (1,000,000) (2,000,000) (600,000) Payments (3,000,000) (7,300,000) (2,000,000) Fixed Cost (500,000) (500,000) (500,000) Profit $500,000 $200,000 ($100,000) The fixed costs are distributed equally among the services and are not avoidable if one of the services is dropped. What is the profitability of the remaining services if all services with losses are dropped? Continue dropping services until there are NO unprofitable services. (3) ZZZ is a women's clothing retailer. The company started as a mail order company and has expanded into mall department stores. The company now receives approxmately half of its revenues from mail order and half from retail outlets. Over the time period 2002 to 2004, sales increased approximately 25%. DIscuss the relationship between net income annd cash flow from pperations, and among cash flows from operating, investing and financing activities over the three-year period. (Please see attached file.)
CASH FLOW STATEMENT (in thousands) Cash from operations Net income Depreciation & amortization Net increase (decrease) in assets & liab Other adjustments, net Net cash provided by (used in) operations 12/2004 12/2003 12/2002 $8,706 $7,025 $18,434 $18,663 $16,131 $12,672 $6,696 $26,659 $10,623 $1,396 $924 $3,996 $35,461 $50,739 $45,725 Cash from investments (Increase) decrease in property & plant Other cash inflow (outflow) Net cash provided by (used in) investing $-28,784 $-34,265 $-34,734 $-35,434 $-1,143 $-2,454 $-64,218 $-35,408 $-37,188 Cash from financing Issurances (purchases) of equity shares Increase (decreases) in borrowings Net cash provided by (used in) financing Net change cash & cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at year end $3,142 $-1,706 $1,436 $870 $-1,648 $-778 $7,800 $-1,755 $6,045 $-27,321 $59,287 $31,966 $14,553 $44,734 $59,287 $14,582 $30,152 $44,734 C. Using the data for the company, prepare common size (vertical analysis) statements and evaluate the company's performance in 2012 as compared to 2011. For the balance sheets, use total evaluate the company's performance in 2012 as compared to 2011. For the balance sheets, use total assets as the base; fot the income statement, make one set using sales of each year as the base (vertical analysis) and another set using the year 2011 as the base for both years (horizontal analysis). d comment on the consition of this company drawing on the common size statements prepare above. C Common size statement -Common Size Income Statement2012 Common Size 2011 Common Size Sales $12,013,631 100.000% $11,016,668 100.000% COGS $6,747,451 56.165% $6,267,557 56.892% Gross profit $5,266,180 43.835% $4,749,111 43.108% Selling & Admin expense $3,637,065 30.274% $3,296,448 29.922% Operating income 13.561% $1,452,664 13.186% -0.703% $1,629,115 Other expense (revenues): Interest revenue $-95,915 -0.798% $-77,478 Interest expense $78,232 0.651% $68,800 0.625% Total other expense (revenues) $-17,683 -0.147% $-8,678 -0.079% Income before income taxes $1,646,798 13.708% $1,461,342 13.265% Income taxes $734,775 6.116% $609,517 5.533% Net income $912,023 7.592% $851,824 7.732% -Common Size Balance Sheet2012 Common Size 2011 Common Size Assets Cash $246,652 3.392% $254,183 Marketable securities $446,013 6.133% $198,746 2.977% Accounts reveivable $986,322 13.563% $1,025,321 15.359% $1,531,467 21.059% $1,588,061 23.789% $127,488 1.753% $113,306 1.697% $3,337,942 45.900% $3,179,616 47.630% Investments and other assets $790,333 10.868% $592,281 8.872% Property Plant and equipment, net $2,875,290 39.538% $2,628,046 39.367% Trademarks and other intangibles $268,588 3.693% $275,735 4.130% 100.000% $6,675,678 100.000% Inventory Prepaid expenses Total curent assets Total Assets $7,272,153 2012 Common Size 3.808% 2011 Common Size Liabilities ans stockholders' equity Notes payable $182,880 2.515% $171,671 0.141% $14,755 0.221% Accounts payable and accrued expense $1,858,773 25.560% $1,894,271 28.376% Total current liabilities $2,051,883 28.216% $2,080,697 31.168% Current maturities of long-term debt $10,231 2.572% Long-term debt $567,495 7.804% $528,494 7.917% Total liabilities $2,619,378 36.019% $2,609,191 39.085% Common stock $127,274 1.750% $122,249 1.831% Additional paid-in capital$232,956 3.203% $221,817 3.323% 59.027% $3,722,420 55.761% Total stockholders' equity $4,652,775 63.981% $4,066,486 60.915% Total liabilities and equity $7,272,153 100.000% $6,675,678 100.000% Retained earnings $4,292,546 -Common Size Income Statement2012 Common Size 2011 Common Size Sales $12,013,631 1.090 $11,016,668 1 COGS $6,747,451 1.077 $6,267,557 1 Gross profit $5,266,180 1.109 $4,749,111 1 Selling & Admin expense $3,637,065 1.103 $3,296,448 1 Operating income 1.121 $1,452,664 1 $1,629,115 Other expense (revenues): Interest revenue $-95,915 1.238 $-77,478 1 Interest expense $78,232 1.137 $68,800 1 Total other expense (revenues) $-17,683 2.038 $-8,678 1 Income before income taxes $1,646,798 1.127 $1,461,342 1 Income taxes $734,775 1.206 $609,517 1 Net income $912,023 1.071 $851,824 1 -Common Size Balance Sheet2012 Common Size 2011 Common Size Assets Cash $246,652 0.970 $254,183 1 Marketable securities $446,013 2.244 $198,746 1 Accounts reveivable $986,322 0.962 $1,025,321 1 $1,531,467 0.964 $1,588,061 1 $127,488 1.125 $113,306 1 $3,337,942 1.050 $3,179,616 1 Investments and other assets $790,333 1.334 $592,281 1 Property Plant and equipment, net $2,875,290 1.094 $2,628,046 1 Trademarks and other intangibles $268,588 0.974 $275,735 1 Total Assets 1.089 $6,675,678 1 Inventory Prepaid expenses Total curent assets $7,272,153 2012 Common Size 2011 Common Size Liabilities ans stockholders' equity Notes payable 106.529% $171,671 100.000% Current maturities of long-term debt $10,231 $182,880 69.339% $14,755 100.000% Accounts payable and accrued expense $1,858,773 98.126% $1,894,271 100.000% Total current liabilities $2,051,883 98.615% $2,080,697 100.000% Long-term debt 107.380% $528,494 100.000% Total liabilities $2,619,378 100.390% $2,609,191 100.000% Common stock $127,274 104.110% $122,249 100.000% Additional paid-in capital$232,956 105.022% $221,817 100.000% Retained earnings $4,292,546 115.316% $3,722,420 100.000% Total stockholders' equity $4,652,775 114.418% $4,066,486 100.000% Total liabilities and equity $7,272,153 D $567,495 108.935% $6,675,678 100.000% C. Using the data for the company, prepare common size (vertical analysis) statements and evaluate the company's performance in 2012 as compared to 2011. For the balance sheets, use total evaluate the company's performance in 2012 as compared to 2011. For the balance sheets, use total assets as the base; fot the income statement, make one set using sales of each year as the base (vertical analysis) and another set using the year 2011 as the base for both years (horizontal analysis). d comment on the consition of this company drawing on the common size statements prepare above. C Common size statement -Common Size Income Statement2012 Common Size 2011 Common Size Sales $12,013,631 100.000% $11,016,668 100.000% COGS $6,747,451 56.165% $6,267,557 56.892% Gross profit $5,266,180 43.835% $4,749,111 43.108% Selling & Admin expense $3,637,065 30.274% $3,296,448 29.922% Operating income 13.561% $1,452,664 13.186% -0.703% $1,629,115 Other expense (revenues): Interest revenue $-95,915 -0.798% $-77,478 Interest expense $78,232 0.651% $68,800 0.625% Total other expense (revenues) $-17,683 -0.147% $-8,678 -0.079% Income before income taxes $1,646,798 13.708% $1,461,342 13.265% Income taxes $734,775 6.116% $609,517 5.533% Net income $912,023 7.592% $851,824 7.732% -Common Size Balance Sheet2012 Common Size 2011 Common Size Assets Cash $246,652 3.392% $254,183 Marketable securities $446,013 6.133% $198,746 2.977% Accounts reveivable $986,322 13.563% $1,025,321 15.359% $1,531,467 21.059% $1,588,061 23.789% $127,488 1.753% $113,306 1.697% $3,337,942 45.900% $3,179,616 47.630% Investments and other assets $790,333 10.868% $592,281 8.872% Property Plant and equipment, net $2,875,290 39.538% $2,628,046 39.367% Trademarks and other intangibles $268,588 3.693% $275,735 4.130% 100.000% $6,675,678 100.000% Inventory Prepaid expenses Total curent assets Total Assets $7,272,153 2012 Common Size 3.808% 2011 Common Size Liabilities ans stockholders' equity Notes payable $182,880 2.515% $171,671 0.141% $14,755 0.221% Accounts payable and accrued expense $1,858,773 25.560% $1,894,271 28.376% Total current liabilities $2,051,883 28.216% $2,080,697 31.168% Current maturities of long-term debt $10,231 2.572% Long-term debt $567,495 7.804% $528,494 7.917% Total liabilities $2,619,378 36.019% $2,609,191 39.085% Common stock $127,274 1.750% $122,249 1.831% Additional paid-in capital$232,956 3.203% $221,817 3.323% 59.027% $3,722,420 55.761% Total stockholders' equity $4,652,775 63.981% $4,066,486 60.915% Total liabilities and equity $7,272,153 100.000% $6,675,678 100.000% Retained earnings $4,292,546 -Common Size Income Statement2012 Common Size 2011 Common Size Sales $12,013,631 1.090 $11,016,668 1 COGS $6,747,451 1.077 $6,267,557 1 Gross profit $5,266,180 1.109 $4,749,111 1 Selling & Admin expense $3,637,065 1.103 $3,296,448 1 Operating income 1.121 $1,452,664 1 $1,629,115 Other expense (revenues): Interest revenue $-95,915 1.238 $-77,478 1 Interest expense $78,232 1.137 $68,800 1 Total other expense (revenues) $-17,683 2.038 $-8,678 1 Income before income taxes $1,646,798 1.127 $1,461,342 1 Income taxes $734,775 1.206 $609,517 1 Net income $912,023 1.071 $851,824 1 -Common Size Balance Sheet2012 Common Size 2011 Common Size Assets Cash $246,652 0.970 $254,183 1 Marketable securities $446,013 2.244 $198,746 1 Accounts reveivable $986,322 0.962 $1,025,321 1 $1,531,467 0.964 $1,588,061 1 $127,488 1.125 $113,306 1 $3,337,942 1.050 $3,179,616 1 Investments and other assets $790,333 1.334 $592,281 1 Property Plant and equipment, net $2,875,290 1.094 $2,628,046 1 Trademarks and other intangibles $268,588 0.974 $275,735 1 Total Assets 1.089 $6,675,678 1 Inventory Prepaid expenses Total curent assets $7,272,153 2012 Common Size 2011 Common Size Liabilities ans stockholders' equity Notes payable 106.529% $171,671 100.000% Current maturities of long-term debt $10,231 $182,880 69.339% $14,755 100.000% Accounts payable and accrued expense $1,858,773 98.126% $1,894,271 100.000% Total current liabilities $2,051,883 98.615% $2,080,697 100.000% Long-term debt 107.380% $528,494 100.000% Total liabilities $2,619,378 100.390% $2,609,191 100.000% Common stock $127,274 104.110% $122,249 100.000% Additional paid-in capital$232,956 105.022% $221,817 100.000% Retained earnings $4,292,546 115.316% $3,722,420 100.000% Total stockholders' equity $4,652,775 114.418% $4,066,486 100.000% Total liabilities and equity $7,272,153 D $567,495 108.935% $6,675,678 100.000%
