Attached is a problem set in the work document. The excel contain a self grading template so you know if you are doing it correctly. You MUST not change any of the macros on the excel spreadsheet.

MBAC Fall 2017 Homework Case #5 Part 1: ROI and Residual Income Teresa Company is an investment center and an operating segment of Irish International Corporation. Teresa Company is currently earning an ROI of 15% on average operating assets of $12,000,000 as of January 1, 2014. On January 1, 2014 the company has the opportunity to make an investment which will cost $4,000,000 and which they believe will yield a 12% return (ROI). Irish International Corporation expects its investment centers to earn at least 10% on all new investments. REQUIRED: 1. Calculate the operating income Teresa Company is currently earning. 2. Calculate the operating income the investment is expected to earn. 3. Calculate the average operating assets Teresa Company will have at year end if they make the investment. 4. Calculate the operating income Teresa Company will have if they make the investment. 5. What will Teresa Company's ROI be if they make the investment? 6. If the CEO of Teresa Company is evaluated based on ROI will Teresa Company make the investment? 7. Calculate the Residual Income for Teresa Company before making the investment. 8. Calculate the Residual Income for Teresa Company assuming that they make the investment. 9. If the CEO of Teresa Company is evaluated based on Residual Income will Teresa Company make the investment? Copyright of Michael J. Meyer 2017. Use by permission only. Part 2: Elimination of a Segment Mike Company has three products, each are operated as separate segments. Mike Company allocates all of its corporate fixed costs to each of its operating segments. Mike Company's CEO, after looking at this past quarter's results has indicated that something needs to be done. He believes that PRODUCT A is losing money and has solicited your help in evaluating several options. Below are the results of the past quarter for each of the product segments and the Company Total. Product A Product B Product C Total Sales $900,000 $875,000 $680,000 $2,455,000 - Variable Costs $750,000 $600,000 $390,000 $1,740,000 Contribution Margin $150,000 $275,000 $290,000 $715,000 Segment Fixed Costs $140,000 $130,000 $120,000 $390,000 $80,000 $80,000 $80,000 $240,000 ($70,000) $65,000 $90,000 $85,000 Allocated Corporate Fixed Costs Pre-tax Profit REQUIRED: Determine the Company Total under each of the below, mutually exclusive options: 1. Eliminate Product A 2. Eliminate Product B 3. Eliminate Product C 4. Eliminate Product A and Use that capacity to increase Product B Sales by 50% 5. Eliminate Product A and Use that capacity to increase Product B Sales by 30% and Product C Sales by 20%. 6. Given the options in questions 1-5, which provides the company with the highest total profit? Copyright of Michael J. Meyer 2017. Use by permission only. Part 3: Outsourcing Problem Bobcat Scanner Company manufactures a high-speed professional scanner. Their target customers are entrepreneurs with a small business who need the ability to easily scan their invoices and receipts. Their products are also popular with individuals who typically use the scanners for keeping personal financial information for tax purposes. In 2013 the company had sales of $106,000,000 with an average contribution margin ratio of 75%. The company runs its own customer call support center in Albany, New York. The company has been concerned that the costs of the support center are too high and have begun looking into the possibility of moving the customer service center to Austin, Texas or to Bangalore, India. The current cost center employs 200 individuals who earn (inclusive of wages and benefits) $25 per hour and work on average 167 hours per month. The company leases a phone system for $100,000 per month and leases office space for $10,000 per month. Annual training costs amount to $300 per employee. If the call center moves to Austin, Texas they will employ 200 individuals and pay (inclusive of wages and benefits) $22 per hour. The cost to lease a phone system would be $110,000 per month and the cost to lease office space would be $7,500 per month. The company training costs would cost $300 per employee. The company would like its current call center employees to be willing to move, however, they recognize that for many employees this will not be possible. The company estimates that half of its employees will decide not to move with the call center. For those employees who choose not to move the company will pay a severance equal to one month's wages. If the call center moves to Bangalore, India they will employee 350 individuals and pay (inclusive of wages and benefits) $7 per hour. The cost to lease a phone system would be $75,000 per month and the cost to lease office space would be $1,500 per month. The company would incur additional travel costs to oversee the operations by approximately $3,000 per month. Annual employee training costs would be $100 per employee. The company believes that if they move the call center to Bangalore their customer service would decrease causing a decrease in annual sales by 5%. In addition, the company would have to pay a severance package to existing employees equal to one month's wages. REQUIRED: 1. By how much will the company's annual pre-tax income change if they decide to move the call center to Austin, Texas? 2. By how much will the company's annual pre-tax income change if they decide to move the call center to Bangalore, India? 3. What should the company do? Copyright of Michael J. Meyer 2017. Use by permission only. Part 4: Cost Volume Profit Anne Company has prepared the following planning budget. Using the planning budget, calculate 1. 2. 3. 4. 5. Contribution Margin Ratio Sales Dollars at the Breakeven Point Dollar Margin of Safety (using budget sales) Sales needed to achieve a $50,000 before tax income. Sales needed to achieve a $50,000 after tax income. Anne Company Planning Budget For the Month of January Sales Less: Variable Costs Cost of Goods Sold Commissions Supplies Contibution Margin Less: Fixed Costs Supplies Salaries Rent Advertising Depreciation Utilities Insurance Interest Income Before Taxes Income Tax Expense (25%) Net Income Planning Budget $225,000 $144,000 $13,500 $4,500 $63,000 $2,000 $10,000 $4,000 $3,000 $2,000 $1,200 $1,500 $1,400 $37,900 $9,475 $28,425 Copyright of Michael J. Meyer 2017. Use by permission only. Notre Dame Honor Code As a member of the Notre Dame community, I will not participate in or tolerate academic dishonesty. By typing my name in the below box, I agree that I have fulfilled my responsibilities under the Notre Dame Honor Code. Type your name in the box below. Failure to put your name in the box will result in a zero grade. I have fulfilled my RETURN ON INVESTMENT Before Investment Investment After Investment Operating Income Average Operating Assets $12,000,000 $4,000,000 15.00% 12.00% Return on Investment Assuming that Teresa Company is evaluated based on ROI only, will Teresa Company make the Investment? RESIDUAL INCOME Corporate Desired ROI 10.00% Before Investment After Investment Operating Income Desired Operating Income Residual Income Assuming that Teresa Company is evaluated based on Residual Income only, will Teresa Company make the Investment? Your grade on this assignment is There is AT LEAST ONE error on this sheet 0 out of 20 ake the Investment? Link to the following to answer evaluation questions: YES NO Sales Product A Product B Product C $900,000 $875,000 $680,000 - Variable Costs $750,000 $600,000 $390,000 Contribution Margin $150,000 $275,000 $290,000 Segment Fixed Costs Allocated Corporate Fixed Costs $140,000 $80,000 $130,000 $80,000 $120,000 $80,000 Pre-tax Profit ($70,000) $65,000 $90,000 Total $2,455,000 $1,740,000 $715,000 $390,000 $240,000 $85,000 Eliminate A Eliminate B Eliminate C Sales - Variable Costs Contribution Margin Segment Fixed Costs Allocated Corporate Fixed Costs Pre-tax Profit Which provides the greatest profit? Your Grade on this assignment is There is AT LEAST ONE ERROR on this sheet To answer this question, Link to one of the following phrases: Eliminate A Eliminate B Eliminate C Eliminate A and Increase B Sales 50% Eliminate A, Increase B Sales 30% and C Sales 20 Do Nothing and Keep all three segments 0 out of 20 Eliminate A, Increase B Sales 50% , Link to one of the e B Sales 50% Sales 30% and C Sales 20% l three segments Eliminate A, Increase B Sales 30% and C Sales 20% Albany, New York Call Center Information Number of employees 200 Employee labor costs per hour $25 Phone system per month $100,000 Office rent per month $10,000 Training costs per employee $300 Contribution Margin Ratio 75% Annual sales $106,000,000 Hours month 167 Albany, New York Annual Call Center Costs Cost of labor Cost of Phone system Cost of Office Rent Cost of employee training Austin, Texas Information Number of employees Employee labor costs per hour Phone system costs per month Office rent per month Training cost per employee Annual Costs of Austin, Texas Call Center Cost of labor Cost of Phone system Cost of Office Rent Cost of employee training Severance (1 month pay) Change in pre-tax Income if call center is moved to Austin, Texas: Change in pre-tax income if call center is moved to Bangalore, India: What should the company do? (Link to List) Link to List Stay in Albany, New York Move to Austin, Texas Move to Bangalore, India Your grade on this assignment is There is AT LEAST ONE ERROR on this sheet 0 out of 20 Information 200 $22 $110,000 $7,500 $300 tin, Texas Call Center Bangalore, India Information Number of employees Employee labor costs per hour Phone system costs per month Office rent per month Training cost per employee Lost CM due to decreased customer satisfaction Travel costs for company per month Annual Costs of Bangalore, India Call Center Cost of labor Cost of Phone system Cost of Office Rent Cost of employee training Travel Lost Contribution Margin (CM) Severance (1 month pay) 350 $7 $75,000 $1,500 $100 5% $3,000 Anne Company Planning Budget For the Month of January Sales Less: Variable Costs Cost of Goods Sold Commissions Supplies Contibution Margin Less: Fixed Costs Supplies Salaries Rent Advertising Depreciation Utilities Insurance Interest Income Before Taxes Income Tax Expense (25%) Net Income Planning Budget $225,000 $144,000 $13,500 $4,500 $63,000 $2,000 $10,000 $4,000 $3,000 $2,000 $1,200 $1,500 $1,400 $37,900 $9,475 $28,425 Contribution Margin Percentage (Ratio) Sales at Breakeven Point Dollar Margin of Safety Use Budgeted Sales. Sales needed to achieve a $50,000 before tax income Sales needed to achieve a $50,000 after tax net income Your grade on this assignment is There is AT LEAST ONE ERROR on this sheet 0 out of 20 Homework Case 5 for Your Grade on this assignment is: Note that your grade needs to be between 0 and 20. If you have an error in the grade space you have deleted an important formula that evaluates the possibility of academic honesty. You must redo the assignment with a blank template or you will receive a zero. Fall 2017 0 57-02615