Cummings Corp. case Memo: August Production Data Memo To: All Cummings Corp. From: James Blake, manager-Plumbing Parts division Date: September 20, Year 3 Re: August production data and future forecasts Here are the price and usage results from August for our Plumbing Parts division: Price of iron purchased $6.10/lb. Price of copper purchased Number of pipes/elbows produced Pounds of copper used Pounds of iron used $9.60/lb. 12,000 units 750 lbs. 4,800 lbs. As you know, our division manufactures specialized pipes and elbows primarily for industrial/institutional facilities. The raw materials used for these related products are iron and copper, with iron the primary production input. Over the last few months, we have negotiated price reductions from our suppliers and expect per- pound prices for iron and copper to fall by 10 cents and 15 cents, respectively. These price reductions should begin to take effect next month. E-mail Financial Data Small Tools Division Tuesday, September 18, Year 3 10:26 a.m. Abrams, Shane (manager, Small Tools division-Cummings Corp.) Small Tools division-Financial data quarter ended 8.31 Samuels, William (head of Production-Cummings Corp.) To: Hi Will, Please see the screen shot below, which reflects the quarterly performance for Small Tools-actuals to budget. Small Tools Division (Dollars in thousands) Revenue Consumer sales Industrial sales Production costs Raw materials Direct labor Manufacturing overhead Scrap (unsold) Other costs Management salaries Promotional Net income Assets Actual 3 Months Ended 8/31 34,785 99,663 32,268 64,224 12,900 500 2,500 300 21,756 198,975 Budget 3 Months Ended 8/31 $ 33,000 102,250 31,108 66,949 As always, if you have any questions, please do not hesitate to call me. S.A. 13,500 I 2,500 426 20,767 188,400 Excerpt From Production Manager Meeting Production meeting: September 17, Year 3 Attendees: Abrams, Kelly Blanton Carol Jenkins, William Samuels, James Blake, Shane First presenter is Kelly Blanton, manager for the Design Printing division. Notes from Kelly's presentation At the beginning of the fiscal year, they purchased a state-of-the art printing machine. Information regarding this purchase and other financial data for the 12 months ending on August 31 of the current year: Cost of printing machine Cost of capital $850,000 9 percent $125,000 $100,000 Per Kelly, they are also considering several other capital equipment purchases that will likely occur in October or November. The expected cost for these total approximately $1.2 million. Net operating profit after taxes Net income Accounts receivable turnover Asset turnover Basic earnings per share Cash conversion cycle Current ratio Days in inventory Days of payables outstanding Days sales in accounts receivable Debt to equity Dividend payout Analytics Definitions Sales (net) Average accounts receivable (net) Sales (net) Average total assets Income available to common shareholders Weighted average common shares outstanding Days sales in accounts receivable + Days in inventory - Days of payables outstanding Current assets Current liabilities Ending inventory Cost of goods sold / 365 Ending accounts payable Cost of goods sold / 365 Ending accounts receivable (net) Sales (net) / 365 Total liabilities Total equity Cash dividends Net income Equity multiplier Gross margin (Gross profit margin) Inventory turnover Operating cash flow ratio Price earnings ratio Profit margin Quick ratio Total assets Total equity Sales (net) - Cost of goods sold Sales (net) Cost of goods sold Average inventory Cash flow from operations Ending current liabilities Price per share Basic earnings per share Net income Sales (net) Cash and cash equivalents + Short-term marketable securities + Receivables (net) Current liabilities Return on assets Return on equity Return on sales Times interest earned Total debt ratio Net income Average total assets Net income Average total equity Income before interest income, interest expense, and taxes Sales (net) Income before interest expense and taxes Interest expense OR Earnings before interest and taxes Interest expense Total liabilities Total assets Part I: Use information in the "Memo: August Production Data" to answer questions in table below. The formula to calculate the partial productivity ratio (PPR) for a specific material is PPR = Quantity of production/Quantity of the specific material used The formula to calculate the total factor productivity ratio (TFP) for all raw materials is TFP = Quantity of output produced/cost of raw material inputs used Part I: Use information in the "Memo: August Production Data" to answer questions in table below. The formula to calculate the partial productivity ratio (PPR) for a specific material is PPR = Quantity of production/Quantity of the specific material used The formula to calculate the total factor productivity ratio (TFP) for all raw materials is TFP = Quantity of output produced/cost of raw material inputs used A 1 Partial productivity ratio (for iron) 2 Total factor productivity ratio (for all raw materials) B PART II: For the Small Tools division, determine the dollar or percentage variance for each financial scorecard category, inserting the variance as a positive amount in the table below. Also, indicate whether each SBU - strategic business unit (revenue, cost, profit, investment) underperformed or overperformed on the head of Production's financial scorecard, based on the results of the variance analysis. Financial Scorecard A Category 2 Total revenue 3 Total costs 4 Net income 5 Return on assets B Variance ($ or % as Applicable) Economic value added Required rate of return=Cost of machine*Cost of capital SBU (Strategic Business Unit) Revenue SBU Cost SBU C Profit SBU Investment SBU PART III: For the Design Printing division, calculate the economic value added of the new investment and insert the correct answer in the table provided below. Economic value added=Net operating profit after taxes-required rate of return D Overperformed or Underperformed? PART IV: Explain the economic meaning of the ratios listed in the table below. Account receivable turnover Asset turnover Basic earnings per share Cash conversion cycle Current ratio Days in inventory Days of payables outstanding Days sales in accounts receivable Debt to equity Dividend payout Equity multiplier Gross margin Inventory turnover Operating cash flow ratio Profit margin Quick ratio Return on assets Return on equity Return on sales Times interest earned Total debt ratio Cummings Corp. case Memo: August Production Data Memo To: All Cummings Corp. From: James Blake, manager-Plumbing Parts division Date: September 20, Year 3 Re: August production data and future forecasts Here are the price and usage results from August for our Plumbing Parts division: Price of iron purchased $6.10/lb. Price of copper purchased Number of pipes/elbows produced Pounds of copper used Pounds of iron used $9.60/lb. 12,000 units 750 lbs. 4,800 lbs. As you know, our division manufactures specialized pipes and elbows primarily for industrial/institutional facilities. The raw materials used for these related products are iron and copper, with iron the primary production input. Over the last few months, we have negotiated price reductions from our suppliers and expect per- pound prices for iron and copper to fall by 10 cents and 15 cents, respectively. These price reductions should begin to take effect next month. E-mail Financial Data Small Tools Division Tuesday, September 18, Year 3 10:26 a.m. Abrams, Shane (manager, Small Tools division-Cummings Corp.) Small Tools division-Financial data quarter ended 8.31 Samuels, William (head of Production-Cummings Corp.) To: Hi Will, Please see the screen shot below, which reflects the quarterly performance for Small Tools-actuals to budget. Small Tools Division (Dollars in thousands) Revenue Consumer sales Industrial sales Production costs Raw materials Direct labor Manufacturing overhead Scrap (unsold) Other costs Management salaries Promotional Net income Assets Actual 3 Months Ended 8/31 34,785 99,663 32,268 64,224 12,900 500 2,500 300 21,756 198,975 Budget 3 Months Ended 8/31 $ 33,000 102,250 31,108 66,949 As always, if you have any questions, please do not hesitate to call me. S.A. 13,500 I 2,500 426 20,767 188,400 Excerpt From Production Manager Meeting Production meeting: September 17, Year 3 Attendees: Abrams, Kelly Blanton Carol Jenkins, William Samuels, James Blake, Shane First presenter is Kelly Blanton, manager for the Design Printing division. Notes from Kelly's presentation At the beginning of the fiscal year, they purchased a state-of-the art printing machine. Information regarding this purchase and other financial data for the 12 months ending on August 31 of the current year: Cost of printing machine Cost of capital $850,000 9 percent $125,000 $100,000 Per Kelly, they are also considering several other capital equipment purchases that will likely occur in October or November. The expected cost for these total approximately $1.2 million. Net operating profit after taxes Net income Accounts receivable turnover Asset turnover Basic earnings per share Cash conversion cycle Current ratio Days in inventory Days of payables outstanding Days sales in accounts receivable Debt to equity Dividend payout Analytics Definitions Sales (net) Average accounts receivable (net) Sales (net) Average total assets Income available to common shareholders Weighted average common shares outstanding Days sales in accounts receivable + Days in inventory - Days of payables outstanding Current assets Current liabilities Ending inventory Cost of goods sold / 365 Ending accounts payable Cost of goods sold / 365 Ending accounts receivable (net) Sales (net) / 365 Total liabilities Total equity Cash dividends Net income Equity multiplier Gross margin (Gross profit margin) Inventory turnover Operating cash flow ratio Price earnings ratio Profit margin Quick ratio Total assets Total equity Sales (net) - Cost of goods sold Sales (net) Cost of goods sold Average inventory Cash flow from operations Ending current liabilities Price per share Basic earnings per share Net income Sales (net) Cash and cash equivalents + Short-term marketable securities + Receivables (net) Current liabilities Return on assets Return on equity Return on sales Times interest earned Total debt ratio Net income Average total assets Net income Average total equity Income before interest income, interest expense, and taxes Sales (net) Income before interest expense and taxes Interest expense OR Earnings before interest and taxes Interest expense Total liabilities Total assets Part I: Use information in the "Memo: August Production Data" to answer questions in table below. The formula to calculate the partial productivity ratio (PPR) for a specific material is PPR = Quantity of production/Quantity of the specific material used The formula to calculate the total factor productivity ratio (TFP) for all raw materials is TFP = Quantity of output produced/cost of raw material inputs used Part I: Use information in the "Memo: August Production Data" to answer questions in table below. The formula to calculate the partial productivity ratio (PPR) for a specific material is PPR = Quantity of production/Quantity of the specific material used The formula to calculate the total factor productivity ratio (TFP) for all raw materials is TFP = Quantity of output produced/cost of raw material inputs used A 1 Partial productivity ratio (for iron) 2 Total factor productivity ratio (for all raw materials) B PART II: For the Small Tools division, determine the dollar or percentage variance for each financial scorecard category, inserting the variance as a positive amount in the table below. Also, indicate whether each SBU - strategic business unit (revenue, cost, profit, investment) underperformed or overperformed on the head of Production's financial scorecard, based on the results of the variance analysis. Financial Scorecard A Category 2 Total revenue 3 Total costs 4 Net income 5 Return on assets B Variance ($ or % as Applicable) Economic value added Required rate of return=Cost of machine*Cost of capital SBU (Strategic Business Unit) Revenue SBU Cost SBU C Profit SBU Investment SBU PART III: For the Design Printing division, calculate the economic value added of the new investment and insert the correct answer in the table provided below. Economic value added=Net operating profit after taxes-required rate of return D Overperformed or Underperformed? PART IV: Explain the economic meaning of the ratios listed in the table below. Account receivable turnover Asset turnover Basic earnings per share Cash conversion cycle Current ratio Days in inventory Days of payables outstanding Days sales in accounts receivable Debt to equity Dividend payout Equity multiplier Gross margin Inventory turnover Operating cash flow ratio Profit margin Quick ratio Return on assets Return on equity Return on sales Times interest earned Total debt ratio