Letter 1: Vivian Sawa, CPA, works for a management consulting firm and reports to Glenn Bai, a partner with the firm. The firm has just been hired to assist Clean It Up Inc. (CIU) with its recent acquisition. CIU is a household and office cleaning service. CIU recently acquired K&P Ltd. (KPL), which has five divisions: an environmental disaster clean-up product (Endit), a factory cleaning service (FacKPL), a manufacturer of equipment used for environmental clean-up (the QLR), a manufacturer of office cleaning products (O'Kleen), and a manufacturer of an all-purpose household cleaning product (HomePure). To help with the integration of this acquisition, the CFO of CIU needs to gain a better understanding of the product and product life-cycle stage of each of these five products in the divisions and has approached Glenn for some assistance with this analysis.

Although CIU primarily purchased KPL for its environmental cleaning services and equipment, it also determined that the O'Kleen product was on par with the one CIU currently uses for its office cleaning services. Therefore, CIU's office cleaning division will purchase the O'Kleen product from the O'Kleen division by way of an intercompany transfer. This will allow CIU to reduce the cost of cleaning products within the office cleaning division as it will no longer purchase from an external supplier. With this in mind, the CFO of CIU has asked for various transfer prices to be calculated.

Letter 2:

Notes from Sandy Kearns, Vice-President, Marketing

Enditisanenvironmentaldisastercleaningproduct.Thisproductcameonthemarket about six months ago after a two-year product development period. Endit is sold to environmental cleaning service companies specializing in cleaning up chemical and oil spills. Sales have been growing as Endit's successful use in oil spills has been demonstrated. Currently, there are many competitors' products on the market, which are both differentiated by how they perform the cleaning process, but CIU strongly believes that its product will give it a competitive advantage.

FacKPL provides factory cleaning services. Customers sign two-year contract to have their factories cleaned on a daily basis during off hours. The sales of this division have been stable over the past 10 years. Its customer base has also remained stable, with customers renewing as the contracts expire. There are many other companies providing similar services, but as FacKPL has provided consistently high-quality services to its customers over the years, these customers have remained loyal.

The QLR is a machine designed to vacuum up large chemical and oil spills. Itis a highly specialized machine that requires training to operate. There is only one other manufacturer of similar type of equipment in North America which currently has about 60% of the market; the QLR has the other 40%. There are high barriers to entry as very specialized knowledge, experience, and a good reputation are required to develop and sell these machines. The QLR has been on the market for three years and sales continue to grow as the company gains market share from its only competitor.

O'Kleen is an office cleaning product that is used by the Fac KPLGroupand is also sold to external customers through a variety of distributors. There is a wide range of competitors' products in this market, which are all made from similar ingredients and perform the same cleaning functions, making it difficult for customers to differentiate the products. KPL originally started this division to vertically integrate with its factory cleaning services and be able to control the costs for supplies. Since KPL has spent little on R&D to further improve and update this product, the sales of O'Kleen to external customers have been falling by about 5% every year.

HomePure is an all-purpose household cleaner that is currently being tested and will likely be available on the market in the next five months. It is a specialized product designed to be used by individuals that have a very high sensitivity to smells and cannot tolerate the more commonly used home cleaning products. Based on focus groups, there is a demand for such products. Currently there are several choices for this segment, which are differentiated by their ingredients. As different ingredients will cause different reactions for each individual, consumers will purchase and try the different products available until they find one that they have little reaction to. HomePure is likely to be priced at a premium since the ingredients used are higher quality than those in competitors' products.

Letter 3:

Good morning,

Based on our telephone call earlier today, I have now gathered the information you requested. I hope this is what you were looking for, but if not, let me know.

You mentioned that the CIU office cleaning division will want to buy 9,000 units. We currently have excess capacity to produce 10,000 units.

For our O'Kleen product, the total variable product costs per unit are $5.10 and the fixed costs per unit are $1.60. Our selling price to external customers is $10.20. We pay a commission of 10% to our sales agents on sales to external customers.

Excel File Edit View Insert Format Tools Data Window Help GPLC 2 10 8 100% 2 Q 8 0 Wed Mar 20 2:21 AM MAA-2402E-TBS03-02.Simulation.pdf Q Q AA-2402E-TBS03-02.Simulation copy Page 2 of 3 . Q Search ige 1 of 3 2 0 Q Search UNIT 3 - TASK-BASED SIMULATION #2 Simulation (15 minutes) Vivian Sawa, CPA, works for a management consulting firm and reports to Glenn Bai, a partner with the firm. The firm has just been hired to assist Clean It Up Inc. (CIU) with its recent acquisition. CIU is a household and office cleaning service. CIU recently acquired K&P Ltd. (KPL), which has five divisions: an environmental disaster clean-up product (Endit), a factory cleaning service (FackPL), a manufacturer of equipment used for environmental clean-up (the QLR), a manufacturer of office cleaning products (O'Kleen), and a manufacturer of an all-purpose household cleaning product Intermediate Manageme imulation #2 Simulation Intermediate Management Accou Based Simulation #2 Simulation (HomePure). To help with the integration of this acquisition, the CFO of CIU needs to gain a better understanding of the product and product life-cycle stage of each of these Appendix I: Notes from Sandy Kearns, Vice-President, Marketing Appendix II: Email from Frances Chang, Manager, O'Kleen Division five products in the divisions and has approached Glenn for some assistance with this analysis. Notes from Sandy Kearns, Vice-President, Marketing Subject: Costs related to O'Kleen product Although CIU primarily purchased KPL for its environmental cleaning services and 1. Endit is an environmental disaster cleaning product. This product came on the market TO: Vivian Sawa; Glenn Ba equipment, it also determined that the O'Kleen product was on par with the one CIU about six months ago after a two-year product development period. Endit is sold to currently uses for its office cleaning services. Therefore, CIU's office cleaning division environmental cleaning service companies specializing in cleaning up chemical and oil FROM: Frances Chang, Manager, O'Kleen division will purchase the O'Kleen product from the O'Kleen division by way of an intercompany spills. Sales have been growing as Endit's successful use in oil spills has been transfer. This will allow CIU to reduce the cost of cleaning products within the office demonstrated. Currently, there are many competitors' products on the market, which are both differentiated by how they perform the cleaning process, but CIU Good morning, cleaning division as it will no longer purchase from an external supplier. With this in believes that its product will give it a competitive advantage. mind, the CFO of CIU has asked for various transfer prices to be calculated Based on our telephone call earlier today, I have now gathered the information you 2. FackPL provides factory cleaning services. Customers sign two-year contracts to requested. I hope this is what you were looking for, but if not, let me know. have their factories cleaned on a daily basis during off hours. The sales of this division Additional information: have been stable over the past 10 years. Its customer base has also remained stable, with customers renewing as the contracts expire. There are many other comp You mentioned that the CIU office cleaning division will want to buy 9,000 units. We currently have excess capacity to produce 10,000 units. 0.. AutoSave . A BE ? C ... MAA-2402E-TBS03-02.Task Q providing similar services, but as FackPL has provided consistently high-quality services to its customers over the years, these customers have remained loyal For our O'Kleen product, the total variable product costs per unit are $5.10 and the Home Insert Draw Page Layout Formu Customize Quick Access Toolbar w Tell me Comments Share 3. The QLR is a machine designed to vacuum up large chemical and oil spills. It is a highly fixed costs per unit are $1.60. Our selling price to external customers is $10.20. We specialized machine that requires training to operate. There is only one other pay a commission of 10% to our sales agents on sales to external customers. Conditional Formatting manufacturer of similar type of equipment in North America which currently has about % " 88 60% of the market; the QLR has the other 40%. There are high barriers to entry as very Hope this helps. Frances Format as Table specialized knowledge, experience, and a good reputation are re required to devel Paste Font Alignment Number Cells Editing Add-ins LR has been on the market for three years and Analyze sell these machines. The QLR has beer Cell Styles v Data continue to grow as the company gains market share from its only competitor. O'Kleen is an office cleaning product that is used by the FackPL Group and is also D35 X V Jx sold to external customers through a variety of distributors. There is a wide range of competitors' products in this market, which are all made from similar ingredients and A perform the same cleaning functions, making it difficult for customers to differentiate e products. KPL originally started this division to vertically integrate with its factory 14 cleaning services and be able to control the costs for supplies. Since KPL has spent 1 Product description Market structure Product life-cycle stage little on R&D to further improve and update this product, the sales of O'Kleen to mal customers have been falling by about 5% every year. 16 2 Endit 5. HomePure is an all-purpose household cleaner that is currently being tested and will 17 3 FackPL likely be available on the market in the next five months. It is a specialized product 18 4 The QLR designed to be used by individuals that have a very high sensitivity to smells and cannot tolerate the more commonly used home cleaning products. Based on foct 19 5 O'Kleen here is a demand for such products. Currently there are several choices for 20 6 HomePure this segment, which are differentiated by their ingredients. As different ingredients will cause different reactions for each individual, consumers will purchase and try the different products available until they find one that they have little reaction to. Column B drop-down options HomePure is likely to be priced at a premium since the ingredients used are higher than those in competitors' products. Monopolistic competition As a first step in gaining a better understanding of KPL's Monopoly products, Glenn has asked Vivian to identify the market Oligopoly CPA CHARTERED Perfect competition structure and the product life-cycle stage for each of the ACCOUNTANTS 2/3 #CPA 3/3 *CDA Column C drop-down options products listed. Vivian will complete the table below using Development information provided in Appendix I. Introduction Growth Maturity Decline CPA Canada Task 1 Task 2 Task 3