Problem 13-43

Sales
Operating income
Invested capital

4,800,000
348,000
6,000,000

The four strategies:

a. Write off and discard $60,000 of obsolete inventory. The company will take a loss on the disposal.
b. Accelerate the collection of $80,000 of overdue customer accounts receivable.
c. Stop advertising through year-end and drastically reduce outlays for repairs and maintenance.
These actions are expected to save the division $150,000 of expenses and will conserve cash resources.
d. Acquire two competitors that are expected to have the following financial characteristics:
Projected
Sales
Kowloon Manufacturing
Pearl River Enterprises

Projected Operating
Expenses

3,000,000 $
4,500,000

Projected
Invested Capital

2,400,000
4,120,000

5,000,000
4,750,000

Answers:
1. Sales margin adalah income dibagi dengan sales revenue. Untuk mengukur persentase setiap dollar yang tersisa
sebagai profit setelah semua beban tertutupi.
Capital turnover adalah adalah sales revenue dibagi invested capital. Untuk mengetahui jumlah dollar yang dihasilkan
oleh setiap dollar dalam invested capital.
Return on Investement adalah Income dibagi dengan invested capital.

Reliable's Sporting Goods Division

Income
Sales Revenue
348,000

=
=

Sales Margin
7.25%

4,800,000
Sales Revenue
Invested Capital
4,800,000

=
=

Capital Turnover
80.00%

6,000,000
Income
Invested Capital
348,000

=
=

Return on Investment
5.80%

6,000,000
2. Write-off obsolete inventory sangat tidak disarankan karena, akan mengurangi income Reliable's Sporting
Dikarenakan adanya Loss on disposal sebesar $60,000, sehingga akan menurunkan Return on Investment.
Selain itu, penghapusan inventory dapat berakibat pada kelangkaan inventory, kehilangan penjualan dan antrian
pembelian sehingga membuat pelanggan pergi.
Percepatan penagihan Piutang Pelanggan yang terlambat sebesar $80,000 lebih disarankan dengan catatan
manajemen memiliki kemampuan penagihan piutang pelanggan tersebut.

3. Menghentikan promosi dan iklan selama akhir tahun memang akan menghemat beban $150,000,
akan tetapi dampak pada penjualan harus diperhatikan. Dengan menghilangkan promosi dan iklan,
Reliable dapat mengalami penurunan sales yang akan mempengaruhi ROI mereka.
Meningkatkan tingkat penjualan dengan memangkas beban promosi, Reliable harus memikirkan alternatif untuk hal
ini.
4.

Kowloon Manufacturing
Pearl River Enterprises

Projected
Sales

Projected Operating
Expenses

3,000,000 $
4,500,000

2,400,000
4,120,000

c= a-b

d
e= c/d
Projected
Projected
ROI
Invested
Operating Income
Capital
$
600,000 $ 5,000,000
12%
380,000
4,750,000
8%

Dari perhitungan di atas, Reliable disarankan untuk mengakuisisi kedua perusahaan tersebut (asumsi modal cukup
untuk akuisisi dua perusahaan tersebut). Dengan ROI sebesar 12% dan 8%, kedua perusahaan tersebut lebih kinerjanya
lebih baik dibanding Divisi Sport Goods Reliable sendiri dalam hal pengukuran pengembalian dari invested capital.

Problem 13-44
CBSL
Source of long-term capital: debt and equity
Debt issuance Cost: after-tax cost of the interest payments on the debt, interest payments are tax deductible
Equity capital: investment opportunity rate of CBSL investors, the rate they could earn on investments of similar risk to that of investing in Costa Brava Seafood,
Ltd.
CBSL's long term debt:
$
80,000,000
Interest rate:
9%
Company's tax rate:
40%
After-tax cost of debt capital:
(9%x(1-40%))
Cost of equity capital:
14%
5.40%
Market value (Book value) of equity:
$
120,000,000

Division
Properties
Food Service

Total Assets
Current Liabilities
$
145,000,000 $
3,000,000
64,000,000
6,000,000

Answers:
1.
Weighted Average Cost of Capital (WACC)
=
(After-tax cost of debt
(Market value of
capital)
debt)

=
=
=
2.

Before-Tax
Operating Income
$
29,000,000
15,000,000

(5.4%)
$
$

Market value of debt

($80,000,000)
$80,000,000

+
+

(Cost of equity
capital)
Market value of
equity
(14%)
$120,000,000

((Total Assets

(Market value
of equity)

($120,000,000)

21,120,000
200,000,000
10.56%

Economic Value Added (EVA)

=

Division
Properties
Food Service

After-tax operating
income
$29,000,000(1-40%)
$15,000,000(1-40%)

- (($145,000,000
- (($64,000,000

Current
Liabilities)
- $3,000,000)
- $6,000,000)

WACC)

x
x

10.56%)
10.56%)

=
=
=

EVA
$
$

2,404,800
2,875,200

Division
Properties
Food Service

Before-Tax Operating
Income
$
30,000,000
14,000,000

Economic Value Added (EVA)

=

Division
Properties
Food Service

After-tax operating
income
$30,000,000(1-40%)
$14,000,000(1-40%)

((Total Assets

- (($145,000,000
- (($64,000,000

Current
Liabilities)
- $3,000,000)
- $6,000,000)

WACC)

x
x

10.56%)
10.56%)

=
=
=

EVA
$
$

3,004,800
2,275,200

Problem 13-47
Cortez Enterprises
Divisions:
Selling price per unit
Variable cost
Product Demands
Transfer Price

Birmingham
$
775
$
500
Exceed division ability
$
750

1. Contribution Margin:
Jika Birimingham menjual Diode reducer
ke pasar eksternal
Selling price/unit:
$
Less: Variable cost
$
Contribution margin:
$

775
500
275

Manchester
$
1,400
Add $ 670
Integration into satellite positioning system

Jika Birimingham menjual Diode reducer

ke Manchester Division
Selling price/unit:
$
Less: Variable cost
$
Contribution margin:
$

750
500
250

Dari perhitungan di atas, dapat dilihat bahwa walaupun harga jual satellite positioning system lebih tinggi daripada
diode reducer, contribution margin yang dihasilkan apabila diode reducer dijual langsung ke pasar eksternal lebih tinggi
daripada diintegrasikan ke dalam produk satellite positioning system. Namun, dengan pertimbangan Birmingham yang
tidak dapat memenuhi kapasitas permintaan diode reducer langsung ke pasar eksternal, maka sebaiknya Birmingham
manajer ke Manchester.
2. Contribution margin untuk divisi Manchester:
Selling price:
$
1,400
Variable Cost
$
1,420
Contribution margin:
$
(20)
Dengan transfer price $ 750, Manajer divisi Manchester dapat menolak tawaran dari divisi Birmingham.
Karena divisi Manchester sebenarnya mendapatkan rugi sebesar $ 20. Sebagai alternatif,
Divisi Manchester dapat memilih untuk menjual ke pasar eksternal ataupun menegosiasikan ulang
besaran transfer price yang akan disepakati.
3. Apabila transfer price yang disepakati lebih rendah, top management seharusnya tidak menurunkan
harga jual satellite Manchester. Agar contribution margin Manchester menjadi positif, manajemen
puncak dapat menjaga harga jual tetap atau menaikkan harga jual ke pasar eksternal lebih dari $ 1.400.
Untuk divisi Birmingham, penurunan transfer price berakibat pada penurunan contribution margin,
akan tetapi manajemen puncak dapat menetapkan agar transfer price tetap berada di atas biaya variabel
diode reducer.
4. Cortez Enterprises akan lebih mendapatkan keuntungan dengan penjualan diode reducer ke pasar eksternal. Dengan
harga $775, contribution margin yang diperoleh sebesar $275 ($775-$500) lebih besar daripada menjual ke divisi
Manchester $250 ($750-$700). Namun, perlu diperhatikan kemampuan divisi Birmingham dalam memenuhi
permintaan pasar eksternal yang sudah melampaui kapasitas divisi.

The Company
Las Ferreterias de Mexico, S.A. de C.V. (Ferreterias)
Company's Information:
- Retailer of lumber, building materials, and home improvement products and equipment
- Founded in 1902 and listed on the Mexican Stock Exchange in 1983
- Each stores offered between 10,000 to 20,000 stock keeping units (SKUs)
- In 2012, Ferreterias had sales of 2.210 million pesos and profits of almost 120 million pesos
- Store managers were given autonomy to manage store's personnel and adapt merchandise offerings
inventory levels, and advertising and promotional activities. Also, reducing prices to move excess inventory or meet compet
- Employees were paid a base salary or hourly wage plus a bonus based on a share of the company's
overall profits. Ranging 2-5 % of base salary, depending on organization level.
- Additionaly, discretionary bonus awards to employees whose performance was exemplary.
Exhibit 1

Exhibit 2
Las Ferreterias de Mexico, S.A. de C.V.
Income Statement as of 12/31/2002 (Ps 000)

Net Sales
Costs of Sales
Gross Margin
Selling, General and Administrative
Expenses
Depreciation Expense
Interest Expense
Total Expenses
Earnings before Taxes
Income Tax Provision
Net Earnings after Taxes

Las Ferreterias de Mexico,

Balance Sheet as of 12/31/2
2,216,540
1,582,670
633,870
377,580
65,740
14,320
457,640
176,230
58,240
117,990

Assets
Current Assets
Cash and Cash Equivalents
Short-Term Investments
Accounts Receivable
Merchandise Inventory
Property, less accumulated
depreciation
Long-Term Investments
Other Assets
Total Assets
Liabilities
Accounts Payable
Other Current Liabilities
Long-Term Debt
Other Long-Term Liabilities

Shareholders' Equity
Preferred Stock ($10 par;
300,000 shares issued)
Common Stock ($20 par;
1,000,000 shares issued)
Retained Earnings
Total Liabilities and
Shareholder's Equity

A New Incentive Plan

- Consulting firm reported that it was difficult to assess the performance-based compensation plan
- The recommendation was they work first designing an incentive plan for individual store managers (82), regional managers
and corporate staff managers (5).
- Management incentive plan features:
1. Bonus Pool
4,000,000 Pesos
+ 8% of corporate income before bonuses and taxes
in excess of
120,000,000 Pesos
Total Bonus Pool would be divided into 3 classes:
Store Managers
70%
Regional Managers
15%
Corporate Staff Managers
15%

2. ROI measure of Performance. Bonus pools assigned to managers based on their ROI:
= Bonus-eligible revenues - Expenses
Total Store Investments
a Bonus-eligible revenues: Include all shipments from the store except sales orders
written by regional or headquarters personnel.
b Expenses: Include all direct store costs and all regional and headquarters costs.
c Investment: at each store includes:
1. Annual avg month-end cash balances
2. Inventory in stock
3. accounts receivable associated with bonus-eligible revenues
4. Equipment
5. Furniture
6. Fixtures
7. Buildings
8. Land
3. Allocation of the bonus pool.
- All managers whose stores earned at least 5% ROI would earn one bonus unit
- Each full % above 5%, managers would earn additional bonus unit, max. 6 bonus unit
- 2002 stores' ROI distribution:
ROI
N
< 5%
6
5-6%
6
6-7%
9
7-8%
11
8-9%
20
9-10%
15
10-11%
8
11-12%
4
>12%
3
82
- Regional managers' bonus pool would be divided among regional managers based on
Proportion: Bonus units earned by stores in their region
Total bonus units earned by all stores
- Allocation of corporate staff bonus pool: Decided by Fernando Gonzalez based on

corporation's annual ROI performance.

4. Form of the awards

Answers:

Paid in cash as soon as Fin. Statements were prepared and audited and the amounts
could be calculated.

ess inventory or meet competition.

Las Ferreterias de Mexico, S.A. de C.V.

Balance Sheet as of 12/31/2002 (Ps 000)

nd Cash Equivalents
Term Investments
nts Receivable
andise Inventory

79,880
5,430
16,550
387,550
489,410

ess accumulated
Investments

ent Liabilities

-Term Liabilities

Stock ($10 par;

0 shares issued)
tock ($20 par;
000 shares issued)

tal Liabilities and

Shareholder's Equity

857,650
8,720
14,060
1,369,840

211,260
57,860
384,350
67,140
720,610

30,000
200,000
419,230
649,230
1,369,840

agers (82), regional managers (9),

me before bonuses and taxes

store except sales orders

quarters personnel.
nd headquarters costs.

bonus-eligible revenues

d earn one bonus unit

bonus unit, max. 6 bonus units.

g regional managers based on

rnando Gonzalez based on

nd audited and the amounts