Busn 278 midterm exam ANSWER

Grading Summary

These are the automatically computed results of your exam. Grades for essay questions, and comments from your instructor, are in the "Details" section below.

Date Taken:

11/24/2012

Time Spent:

1 h , 15 min , 25 secs

Points Received:

190 / 190  (100%)

Question Type:

# Of Questions:

# Correct:

Multiple Choice

6

6

Essay

6

N/A

Grade Details - All Questions

 1.

Question :

(TCO 1) It is important that budgets be accepted by:

Student Answer:

Division managers

Department heads

Supervisors

All of these

Instructor Explanation:

Chapter 1, Page 9

Points Received:

5 of 5

Comments:

 2.

Question :

(TCO 2) The qualitative forecasting method that individually questions a panel of experts is ________________

Student Answer:

executive opinions.

sales force polling.

the Delphi method.

consumer surveys.

Instructor Explanation:

Chapter 14, Page 230

Points Received:

5 of 5

Comments:

 3.

Question :

(TCO 3) The regression statistic that measures how many standard errors the coefficient is from zero is the ________________

Student Answer:

correlation coefficient.

coefficient of determination.

standard error of the estimate.

t-statistic.

Instructor Explanation:

Chapter 16, Page 247

Points Received:

5 of 5

Comments:

 4.

Question :

(TCO 4) Which of the following statements regarding research and development is incorrect?

Student Answer:

R&D should be greater in high-technology divisions.

R&D should focus on the current products.

R&D should be consistent with the department’s goals.

A critical aspect of R&D is assessing risk.

Instructor Explanation:

Chapter 11, Page 185

Points Received:

5 of 5

Comments:

 5.

Question :

(TCO 5) Priority budgeting that ranks activities is known as:

Student Answer:

Top-down budgeting

Bottom-up budgeting

Zero-base budgeting

Participative budgeting

Instructor Explanation:

Chapter 21, Page 321

Points Received:

5 of 5

Comments:

 6.

Question :

(TCO 6) Which of the following is a disadvantage of the payback technique?

Student Answer:

It is difficult to calculate.

It relies on the time value of money.

It can only be calculated when there are equal annual net cash flows.

It ignores the expected profitability of a project.

Instructor Explanation:

Chapter 20, Page 296

Points Received:

5 of 5

Comments:

 7.

Question :

(TCO 1) There are several approaches that may be used to develop the budget. Managers typically prefer an approach known as participative budgeting.  Discuss this form of budgeting and identify its advantages and disadvantages.

Student Answer:

Participative budgeting is a budgeting strategy that promotes contribution and change from lower-level employees in an organization. Thus, it involves owners and managers but as well the operational employees within the organization and employees can feel a greater connection with the company, improving morale within the organization at the same time. When creating a participative budget, the organization will get involved employees from all areas of operation within the company to provide input. Employees will be able to assist managers and owners measure company budgetary needs for the future budgetary period. One of the advantages of this participation is that it permits the organization to pinpoint possible money-saving and efficiency-increasing strategies. While employees have more input in participative budgeting, the company's owners and managers end to have the ultimate decision concerning budget approval.

Instructor Explanation:

Participative budgeting is a bottom-up approach to budgeting where departmental managers provide input for their budget. The benefit of this approach is that managers typically have more experience and knowledge regarding the daily operations of their department, which allows them to create a more realistic budget. In addition, managers who participate in the budget process are more motivated to achieve budget goals, and there is usually greater support for the budget.
 
A disadvantage of participative budgeting is that it can often be time-consuming and costly. In addition, if budgets are used as a means of performance evaluation, it may encourage budgetary slack, where managers underestimate sales and overestimate costs to create budget values that are easier to obtain. 
 

Points Received:

20 of 20

Comments:

 8.

Question :

(TCO 2) There are a variety of forecasting techniques that a company may use. Identify and discuss the three main quantitative approaches used for time series forecasting models.

Student Answer:

Quantitative techniques work with past data and generalize future trends. Quantitative forecasting can be broken down into two further varieties: the time series approach and a causal model. Time series forecasting focuses on trends, cycles and seasonality in revenue figures, while seeking to account for randomness, all on the general supposition that patterns of revenue collection recorded in prior years will hold true for the years to come. The most common time-series approach among localities is that of a moving average that is, an average in which the older terms in a series are dropped off as new terms are added. Any quantitative forecasting method that uses some variant of the equation Y = f(X) is a causal model. Y is the future revenue at issue. X is the explanatory variable, of which Y is then a function. X might be the U.S. consumer price index, the real per capita income for the municipality or state making the estimate, or the population of either the nation or the locality. Variables might play a part. In that situation, forecasting requires a data history or time series for each variable and a set of mathematical expressions that states their past relationships.

Instructor Explanation:

The moving average model uses actual sales from recent time periods to predict future sales, assuming that each time period has an equal influence on the prediction of futures sales. The weighted moving average model also uses actual sales from recent time periods to predict future sales, but it assumes that the closest time period is a more accurate predictor of future sales than previous time periods. The exponential smoothing model uses a smoothing constant called alpha as an adjustment when determining the forecast.  We assign a value to alpha based on our assumption of the relationship between sales in one period and sales in the next period.  A higher value is assigned to alpha when we believe that current sales are more predictive of future sales, and a lower value is assigned to alpha when we believe that a smoothed forecast is more predictive of future sales.

Points Received:

20 of 20

Comments:

 9.

Question :

(TCO 2) Use the table “Manufacturing Capacity Utilization” to answer the questions below.
 

Manufacturing Capacity Utilization

In Percentages

Day

Utilization

Day

Utilization

1

82.5

9

78.8

2

81.3

10

78.7

3

81.3

11

78.4

4

79.0

12

80.0

5

76.6

13

80.7

6

78.0

14

80.7

7

78.4

15

80.8

8

78.0

 
Part (a) What is the project manufacturing capacity utilization for Day 16 using a three day moving average? 
Part (b) What is the project manufacturing capacity utilization for Day 16 using a six day moving average?
Part (c) Use the mean absolute deviation (MAD) and mean square error (MSE) to determine which average provides the better forecast.

Student Answer:

Instructor Explanation:

Part (a) Using an excel spreadsheet to calculate the three day moving average, the forecast of manufacturing capacity utilization for Day 16 is 80.73%.
 
Part (b) Using an excel spreadsheet to calculate the six day moving average, the forecast of manufacturing capacity utilization for Day 16 is 79.88%.
 
Part (c) Using an excel spreadsheet, the three day moving average has a MAD of 1.16 and a MSE of 2.53.  The six day moving average has a MAD of 1.12 and a MSE of 1.59.  Therefore, the six day moving average provides a better forecast of manufacturing capacity utilization.
 

Points Received:

30 of 30

Comments:

 10.

Question :

(TCO 3) Use the table “Food and Beverage Sales for Luigi’s Italian Restaurant” to answer the questions below.
 
 

Food and Beverage Sales for Luigi’s Italian Restaurant

($000s)

Month

First Year

Second Year

January

218

237

February

212

215

March

209

223

April

251

174

May

256

174

June

216

135

July

131

142

August

137

145

September

99

110

October

117

117

November

137

151

December

213

208

 
Part (a) Calculate the regression line and forecast sales for February of Year 3.
Part (b) Calculate the seasonal forecast of sales for February of Year 3.
Part (c) Which forecast do you think is most accurate and why?

Student Answer:

(a) Slope = -2.86652 Intercept = 211.9565 The regression line is: Y = -2.86652X + 211.9565 (b) When X = 26, the sales of February 3 is Y =137 (c) The regression line method is more accurate. Sales forecasts do not suck because they’re wrong. They suck because they try to be too right. They create an impossible illusion of precision that eventually does hurt managers who need accurate forecasts to assist with planning. Even meteorologists, who are scientists with tons of historical data, extremely high powered computers and highly sophisticated statistical models, cannot forecast with the precision we retailers attempt to forecast. We do not have nearly the data, the tools or the models meteorologists have.

Instructor Explanation:

Part (a) Using an excel spreadsheet, the regression line is y = 211.96 – 2.87x.  Based on this regression line, the sales forecast for February of Year 3 is $137.43 (in thousands). 
 
Part (b) Using an excel spreadsheet, the seasonal forecast of sales for February of Year 3 is $156.62 (in thousands).
 
Part (c) Responses will vary. Students should discuss whether they believe there is a trend in the data.
 

Points Received:

30 of 30

Comments:

 11.

Question :

(TCO 6) Davis Company is considering two capital investment proposals. Estimates regarding each project are provided below:
 

Project A

Project B

Initial Investment

$800,000

$650,000

Annual Net Income

$50,000

45,000

Annual Cash Inflow

$220,000

$200,000

Salvage Value

$0

$0

Estimated Useful Life

5 years

4 years

 
The company requires a 10% rate of return on all new investments.
 
Part (a) Calculate the payback period for each project.
Part (b) Calculate the net present value for each project.
Part (c) Which project should Jackson Company accept and why?

Student Answer:

(A) Year Project A Discount rate PV 0 -800000 1 -800000 1 270000 0.909090909 245454.5 2 270000 0.826446281 223140.5 3 270000 0.751314801 202855 4 270000 0.683013455 184413.6 5 270000 0.620921323 167648.8 NVP 223512.4 Payback period 2.962963 years (B) Year Project A Discount rate PV 0 -650000 1 -650000 1 245000 0.909090909 222727.3 2 245000 0.826446281 202479.3 3 245000 0.751314801 184072.1 4 245000 0.683013455 167338.3 NVP 126617 Payback period 2.653061 years (C) Project A has higher NPV, thus the company should select that project.

Instructor Explanation:

Part (a) Project A payback period = $800,000 ÷ $220,000 = 3.64 years
                 Project B payback period = $650,000 ÷ $200,000 = 3.25 years
 
Part (b) Project A NPV = ($220,000 x 3.7908) - $800,000 = $33,976
             Project B NPV = ($200,000 x 3.1699) - $650,000 = ($16,020)
 
Part (c) – Based on the payback period, Project B appears to be the best option with a lower payback period.  However, based on the net present value, Project A is the best option because it has a much greater NPV.  Furthermore, Project B is unacceptable because it has a negative net present value.  While the payback period is useful as an initial screening tool, it does not consider the time value of money nor expected profitability.  Therefore, Davis Company should accept Project A.
 

Points Received:

30 of 30

Comments:

 12.

Question :

(TCO 6) Top Growth Farms, a farming cooperative, is considering purchasing a tractor for $468,000. The machine has a 10-year life and an estimated salvage value of $32,000. Top Growth uses straight-line depreciation. Top Growth estimates that the annual cash flow will be $78,000. The required rate of return is 9%.
 
Part (a) Calculate the payback period.
Part (b) Calculate the net present value.
Part (c) Calculate the accounting rate of return.

Student Answer:

(a)Pay Back Period:6 years (b)Net Present Value:46,094.45 (c)Accounting Rate of Return = Annual Cash Flows / Initial Investment Accounting Rate of Return = $78,000 / $468,000 Accounting Rate of Return:16.67%

Instructor Explanation:

Part (a) Payback period: $468,000 ÷ $78,000 = 6 years
 
Part (b) Net present value: Present value of cash flows = $78,000 x 6.4177 = $500,581
Present value of salvage value = $320,000 x .4224 = $13,517
Net Present value = $500,581 + $13,517 - $468,000 = $46,098
 
Part (c) Accounting rate of return: Average investment = ($468,000 + $32,000) ÷ 2 = $250,000
Annual depreciation = ($468,000 - $32,000) ÷ 10 = $43,600
Annual net income = $78,000 - $43,600 = $34,400
Accounting rate of return = $34,400 ÷ $250,000 = 13.76%
 

Points Received:

30 of 30

Comments: