BSG quiz 2

| August 31, 2017

Question
PRACTICE SIMULATION QUIZ#2: The actual quiz is an open-book on-line quiz. You will need acalculator to take the quiz, as many of the questions involve calculations.It has a time limit of 105 minutes, and checks if players understand what the numbers in the companyreports mean and how they are calculated. To do well on Quiz#2, students must have read the HELPscreens to be sure they understand where all the numbers are coming from, how costs are allocated,and how to use the information to good advantage. The simulation website says this about Quiz#2:“This ‘open book’ 20-question multiple choice quiz aims at testing your understanding and grasp ofthe Company Reports, the information on page 5 of the Footwear Industry Report, and exchange rateadjustments. The purpose of the quiz is to push you to gain a strong grasp of your company’s revenuecost-profit economics (the more you understand the company’s business—in terms of how thenumbers are calculated and what they mean, the better prepared you are to make solid decisions).Prior to taking Quiz 2, be sure to print the “?/Help” screens for• page 5 of the Footwear Industry Report (this Help screen has all the financial ratio formulasand explains how the credit rating measures are calculated—7 of the 20 quiz questions involve thevarious financial ratios and credit rating measures),• the Plant Operations Report,• the Branded Sales Report,• the Private-Label Sales Report,• the Marketing and Admin report, and• the financial statements (Income Statement, Balance Sheet, and Cash Flow).Most all of the quiz questions pertain to the information on the Help screens for these reports. It isunlikely that you will score well on Quiz 2 without having printouts of these ?/Help screens in front ofyou when you take the quiz. You might also want to have a copy of the Player’s Guide available forreference.“In preparing for Quiz 2, be sure you understand how costs are allocated between branded and privatelabelfootwear—cost allocations are fully explained on the ?/Help screens for the Plant operationsreport, the Branded Sales report, the Private-Label report, and the Marketing and Admin Report.“Some questions on Quiz 2 will relate to the company’s Financial Statements (again the “?/Help”screens for these reports will be most informative and helpful), and 7 of the quiz questions will relateto page 5 of the FIR (particularly as concern the calculations of the three factors underlying the creditrating and the various ratios at the bottom of p.5 of the FIR).“You can also expect questions about exchange rate adjustments (which are explained in some detailon several “?/Help” screens, especially the one for Private-Label Sales).Three sample questions are provided below.“WARNING: Be sure to print the “?/Help” screens for page 5 of the Footwear Industry Report, thePlant Operations Report, the Branded Sales Report, the Private-Label Sales Report, the Marketing andAdmin reports, and the Financial Statements before you start the quiz. Most of the quiz questions aretaken directly from information on the Help screens for these reports. It will be extremely difficult foryou to earn a respectable score on Quiz 2 without having printouts of these ?/Help screens in front ofyou when you take the quiz.”There are three sample questions online. After these three, I put 20 more practice questions for yourreview. They start on the next page.Sample Questions:1. Exchange rate shifts that cause the Sing$ to be weaker versus the Brazilian reala. make the export of footwear from Asia-Pacific plants to Latin America less competitive and give rise tonegative/favorable exchange rate cost adjustments.b. make the export of footwear from Asia-Pacific plants to Latin America less competitive and give rise topositive/unfavorable exchange rate cost adjustments.c. make the export of footwear from Asia-Pacific plants to Latin America more competitive and give rise tonegative/favorable exchange rate cost adjustments.d. make the export of footwear from Asia-Pacific plants to Latin America less competitive and give rise tonegative/unfavorable exchange rate cost adjustments.e. None of the above is accurate.2. Given the following Year 12 Financial Statement data for a footwear company:Income Statement Data Year 12(in 000s)Net Revenues from Footwear Sales $ 350,000Operating Profit (Loss) 100,000Net Profit (Loss) 63,000Balance Sheet DataCash on Hand 10,000Total Current Assets 70,000Total Assets 313,000Overdraft Loan Payable 5,0001-Year Bank Loan Payable 10,000Current Portion of Long-term Loans 17,000Total Current Liabilities 48,000L-T Bank Loans Outstanding 90,000Shareholder Equity:Year 11BalanceYear 12BalanceCommon Stock 10,000 0 10,000Additional Capital 123,000 0 123,000Retained Earnings 29,000 13,000 42,000Total Shareholder Equity 162,000 +13,000 175,000Other Financial DataDepreciation 11,650Dividend Payments 15,000Based on the above figures, the company’s “free cash flow” in Year 12 wasa. $63,000b. ($3,350)c. $59,650d. $38,500e. None of these.3. Assume a company has 12 million shares of stock outstanding and that its Income Statement for Year 12 is as follows:Income Statement DataYear 12(in 000s)Net Revenues from Footwear Sales $ 360,000Cost of Pairs Sold 200,000Warehouse Expenses 16,000Marketing Expenses 52,000Administrative Expenses 8,000Operating Profit (Loss) 84,000Interest Income (expenses) (14,000)Pre-tax Profit (Loss) 70,000Income Taxes 21,000Net Profit (Loss) $ 49,000Based on the above income statement data, the company’s net profit margin and EPS area. 13.6% and $4.08.b. 17.2% and $5.40.c. 23.3% and $7.00.d. 19.4% and $5.83.e. None of the above.PRACTICE QUESTION#1Which of the following statements regarding how plant costs are allocated between branded and private-labelfootwear is false?The total amount the company spends for production-run set-up is allocated between brandedproduction and private-label production according to their respective percentages of total pairsproduced—thus, if 80% of the total pairs produced at a plant are branded then 80% of totalproduction run set-up costs are allocated to branded production.Total plant maintenance costs are allocated between branded production and private-label productionaccording to their respective percentages of total pairs produced—thus, if 90% of the total pairsproduced at a plant are branded then 90% of total plant maintenance costs are allocated to brandedproduction.Annual depreciation costs are allocated between branded production and private-label productionaccording to their respective percentages of total pairs produced—thus, if 85% of the total pairsproduced at a plant are branded then 85% of annual depreciation costs are allocated to brandedproduction.Annual plant supervision costs are allocated between branded production and private-labelproduction according to their respective percentages of total pairs produced—thus, if 95% of the totalpairs produced at a plant are branded then 95% of annual plant supervision costs are allocated tobranded production.The total amount the company spends for best practices training is allocated between brandedproduction and private-label production according to their respective percentages of total pairsproduced—thus, if 88% of the total pairs produced at a plant are branded then 88% of best practicestraining costs are allocated to branded production.PRACTICE QUESTION#2Assume a company has 10 million shares of stock outstanding and that its Income Statement for Year 12 is as follows:Income Statement DataYear 12(in 000s)Net Revenues from Footwear Sales $ 330,000Cost of Pairs Sold 240,000Warehouse Expenses 15,000Marketing Expenses 35,000Administrative Expenses 8,000Operating Profit (Loss) 32,000Interest Income (expenses) (10,000)Pre-tax Profit (Loss) 22,000Income Taxes 6,600Net Profit (Loss) $ 15,400Based on the above income statement data, the company’s operating profit margin and EPS are9.70% and $1.54.9.70% and $2.20.6.67% and $1.54.9.70% and $3.20.None of the above.PRACTICE QUESTION#3Which of the following statements regarding your company’s administrative costs is false?The company’s accounting system allocates all administrative expenses to branded footwear; noadministrative expenses are allocated to private-label footwear.Administrative expenses are allocated to each region based on each region’s percentage of totalcompanywide branded sales; thus, if 24% of the company’s branded sales are in Asia-Pacific, thenAsia-Pacific is allocated 24% of companywide administrative expenses.Within a region, administrative expenses are allocated between online branded sales and wholesalebranded sales based on their respective proportion of total branded sales in the region; thus if 80% oftotal branded sales in a region were sales to area retailers, then 80% of the region’s totaladministrative expenses would be allocated to the wholesale segment and 20% would be allocated tothe Internet segment.The “Other Corporate Overhead” category of administrative costs always averages $1 per pair ofplant capacity (not including overtime); other Corporate Overhead changes by $1 per pair in the sameyear as any new plant capacity comes online (new or used) and in the same year that any capacity issold off to the merchants of used footwear-making equipment.Administrative costs are allocated between branded production and private-label productionaccording to their respective percentages of total pairs sold.thus, if 65% of the total pairs sold arebranded then 65% of annual administrative costs are allocated to branded footwear.PRACTICE QUESTION#4Assume a company has total administrative expenses of $5.0 million annually and its shipments to retailers are as follows:Year 12North AmericaBranded 1,200,000Private-label 250,000Europe-AfricaBranded 1,200,000Private-label 250,000Asia-PacificBranded 800,000Private-label 250,000Latin AmericaBranded 800,000Private-label 250,000TotalsBranded 4,000,000Private-label 1,000,000Then the company’s $5.0 million in total administrative expenses would result inallocations of $1.25 million in administrative expenses to each of the four regions.administrative expenses of $1.25 per branded pair and $0.00 per private-label pair in all fourgeographic regions.administrative expenses of $0.1.20 per branded pair in North America and Europe-Africa and $0.1.30per branded pair in the Latin America and Asia-Pacific regions.$4 million in administrative expenses being allocated to branded footwear and $1 million to privatelabelfootwear.None of the above.PRACTICE QUESTION#5Which one of the following actions is least likely to result in lower production costs per branded pair at one ofyour company’s plants?The installation of plant upgrade option BA 3% increase in the annual base wage that is accompanied by a 2.5% increase in worker productivityIncreased spending for best practices trainingReducing the number of branded models/styles produced from 350 to 250A lower percentage use of superior materialsPRACTICE QUESTION#6When exchange rate shifts result in a weaker US$ and a stronger euro, then the euros collected on footwearsales in Europe-Africa, when converted into US$,result in foreign exchange gains that have the effect of enhancing company revenues and profits.result in foreign exchange losses that have the effect of reducing company revenues and profits.result in foreign exchange losses that have the effect of enhancing company revenues and profits.result in foreign exchange gains that have the effect of reducing company revenues and profits.None of the above is accurate.PRACTICE QUESTION#7If a company generates revenues of $270 million in Year 11, revenues of $300 million in Year 12, and revenuesof $320 million in Year 13, then its cash receipts from footwear sales will be$295 million in Year 13.$270 million in Year 11, $300 million in Year 12, and $320 million in Year 13.$270 million in Year 12, $300 million in Year 13, and $320 million in Year 14.$315 million in Year 13.$290 million in Year 13.PRACTICE QUESTION#8Given the following Year 12 Financial Statement data for a footwear company:Income Statement Data Year 12 (in000s)Net Revenues from Footwear Sales $ 300,000Operating Profit (Loss) 70,000Net Profit (Loss) $ 42,000Balance Sheet DataCash on Hand 10,000Total Current Assets $ 70,000Total Assets 300,000Overdraft Loan Payable 5,0001-Year Bank Loan Payable 10,000Current Portion of Long-term Loans 17,000Total Current Liabilities 48,000L-T Bank Loans Outstanding 72,000Shareholder Equity: Year 11BalanceYear 12ChangeCommon Stock 10,000 0 10,000Additional Capital 108,000 0 108,000Retained Earnings 30,000 32,000 62,000Total Shareholder Equity 148,000 +32,000 180,000Other Financial DataDepreciation $11,500Dividend payments $10,000Based on the above figures, the company’s default-risk ratio in Year 12 was1.31.1.67.1.56.1.36.None of these.PRACTICE QUESTION#9Exchange rate shifts that cause the Brazilian real to be weaker versus the US$make the export of footwear from Latin American plants to North America less competitive and giverise to negative/unfavorable exchange rate cost adjustments.make the export of footwear from Latin American plants to North America less competitive and giverise to positive/unfavorable exchange rate cost adjustments.make the export of footwear from Latin American plants to North America more competitive and giverise to positive/favorable exchange rate cost adjustments.make the export of footwear from Latin American plants to North America more competitive and giverise to negative/favorable exchange rate cost adjustments.None of the above is accurate.PRACTICE QUESTION#10Given the following Year 12 balance sheet data for a footwear company:Balance Sheet DataCash on Hand 2,000Total Current Assets $ 78,000Total Assets 315,000Overdraft Loan Payable 4,0001-Year Bank Loan Payable 8,000Current Portion of Long-Term Loans 13,000Total Current Liabilities 48,000L-T Bank Loans Outstanding 105,000Shareholder Equity: Year 11BalanceYear 12ChangeCommon Stock 10,000 0 10,000Additional Capital 100,000 0 100,000Retained Earnings 30,000 22,000 52,000Total Shareholder Equity 140,000 +22,000 162,000Based on the above figures, the company’s debt-assets ratio is33.3%.41.3%.37.5%.40.0%.None of these.PRACTICE QUESTION#11Given the following Year 12 Financial Statement data for a footwear company:Income Statement Data Year 12 (in000s)Net Revenues from Footwear Sales $ 340,000Operating Profit (Loss) 80,000Net Profit (Loss) $ 49,000Balance Sheet DataCash on Hand 3,000Total Current Assets $ 70,000Total Assets 310,000Overdraft Loan Payable 1,0001-Year Bank Loan Payable 16,000Current Portion of Long-term Loans 10,000Total Current Liabilities 51,000L-T Bank Loans Outstanding 70,000Shareholder Equity: Year 11BalanceYear 12ChangeCommon Stock 10,000 0 10,000Additional Capital 120,000 0 120,000Retained Earnings 30,000 29,000 59,000Total Shareholder Equity 160,000 +29,000 189,000Based on the above figures, the company’s ROE in Year 12 was42.3%.14.0%.28.1%.25.9%.None of these.PRACTICE QUESTION#12Given the following exchange rate changes:Year 1 Year 2Euros (€) per US$ 0.8210 0.8185Sing$ per Brazilian real 0.5660 0.5710Brazilian real per euro (€) 3.7050 3.7150US$ per Sing$ 0.5910 0.5880Then it follows that:The euro has grown stronger versus the US$.The Brazilian real has grown weaker against the Sing$.The Brazilian real has grown stronger versus the euro.The euro has grown weaker against the Brazilian real.The Sing$ has grown stronger versus the US$ and the Brazilian real.PRACTICE QUESTION#13If a company adds new plant capacity at a cost of $45 million, then its annual depreciation costs will rise by$1,800,000.$2,250,000.$180,000.$225,000.None of these.PRACTICE QUESTION#14If a company spends $5 million on advertising in a given geographic region, sells 600,000 branded pairs onlinein the region, and sells 2.4 million branded pairs to footwear retailers in the region, then20% of the company’s advertising expenditures would be allocated to Internet marketing and advertisingcosts per online pair sold would be $1.67.20% of the company’s advertising expenditures would be allocated to Internet marketing and advertisingcosts per online pair sold would be $1.60.25% of the company’s advertising expenditures would be allocated to Internet marketing and advertisingcosts per online pair sold would be $0.60.advertising costs per pair sold online would be $1.67 and advertising costs per pair sold to retailers wouldbe $0.80.None of these.PRACTICE QUESTION#15In supplying private-label footwear to chain retailers, the sizes of a company’s margins over direct costs shouldbe viewed asthe net profit a company earns on private-label sales.the money available to add to the company’s retained earnings.free cash flow, to be used as the company sees fit.how much private-label sales added to the company’s pretax profits, assuming that the company’smargins on branded footwear were sufficient to cover all administrative expenses and all interest costs.how much the company received from private-label sales over and above materials costs and direct laborcosts—these dollars can be used to help cover the company’s income taxes and dividend payments.PRACTICE QUESTION#16Assume a company’s Income Statement for Year 12 is as follows:Income Statement DataYear 12(in 000s)Net Revenues from Footwear Sales $ 330,000Cost of Pairs Sold 240,000Warehouse Expenses 15,000Marketing Expenses 35,000Administrative Expenses 8,000Operating Profit (Loss) 32,000Interest Income (expenses) (10,000)Pre-tax Profit (Loss) 22,000Income Taxes 6,600Net Profit (Loss) $ 15,400Based on the above data, which of the following statements is false?Cost of pairs sold are 72.7% of net revenues.Warehouse expenses are 4.5% of net revenues.Marketing costs are 10.6% of net revenues.Administrative expenses are 2.4% of net revenues.Interest expenses are 2.8% of net revenues.PRACTICE QUESTION#17Assume a company’s Income Statement for Year 12 is as follows:Income Statement DataYear 12(in 000s)Net Revenues from Footwear Sales $ 290,000Cost of Pairs Sold 180,000Warehouse Expenses 16,000Marketing Expenses 42,000Administrative Expenses 8,000Operating Profit (Loss) 44,000Interest Income (expenses) (10,000)Pre-tax Profit (Loss) 34,000Income Taxes 10,200Net Profit (Loss) $ 23,800Based on the above income statement data, the company’s interest coverage ratio is2.38.290.0.4.40.3.40.None of the above.PRACTICE QUESTION#18If a company pays a production worker a base wage of $3,000 and a piecework incentive of $0.25 per pair, if aproduction worker’s annual productivity is 3,000 pairs per year, and if a plant’s reject rate averages 5%, then theaverage annual compensation of production workers would be$3,450.$3,712.50.$3,750.$3,850.None of the above.PRACTICE QUESTION#19The accounts payable entry on the company’s balance sheet representsthe amount due for income taxes on prior-year profits.the amounts due shareholders for dividends declared the prior-year and payable in the current year.the amounts due for interest on loans outstanding that becomes due in the first quarter of the upcomingyear, plus the amount that the company has designated to be put into its retained earnings account.25% of the year’s materials costs incurred in making branded and private-label footwear that are owed tosuppliers and that will be paid for in the first quarter of the upcoming year (payments for materialsdelivered by suppliers are not due and payable for 90 days following delivery).the principal payments due on loans outstanding.PRACTICE QUESTION#20Which one of the following is included as part of a company’s cost in supplying private-label footwear to chainretailers?Advertising expendituresCosts for celebrity endorsement contractsExpenditures for retailer supportPlant supervision costs, plant maintenance, and plant depreciationAdministrative expenses

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