Print Name __________________________
Owen Graduate School of Management
Vanderbilt University
Final Examination
Management 413
Final must be completed on or before 9:00 a.m. October 13, 2004
You are allowed to take three hours to complete this exam; you must use the three hours in one
block. You may use any materials we covered in the course, and you may use any notes you
took in the class. Total points on this exam: 126
This exam has two parts: Questions you answer, and supplemental materials you need for some
of the questions.
Please sign the following statement after you have completed the exam.
I have followed all requirements of the Owen School honor code in completing this exam, and I
used no more than three hours to complete the exam.
Name _______________________________________
Please return the exam to the box outside the door to Germain Böer’s office.
Question I (48 Points)
Use the budget schedules from K&R to answer these questions. Consider each question
separately unless one question specifically refers to another.
______________ 1. Ignore the constraint report for this question. What is the minimum
number of Benches that K&R must plan to sell in order to cover all the budgeted direct
(traceable) costs of Benches for the six-month period? Show computations to support your
answer.
______________ 2. What would be the impact on expected November segment contribution for
Jane Green if the expected cost of blue paint increased by ten percent?
______________ 3. How much will budgeted company profit decline for the month of July if
the Majestic Table is dropped from the product line?
4. You have the following actual data on sales for Jane Green for the month of October.
Jane Green
Foot Stool
Royal Bench
Budget
1,300
320
Actual
1,100
400
200
1,820
500
2,000
Total dollar sales
$ 58,800
$ 95,000
Variable marketing costs
Transportation--2%
Commissions--5%
$ 1,156
2,940
$ 1,880
4,750
35,440
39,536
54,000
60,630
$ 325
920
500
920
Majestic Table
Standard production costs times units
Total variable costs
Fixed marketing costs
Traceable to product
Promotion
Administration
Actual units sold times budgeted unit prices
$ 91,100
Answer the following questions using the K&R budget schedules and the above data:
___________________ How much did profit change because actual units sold differed from
budgeted units?
___________________ The proportions of units actually sold differs from that budgeted; write
the word “increase”, decrease, or no change in the blank at the left to indicate the profit impact of
the difference in units sold from budgeted.
___________________ How much did actual prices in total differ from the target prices for the
products.
2
______________ 5. Compute the dollar break-even sales for the West Territory for the month
of July.
______________ 6. Compute the dollar sales required for the West Territory for July if the
territory manager wants to generate a territory contribution of $40,000.
______________ 7. Compute the total dollar breakeven point for the six month period for the
total company.
_______________ 8. How much will the East Territory contribution for the total six months
change if the sales price of the Table rises to $120? Indicate whether the change is an increase or
decrease in territory contribution.
3
9. Why do the fixed costs on the budget schedules for the East Territory not equal the sum of the
fixed costs for Joe Brown and Jane Green, the salespeople who work in this territory?
_______________ 10. Suppose the company decides to spend another $5,000 in July on
advertising, how much will the July sales have to increase to cover this added expense?
4
Question II (48 Points)
Use the information in the supplemental materials for Question II (Albertsons Inc. and
Kroger Co.) to answer the following questions. Use the most recent year for all your
calculations. Consider each question separately unless one question specifically refers to another
one.
______________ 1. Compute the break-even point for Albertsons Inc. for the most recent year
using revenues and expenses related to operations only.
______________ 2. Compute the break-even point for Kroger Co. for the most recent year using
revenues and expenses related to operations only. Note that you must compute the gross profit
for Kroger since the income statement does not include this amount.
3. Which company will add the most to profit from a $10 million increase in sales? Circle
the name of the company that will get the biggest profit increase and explain why that
company will get the biggest profit increase.
Albertsons Inc.
Kroger Co.
5
4. Complete the following table and then compute the cash gap for each company. Place your
cash gap answer in the blank below the table.
Albertsons Inc.
Kroger Co.
Average number of days in receivables
Average number of days in payables
25.59
Average number of days in inventory
38.39
Compute the cash gap for each company
______________ Albertsons Inc. cash gap
______________ Kroger Co. cash gap (be sure to use FIFO inventory minus the LIFO credit to
get the net inventory for this calculation)
______________ 5. How much would the before tax operating income be for Albertsons if the
company had the same gross profit percentage that Kroger Co. has?
6
6. Kroger Co. plans to increase advertising by $10 million, and its marketing managers think
this will increase sales by $15 million. How much will before tax profits change if Kroger Co.
decides to make the added expenditure on advertising?
___________________ Profit change (Indicate whether it is positive or negative.)
Should the company increase its advertising by $10 million? Why?
Can you legitimately compare the gross profit calculations for Albertsons and Kroger? Yes or
no, and explain.
7
8. A Kroger store has limited shelf space on which to display product for sale. Assume
Kroger has 100 linear feet of shelf space that it can assign to only one of the following
products.
Product A
Product B
Estimated
Monthly Sales
$300,000
$350,000
Margin
Percentage
35%
40%
The store will spend $40,000 per month promoting Product B, but will spend nothing on
promoting Product A. Which product should get the shelf space? Justify your answer with
appropriate numerical analyses.
8
9. Assume Kroger introduces a new line of products that target the consumer interested in
low prices. The product line is a big hit and within months of introduction the product
makes up one-half of all sales for the company. Assume that the sales of this product
amount to $26,895.5 for the latest year and that cost of goods sold for these sales amounts
to $16,137.3 and that everything else on the income statement remains the same.
Use these data plus the data on the Kroger financial statements and Yahoo information to answer
the following questions.
_____________ Write UP or DOWN in the blank at the left to indicate whether the break-even
point for Kroger will go up or down because of this new product line.
______________ Compute the new gross profit for the company in dollars.
______________ Compute the new before tax amount for Kroger.
______________ Compute the new after tax net income for Kroger
9
______________ What is the current market capitalization for Kroger
______________ What is the new market capitalization for Kroger after introducing the new
line of products?
Question III (15 Points)
How does XBRL help companies to improve their profits?
10
Question IV (15 Points)
Why is Joerg losing money? Provide computations to support your answer.
11
Supplemental Materials
Management 413
Management Accounting
Final Exam
October 12, 2004
ALBERTSONS INC /DE/
CONSOLIDATED BALANCE SHEETS
January 29,
January 30,
(In millions, except par value data)
2004
2003
---------------------------------------- ------------------- -----------------<S> <C>
<C>
ASSETS
Current Assets:
Cash and cash equivalents
$
289
$
162
Accounts and notes receivable, net
683
647
Inventories
3,035
2,973
Assets held for sale
69
120
Prepaid and other
343
366
---------------------------------------- ------------------- -----------------Total Current Assets
4,419
4,268
Land, buildings and equipment, net
9,145
9,029
Goodwill1,
400
1,399
Intangibles, net
130
214
Other assets
300
301
----------------------------------------- ------------------- -----------------Total Assets
$ 15,394
$ 15,211
========================================= =================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$ 1,774
$ 1,993
Salaries and related liabilities
659
615
Self-insurance
262
244
Current maturities of long-term debt and capital
lease obligations 520
119
Other current liabilities
`
470
477
---------------------------------------- ------------------- -----------------Total Current Liabilities
3,685
3,448
Long-term debt
4,452
4,950
Capital lease obligations
352
307
Self-insurance
469
367
Other long-term liabilities and deferred cr.
1,055
942
Commitments and contingencies
Stockholders' Equity:
Preferred stock - $1.00 par value; authorized - 10 shares; designated 3 shares of Series A Junior Participating; issued - none - - Common stock $1.00 par value; authorized - 1,200 shares; issued 368 shares and 372 shares, respectively
368
372
Capital in excess of par
155
128
Accumulated other comprehensive loss
(109)
(96)
Retained earnings
4,967
4,793
------------------------------------------ ------------------- -----------------Total Stockholders' Equity
5,381
5,197
------------------------------------------ ------------------- -----------------Total Liabilities and Stockholders' Equity
$ 15,394
$ 15,211
1
ALBERTSONS INC /DE/
CONSOLIDATED EARNINGS
For the 52 weeks ended
January 29,
(In millions, except per share data)
2004
--------------------------------------------- ----------------Sales
$ 35,436
Cost of sales
25,306
--------------------------------------------- ----------------Gross profit
10,130
Selling, general and administrative expenses
8,822
Restructuring (credits) charges
(10)
Gain on sale of New England Osco drugstores
Merger-related credits
--------------------------------------------- ----------------Operating profit
1,318
Other expenses:
Interest, net
(409)
Other, net
(3)
--------------------------------------------- ----------------Earnings from continuing operations before taxes
906
Income tax expense
350
--------------------------------------------- ----------------Earnings from continuing operations
556
Discontinued operations:
Operating (loss) income
Loss on disposal
Income tax (benefit) expense
--------------------------------------------- ----------------(Loss) earnings from discontinued operations
--------------------------------------------- ----------------Earnings before cum effect of change in accounting
556
principle
Cumulative effect of change in accounting principle (net of
tax of $60)
--------------------------------------------- ----------------Net Earnings
$
556
============================================= =================
2
January 30,
January 31,
2003
2002
--------------- -----------------$ 35,626
$ 36,605
25,248
26,179
--------------- -----------------10,378
10,426
8,598
8,731
(37)
468
(54)
(15)
--------------- -----------------1,817
1,296
(396)
(425)
(16)
(8)
--------------- -----------------1,405
863
540
367
--------------- -----------------865
496
(50)
10
(379)
(143)
5
--------------- -----------------(286)
5
--------------- -----------------579
501
(94)
--------------- -----------------$
485
$
501
=============== ==================
ALBERTSONS INC /DE/
Consolidated Cash Flows
For the 52 weeks ended
January 29,
January 30,
January 31,
(In millions)
2004
2003
2002
-------------------------------------------- ------------------ -----------------Cash Flows From Operating Activities:
Net earnings
$ 556
$ 485
$ 501
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization
969
943
913
Net deferred income taxes
172
100
(129)
Other noncash charges
48
21
42
Stock-based compensation
25
19
19
Goodwill amortization
56
Gain on curtailment of postretirement benefits (36)
(36)
Net gain on asset sales
(24)
(9)
(54)
Restructuring (credits) charges
(8)
(16)
424
Discontinued operations noncash charges
365
54
Cumulative effect of change in acctg principle
94
Changes in operating assets and liabilities:
Receivables and prepaid expenses
(38)
21
(110)
Inventories
(62)
112
40
Accounts payable
(242)
(100)
(68)
Other current liabilities
29
(88)
287
Self-insurance
120
106
71
Unearned income
25
32
3
Other long-term liabilities
(11)
(25)
(4)
---------------------------------------------- ----------------- ------------------ -----------------Net cash provided by operating activities
1,545
2,060
2,009
---------------------------------------------- ----------------- ------------------ -----------------Cash Flows From Investing Activities:
Capital expenditures
(1,094)
Proceeds from disposal of land, buildings and
equipment
72
Proceeds from disposal of assets held for sale
119
Other
(23)
---------------------------------------------- ----------------Net cash used in investing activities
(926)
---------------------------------------------- ----------------Cash Flows From Financing Activities:
Cash dividends paid
(279)
Payments on long-term borrowings
(120)
Stock purchases and retirements
(108)
Proceeds from long-term borrowings
9
---------------------------------------------- ----------------Proceeds from stock options exercised
6
Net commercial paper activity and bank borrowings
---------------------------------------------- ----------------Net cash used in financing activities
(492)
---------------------------------------------- ----------------Net Increase in Cash and Cash Equivalents
127
Cash and Cash Equivalents at Beginning of Year
162
---------------------------------------------- ----------------Cash and Cash Equivalents at End of Year
$ 289
============================================== =================
3
(1,359)
(1,455)
101
288
578
118
18
(31)
------------------ -----------------(662)
(1,080)
------------------ -----------------(306)
(143)
(862)
-----------------14
-----------------(1,297)
-----------------101
61
-----------------$ 162
==================
(309)
(89)
623
-----------------23
(1,153)
-----------------(905)
-----------------24
37
-----------------$ 61
==================
4
5
KROGER CO
CONSOLIDATED BALANCE SHEETS
(In millions)
-------ASSETS
Current assets
Cash and temporary cash investments
Receivables
Receivables - Taxes
FIFO Inventory
LIFO Credit
Prefunded employee benefits
Prepaid and other current assets
January
31,
2004
--------
February
1,
2003
--------
$
$
$
-
159
674
66
4,493
(324
300
251
-----5,619
11,178
3,134
6
247
-----20,184
------
$
248
Total current assets
Property, plant and equipment, net
Goodwill, net
Fair value interest rate hedges (Note 10)
Other assets
Total Assets
LIABILITIES
Current liabilities
Current portion of long-term debt including
obligations under capital leases
Accounts payable
Accrued salaries and wages
Deferred income taxes
Other current liabilities
Total current liabilities
Long-term debt including obligations under capital
leases
Face value long-term debt including obligations
under capital leases
Adjustment to reflect fair value interest rate
hedges (Note 10)
Long-term debt including obligations under capital
leases
Deferred income taxes
Other long-term liabilities
Total Liabilities
Commitments and Contingencies (Note 14)
SHAREOWNERS EQUITY
Preferred stock, $100 par, 5 shares authorized and
unissued
Common stock, $1 par, 1,000 shares authorized: 913
shares issued in 2003 and 908 shares issued in 2002
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated earnings
Common stock in treasury, at cost, 170 shares in
2003 and 150 shares in 2002
Total Shareowners
Equity
Total Liabilities and Shareowners
Equity
6
-
-
-
$
-
171
677
4,465
(290
300
243
-----5,566
10,548
3,575
110
303
-----20,102
------
$
352
)
-
)
-
-
3,058
547
138
1,595
- ------ 5,586
3,269
571
39
1,377
- ------ 5,608
8,012
8,112
104
110
- ------ 8,116
- ------ 8,222
990
1,481
- ------ 16,173
- ------ -
709
1,713
- ------ 16,252
- ------ -
-
-
913
908
2,382
(124 )
3,667
(2,827 )
2,317
(206 )
3,352
(2,521 )
- ------ 4,011
- ------ $ 20,184
- ------ 3,850
- ------ $ 20,102
THE KROGER CO.
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended January 31, 2004, February 1, 2003 and February 2, 2002
(In millions, except per share amounts)
-------------------------Sales
Merchandise costs, including advertising,
warehousing, and transportation, excluding
items shown separately below
Operating, general and administrative
Rent
Depreciation and amortization
Goodwill amortization
Goodwill impairment charge
Asset impairment charges
Restructuring charges
Merger-related costs
Operating Profit
Interest expense
Earnings before income tax expense and
cumulative effect of accounting change
Income tax expense
Earnings before cumulative effect of
accounting change
Cumulative effect of an accounting change,
net of income tax benefit of $10 in 2002
Net earnings
Earnings per basic common share:
Earnings before cumulative effect of
accounting change
Cumulative effect of an accounting change,
net of income tax benefit
Net earnings
2003
(52
weeks)
-------$ 53,791
39,637
2002
(52
weeks)
-------$ 51,760
37,810
2001
(52
weeks)
-------$ 50,098
36,398
10,354
653
1,209
444
120
- -----1,374
604
- -----770
9,618
656
1,087
15
1
- ------ 2,573
619
- ------ 1,954
9,483
650
973
103
91
37
4
- -----2,359
648
- -----1,711
455
- -----315
733
- ------ 1,221
668
- -----1,043
-
(16)
-
- -----$
315
- ------
- ------ $ 1,205
- ------ -
- -----$ 1,043
- ------
$
$
$
0.42
-
- -----$
0.42
- ------
7
1.57
(0.02)
- ------ $
1.55
- ------ -
1.30
-
- -----$
1.30
- ------
KROGER CO
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended January 31, 2004, February 1, 2003 and February 2, 2002 (52 weeks)
(In millions)
2003
2002
2001
---------------------------Cash Flows From Operating Activities:
Net earnings
$
315
$ 1,205
$ 1,043
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Cumulative effect of an accounting
16
change, net of income tax benefit of
$10 in 2002
Depreciation and amortization
1,209
1,087
973
Goodwill amortization
103
LIFO charge (credit)
34
(50)
23
Merger-related costs
1
4
Goodwill impairment charge
444
Asset impairment charges
120
91
Item-cost conversion
91
EITF 02-16 adoption
28
Deferred income taxes
331
468
258
Other
22
38
18
Changes in operating assets and liabilities net of effects from acquisitions of businesses:
Inventories
(20)
(62)
(121)
Receivables
3
2
22
Prepaid expenses
5
(34)
(77)
Accounts payable
(318)
359
(34)
Accrued expenses
224
(4)
10
Income taxes receivable (payable)
(62)
(11)
2
Contribution to company sponsored pension plan(100)
Other
8
49
32
- ------ - ------ - ------ Net cash provided by operating
2,215
3,183
2,347
activities
- ------ - ------ - ------ Cash Flows From Investing Activities:
Capital expenditures, excluding
(2,000)
(1,891)
(1,913)
acquisitions
Proceeds from sale of assets
68
90
70
Payments for acquisitions, net of cash
(87)
(126)
(103)
acquired
Other
(7)
20
32
- ------ - ------ - ------ Net cash used by investing activities
(2,026)
(1,907)
(1,914)
- ------ - ------ - ------ Cash Flows From Financing Activities:
Proceeds from issuance of long-term
347
1,353
1,368
debt
Reductions in long-term debt
(487)
(1,757)
(1,137)
Debt prepayment costs
(17)
(14)
Financing charges incurred
(3)
(16)
(18)
Proceeds from issuance of capital
39
41
72
stock
Treasury stock purchases
(301)
(785)
(732)
Cash received from interest rate swap
114
terminations
Increase (decrease in book overdrafts
107
(88)
14
- ------ - ------ - ------ Net cash used by financing activities
(201)
(1,266)
(433)
Net increase (decrease)in cash and temp inv.
(12)
10
Cash and temporary cash investments:
Beginning of year
171
161
161
- ------ - ------ - ------ End of year
$
159
$
171
$
161
- ------ - ------ - ------ -
8
9
10
Use this material to answer the question that starts on page 11.
Ich verstehe nicht weswegen mein Gewinn nicht höher ist.
Meine Verkaeufer arbeiten hart und mein Umsatz steigt Monat
fuer Monat.1
Jörg Buchmller made these comments after reviewing the income statement for his company
operations for the past six months. This is his first income statement since he started the business six
months ago to manufacture and sell three products: Kaiser, Kinder, and Jungen.
Sales
Variable costs*
Contribution margin
4.550.000 DM
3.750.000
800.000
Labor cost
Administrative cost
Marketing cost
Total costs
Net profit
400.000 DM
500.000
200.000
1.100.000
(300.000) DM
*Materials purchased for these products during the six months:
Kaiser
1.250.000 DM
Kinder
3.100.000
Jungen
600.000
After reviewing this statement, Jörg asked his accountant for information on the sales of the three
products. The accountant supplied these numbers:
Product sales for the six months in Deutsch Marks:
Kaiser
Kinder
Jungen
950.000 DM
2.600.000
1.000.000
1
I just do not understand why my profits are not higher. My salesmen are working very hard, and my
sales are growing month by month.
11
Jörg's accountant also provided this balance sheet.
Assets
Cash
25.000 DM
Accounts receivable
300.000
Raw materials inventories for:*
Kaiser
700.000
Kinder
200.000
Jungen
300.000
Plant assets (net)
1.000.000
Total assets
2.525.000 DM
Liabilities and Equity
Payables
1.400.000 DM
Equity
1.125.000
Total Liabilities and Equity 2.525.000 DM
*The company has no work-in-process or finished goods inventory on hand.
Remember this company has been in business only six months, so use 180 days instead of 365
for any computations requiring the number of days in one-half year.
12