Acct 2220 Zeigler: Capsim Foundation Simulation - Spring 2015
SOLUTION - Capsim Mini-Quiz #4 of 6 (6 pts available)
Name: _________________________________ Class Period: 11:30 1:00
Simulation-related questions:
1. Digby’s “Dogood” product has 500,000 units of capacity and an automation rating of 3.0. How much
would it cost (in dollars) to increase this product’s automation rating to 5.0, how would labor costs be
expected to change (expressed as a %) and what impact would this have on the product’s contribution margin?
Automation Cost: $_____________ ($4 per point of automation * 2) * 500k units of capacity = $4,000,000
Labor Cost impact (%): _________ (Labor savings of 10% for each point of auto = 20% labor savings)
CM Margin Impact (circle):
Increase
Decrease
No impact
(CM increase due to lower labor/VC)
_____ 2. Regarding TQM, if a company, with low automation, wanted to invest in a single TQM area that
exclusively lowers labor costs, they would select (see your TQM handout or online TQM tutorial):
a. QIT (Quality Initiative Training).
b. Benchmarking.
c. Vendor/JIT (Just in Time Inventory) initiative.
d. UNEP Green Program initiative.
The TQM area allows teams to invest in areas which will benefit them, and their chosen strategy, the most. For example, if
a team formulates a cost strategy that focuses on labor so it can complete R&D projects faster, it would want to invest in
QIT (which reduces labor costs). The other initiatives listed generally focus on material and/or R&D cost reductions.
Comp-XM-related questions (similar to what you *may* see on the exam):
_____ 3. Confirm the DuPont Chain first. If Leverage is 3.0, ROA is 15% and Asset Turnover is 1.5, then:
a. ROS would be negative. (no. If ROA is positive, the start of the Dupont Chain must be positive)
b. The payment of a dividend would decrease leverage. (no, Equity (R/E) decreases; leverage increases)
c. The issuance of stock would decrease leverage. (Yes, Leverage = Assets/Equity)
d. The issuance of a long-term bond would decrease leverage. (no, it would increase leverage)
_____ 4. Chester Company is considering whether to retire (pay-off) their “13.0S2021” $2,600,000
bond early. Their current leverage is 2.2. If the company retires this bond early, regardless of
any gain/loss incurred, leverage will:
a. Decrease
b. Increase
c. Not Change
(Leverage = Assets/Equity)
_____ 5. Ferris Company currently has the following ending balances in their two equity accounts:
Common Stock
Retained Earnings
$81,192
$57,450
Suppose next year, the company generates $46,300 in Net Profit, pays off $10,000 in long-term
debt and declares (and pays) $26,000 in dividends. What will be the company’s Retained
Earnings balance at the end of next year?
a. $30,300
b. $67,750
c. $87,750
d. $97,750
e. None of these are within $1
($57,450 + $46,300 – $26,000 = $77,750) The payment of debt has no impact on Retained Earnings)
_____ 6. Andrews Company issued a $10,000 bond with an annual (stated) interest rate of 10 percent.
All (total) interest due is to be paid annually at year-end. Interest, however, is compounded every
three months (quarterly). What total amount of interest is to be paid at the end of the year?
a. $1,000.00
b. $1,020.00
c. $1,032.40
d. $1,038.12 e. None of these are within $1
One way to work this question is to say that the balance for the first three months is $10,000 and the interest is 2.5
percent of that balance (10 percent times 1/4 of a year) or $250.00. That amount is not paid at that time so it is
compounded (added to the balance). Thus, the balance for the second three months is $10,250 which is multiplied by
2.5 percent or $256.25. That is compounded to bring the balance up to $10,506.25 and the interest for the third
quarter (at 2.5 percent) is $262.66. That is also compounded to bring the balance up to $10,768.47 and the interest
for the fourth quarter (at 2.5 percent) is $269.21. Total interest to be paid for that year based on compounding
every three months is $250 + $256.25 + $262.66 + $269.21 or $1,038.12.