Posted: June 15th, 2022

Selling Expenses and Variance Analysis

1. Selling Expenses and Variance AnalysisGreen-Bicycles Company uses the following reports to evaluate the performance of marketingmanagers. The division has a practical capacity of 12,000 units for sales.Sales unitsSales RevenueFixed selling expensesIndustry total sales in unitsActualMaster Budget9,000729,00010,000800,000120,000115,000420,000500,0001. Evaluate the performance of the division manager on sales revenue. Show revenue market-sizeand market-share variances and briefly comment on the overall performance of the marketingteam.Market-size variance =Market-share variance=Overall performance:2. List two most critical improvements that you would make to the evaluation system of the fixedselling expenses of the marketing. Please be specific.(i)_____________________________________________________________________________________________________(ii)____________________________________________________________________________________________________2. Value & PerformanceYou have reformulated your balance sheet and income statement of a newspaper company (WashingtonDaily) as follows. All dollar amounts are in millions:12/31/14Operating Assets$4,800Operating liabilities1,700Net Operating Assets3,100Financial Obligations300Fnancial Assets600Net Financial Obligations-300Common shareholders’ Equity?Sales Revenue$4,400Operating Income (after taxes)400Net Financial Income (after taxes)20Use the 2014 balance sheet amounts as a denominator where appropriate (as 2013 data were notavailable). Round up to a dollar and a 3-decimal point.1. Washington Daily bought back $200 (in millions) of its own stocks during the fiscal year 2014and it borrowed the same amount from a bank. The reformulated financial statements above didNOT include the effects of the stock repurchases (which reduce shareholders’ equity) andadditional borrowing. Compute the new financial leverage ratio (FLEV) and show the followingequation works after the stock repurchases.The stock repurchases reduced net financial income from $20 to $10.ROE = RNOA + [FLEV x (RNOA – NBC)]Briefly discuss how the stock repurchases might affect the earnings per share (EPS) and the(intrinsic) value of Washington Daily.2. If the Washington Daily could reduce operating expenses (after taxes) through Activity-BasedManagement that could increase 5 percent of the operating profit margin ratio (PM) in 2014 (forexample, a 5% of PM increases to a 10% of PM), what could be the new RNOA and residualoperating income (ReOI) in 2014? The required return for operations is 10%.3. What will you do to improve the (intrinsic) value of Washington Daily? Please list two mostcritical improvements that you will make. Your answer should be specific to Washington Daily.4. Washington Daily currently evaluates the senior executives based on ROE and considers newperformance measures, as it will introduce a Balanced Scorecard. It has been pursuing itsstrategic advantage of customer solution. List one most critical “financial” performance measure(excluding RNOA and ReOI) and two most critical “non-financial” performance measures forCustomer and internal perspectives that Washingon Daily should include on the balancedscorecard to align with its strategy.Financial:Non-Financial:5. This question is not related to Washington Daily above. The following is extracted from thebalance sheet of Home Plus at December 31, 2014 (in millions of dollars).Net operating assetsNet financial assetsCommon shareholders’ equity?$9,000$4,800Managers are forecasting Net Income of $2,625 (in million) and Net Financial Income of $360 (inmillions) for the year ending December 31, 2015. Forecast the Operating Income and the ResidualOperating Income (ReOI) for 2015 (first find the Net Operating Assets in 2014 from data above).Use Net Operating Assets in 2014 and a required return of 10% for operations for ReOI (forsimplicity).

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