1. The Baldwin company will increase its automation for the Bold product by 2.0.

ID: 2616824 • Letter: 1

Question

1. The Baldwin company will increase its automation for the Bold product by 2.0. Assuming no further change in capacity, how much will this investment in automation cost?

Select: 1

$17,600,000

$7,700,000

$15,400,000

$8,800,000

Annual Report

Digby

2020 Income Statement

(Product Name:)

Dell

Dixie

Dot

Dune

Dart

Deft

2020
Total

Common
Size

Sales

$17,222

$33,645

$35,362

$28,741

$30,234

$21,161

$166,365

100.0%

Variable Costs:

Direct Labor

$2,012

$7,343

$7,858

$5,198

$8,097

$4,333

$34,841

20.9%

Direct Material

$6,147

$15,012

$14,675

$10,618

$12,898

$8,935

$68,285

41.0%

Inventory Carry

$381

$581

$512

$634

$166

$129

$2,404

1.4%

Total Variable

$8,541

$22,936

$23,046

$16,450

$21,161

$13,396

$105,530

63.4%

Contribution Margin

$8,682

$10,709

$12,316

$12,291

$9,073

$7,764

$60,835

36.6%

Period Costs:

Depreciation

$3,833

$4,753

$2,040

$1,927

$2,635

$2,475

$17,663

10.6%

SG&A: R&D

$983

$973

$995

$114

$4,039

2.4%

Promotions

$1,140

$6,840

4.1%

Sales

$1,000

$1,900

$2,200

$900

$7,900

4.7%

Admin

$194

$379

$398

$323

$340

$238

$1,872

1.1%

Total Period

$7,150

$7,272

$6,451

$6,563

$6,010

$4,867

$38,313

23.0%

Net Margin

$1,532

$3,437

$5,865

$5,727

$3,063

$2,898

$22,521

13.5%

Definitions: Sales: Unit sales times list price. Direct Labor: Labor costs incurred to produce the product that was sold. Inventory Carry Cost: the cost to carry unsold goods in inventory. Depreciation: Calculated on straight-line 15-year depreciation of plant value. R&D Costs: R&D department expenditures for each product. Admin: Administration overhead is estimated at 1.5% of sales. Promotions: The promotion budget for each product. Sales: The sales force budget for each product. Other: Charges not included in other categories such as Fees, Write Offs, and TQM. The fees include money paid to investment bankers and brokerage firms to issue new stocks or bonds plus consulting fees your instructor might assess. Write-offs include the loss you might experience when you sell capacity or liquidate inventory as the result of eliminating a production line. If the amount appears as a negative amount, then you actually made money on the liquidation of capacity or inventory. EBIT: Earnings Before Interest and Taxes. Short Term Interest: Interest expense based on last year's current debt, including short term debt, long term notes that have become due, and emergency loans. Long Term Interest: Interest paid on outstanding bonds. Taxes: Income tax based upon a 35% tax rate. Profit Sharing: Profits shared with employees under the labor contract. Net Profit: EBIT minus interest, taxes, and profit sharing.

Other

$7,890

4.7%

EBIT

$14,631

8.8%

Short Term Interest

$3,304

2.0%

LongTerm Interest

$13,525

8.1%

Taxes

($769)

-0.5%

Profit Sharing

0.0%

Net Profit

($1,428)

-0.9%

2. Digby has a new design for their product Dixie next round that can reduce their material cost of producing units from $8.14 to $7.32. Digby passes on half of all cost savings by cutting the current price to customers. For simplicity:

- Use current labor costs of $4.03
- Assume all period costs as reported on Digby's Income Statement (Annual Rpt Pg 2) will remain the same.

Determine how many units (000) of product Dixie would need to be sold next round to break even on the product.

Select: 1

1,306 units.

1,064 units.

1,004 units.

803 units.

951 units.

1,983 units.

Annual Report

Baldwin

Balance Sheet

DEFINITIONS: Common Size: The common size column simply represents each item as a percentage of total assets for that year. Cash: Your end-of-year cash position. Accounts Receivable: Reflects the lag between delivery and payment of your products. Inventories: The current value of your inventory across all products. A zero indicates your company stocked out. Unmet demand would, of course, fall to your competitors. Plant & Equipment: The current value of your plant. Accum Deprec: The total accumulated depreciation from your plant. Accts Payable: What the company currently owes suppliers for materials and services. Current Debt: The debt the company is obligated to pay during the next year of operations. It includes emergency loans used to keep your company solvent should you run out of cash during the year. Long Term Debt: The company's long term debt is in the form of bonds, and this represents the total value of your bonds. Common Stock: The amount of capital invested by shareholders in the company. Retained Earnings: The profits that the company chose to keep instead of paying to shareholders as dividends.

ASSETS

2020

2019

Common
Size

Cash

$27,326

17.6%

$27,973

Accounts Receivable

$16,673

10.8%

$13,491

Inventory

$22,736

14.7%

$24,239

Total Current Assets

$66,735

43.1%

$65,703

Plant & Equipment

$147,360

95.1%

$121,660

Accumulated Depreciation

($59,221)

-38.2%

($49,397)

Total Fixed Assets

$88,139

56.9%

$72,263

Total Assets

$154,873

100.0%

$137,965

LIABILITIES & OWNERS' EQUITY

Accounts Payable

$9,998

6.5%

$10,768

Current Debt

$17,745

11.5%

$32,765

Long Term Debt

$34,910

22.5%

$27,026

Total Liabilities

$62,653

40.5%

$70,559

Common Stock

$8,496

5.5%

$8,618

Retained Earnings

$83,725

54.1%

$58,788

Total Equity

$92,221

59.5%

$67,406

Total Liab. & O. Equity

$154,873

100.0%

$137,965

The Baldwin Company currently has the following balances on their balance sheet:

Total Liabilities                      $62,653
Common Stock                     $8,496
Retained Earnings               $83,725

3. Suppose next year the Baldwin Company generates $36,500 in net profit and pays $15,000 in dividends and total liabilities and common stock remain unchanged. What must their total assets be next year?

Select: 1

$154,874

$92,220

$206,374

$176,374

Annual Report Baldwin Balance Sheet DEFINITIONS: Common Size: The common size column simply represents each item as a percentage of total assets for that year. Cash: Your end-of-year cash position. Accounts Receivable: Reflects the lag between delivery and payment of your products. Inventories: The current value of your inventory across all products. A zero indicates your company stocked out. Unmet demand would, of course, fall to your competitors. Plant & Equipment: The current value of your plant. Accum Deprec: The total accumulated depreciation from your plant. Accts Payable: What the company currently owes suppliers for materials and services. Current Debt: The debt the company is obligated to pay during the next year of operations. It includes emergency loans used to keep your company solvent should you run out of cash during the year. Long Term Debt: The company's long term debt is in the form of bonds, and this represents the total value of your bonds. Common Stock: The amount of capital invested by shareholders in the company. Retained Earnings: The profits that the company chose to keep instead of paying to shareholders as dividends. ASSETS 2020 2019 Common
Size Cash $27,326 17.6% $27,973 Accounts Receivable $16,673 10.8% $13,491 Inventory $22,736 14.7% $24,239 Total Current Assets $66,735 43.1% $65,703 Plant & Equipment $147,360 95.1% $121,660 Accumulated Depreciation ($59,221) -38.2% ($49,397) Total Fixed Assets $88,139 56.9% $72,263 Total Assets $154,873 100.0% $137,965 LIABILITIES & OWNERS' EQUITY Accounts Payable $9,998 6.5% $10,768 Current Debt $17,745 11.5% $32,765 Long Term Debt $34,910 22.5% $27,026 Total Liabilities $62,653 40.5% $70,559 Common Stock $8,496 5.5% $8,618 Retained Earnings $83,725 54.1% $58,788 Total Equity $92,221 59.5% $67,406 Total Liab. & O. Equity $154,873 100.0% $137,965 Cash Flow Statement The Cash Flow Statement examines what happened in the Cash Account during the year. Cash injections appear as positive numbers and cash withdrawals as negative numbers. The Cash Flow Statement is an excellent tool for diagnosing emergency loans. When negative cash flows exceed positives, you are forced to seek emergency funding. For example, if sales are bad and you find yourself carrying an abundance of excess inventory, the report would show the increase in inventory as a huge negative cash flow. Too much unexpected inventory could outstrip your inflows, exhaust your starting cash and force you to beg for money to keep your company afloat. Cash Flows from Operating Activities: 2020 2019 Net Income (Loss) $25,769 $12,828 Depreciation $9,824 $8,111 Extraordinary gains/losses/writeoffs $0 $0 Accounts Payable ($771) $3,589 Inventory $1,503 ($24,112) Accounts Receivable ($3,182) ($700) Net cash from operations $33,143 ($285) Cash Flows from Investing Activities: Plant Improvements ($25,700) ($27,700) Cash Flows from Financing Activities: Dividends Paid $0 $0 Sales of Common Stock $0 $0 Purchase of Common Stock ($955) ($1,180) Cash from long term debt $7,884 $17,536 Retirement of long term debt $0 ($11,300) Change in current debt (net) ($15,020) $18,494 Net cash from financing activities ($8,091) $23,550 Net change in cash position ($647) ($4,435) Closing cash position $27,326 $27,973 Annual Report Annual Report Baldwin 2020 Income Statement (Product Name:) Bead Bid Bold Buddy Na Na Na Na 2020
Total Common
Size Sales $59,286 $43,635 $46,205 $53,730 $0 $0 $0 $0 $202,857 100.0% Variable Costs: Direct Labor $13,870 $8,985 $9,051 $10,738 $0 $0 $0 $0 $42,644 21.0% Direct Material $22,695 $18,743 $17,731 $21,328 $0 $0 $0 $0 $80,497 39.7% Inventory Carry $252 $416 $975 $1,085 $0 $0 $0 $0 $2,728 1.3% Total Variable $36,816 $28,144 $27,758 $33,151 $0 $0 $0 $0 $125,869 62.0% Contribution Margin $22,470 $15,491 $18,448 $20,579 $0 $0 $0 $0 $76,988 38.0% Period Costs: Depreciation $2,797 $1,813 $2,493 $2,720 $0 $0 $0 $0 $9,824 4.8% SG&A: R&D $858 $655 $510 $571 $0 $0 $0 $0 $2,595 1.3% Promotions $1,350 $1,350 $1,350 $1,350 $0 $0 $0 $0 $5,400 2.7% Sales $1,000 $1,000 $900 $900 $0 $0 $0 $0 $3,800 1.9% Admin $591 $435 $461 $536 $0 $0 $0 $0 $2,023 1.0% Total Period $6,597 $5,254 $5,714 $6,077 $0 $0 $0 $0 $23,642 11.7% Net Margin $15,873 $10,237 $12,733 $14,502 $0 $0 $0 $0 $53,346 26.3% Definitions: Sales: Unit sales times list price. Direct Labor: Labor costs incurred to produce the product that was sold. Inventory Carry Cost: the cost to carry unsold goods in inventory. Depreciation: Calculated on straight-line 15-year depreciation of plant value. R&D Costs: R&D department expenditures for each product. Admin: Administration overhead is estimated at 1.5% of sales. Promotions: The promotion budget for each product. Sales: The sales force budget for each product. Other: Charges not included in other categories such as Fees, Write Offs, and TQM. The fees include money paid to investment bankers and brokerage firms to issue new stocks or bonds plus consulting fees your instructor might assess. Write-offs include the loss you might experience when you sell capacity or liquidate inventory as the result of eliminating a production line. If the amount appears as a negative amount, then you actually made money on the liquidation of capacity or inventory. EBIT: Earnings Before Interest and Taxes. Short Term Interest: Interest expense based on last year's current debt, including short term debt, long term notes that have become due, and emergency loans. Long Term Interest: Interest paid on outstanding bonds. Taxes: Income tax based upon a 35% tax rate. Profit Sharing: Profits shared with employees under the labor contract. Net Profit: EBIT minus interest, taxes, and profit sharing. Other $6,659 3.3% EBIT $46,687 23.0% Short Term Interest $2,041 1.0% LongTerm Interest $4,192 2.1% Taxes $14,159 7.0% Profit Sharing $526 0.3% Net Profit $25,769 12.7%

1. The Baldwin company will increase its automation for the Bold product by 2.0. Assuming no further change in capacity, how much will this investment in automation cost?

Select: 1

Explanation / Answer

net profit generated , n = 36500

dividends payable , d = 15000

retained earnings , r = n-d = 36500 - 15000 = 21500

since the common stock and total liabilities remain unchanged,

the total assets should increase by an amount = retained earnings

total assets next year = total assets this year + retained earnings = 154,874 + 21500 = $176,374

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1. The Baldwin company will increase its automation for the Bold product by 2.0.

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