Problem 1 - Decision Making and Relevant Information (Special Order)

Printee is a printing company specializing in box custom printing. Printee usually handles order
from Shopedia and Tokopi. Currently, the company can only handle 125.000 orders per
month. Here are the data on Printee customer for July:

Shopedia Tokopi Total

Revenue (50.000 x Rp250.000.000 Rp280.000.000 Rp530.000.000

Rp5.000; 50.000 x
Rp5.600)

Variable costs Rp100.000.000 Rp112.000.000 Rp212.000.000

Contribution margin Rp150.000.000 Rp168.000.000 Rp318.000.000

Fixed cost (allocated) Rp80.000.000 Rp80.000.000 Rp160.000.000

Operating income Rp70.000.000 Rp88.000.000 Rp158.000.000

Order (unit) 50.000 50.000 100.000

On August, Shopedia representative contacted Printee headquarter to inform the company of

the additional order it would like to make as the company will hold a monthly sale. Shopedia
requested an additional order of 25.000 printed boxes. Shopedia requested Printee to sell the
box at a cheaper price as they increased the order. Shopedia requested the additional box to
be sold at Rp3.500. While Shopedia has requested an increase in box order, Tokopi are
expected to continue with the same number of orders.

Required:
a.) What decision should Printee make in order to maximize its operating income, should
Printee accept the order?
b.) At what price would Printee be indifferent between accepting and declining the order?
c.) What are the other factors should Printee consider in deciding to accept or decline the
order?

Problem 2 - Pricing Decision and Cost Management

Frans is the new Chief Financial Officer at Jen and Berry’s Ice Cream. In order to further
understand the company’s financial standing, he requested information relating to the
company’s operation from the year prior. Unfortunately, due to improper management, there
are several data missing in the report.

Total sales revenue ?

Number of unit produced and sold 125.000 units

Selling price ?

Operating income $50,000

Total investment in assets $70,000

 Variable cost per unit $2.85

Fixed costs $150,000

Required:
a.) Find:
1.) Total sales revenue
2.) Selling price
3.) Rate of return on investment
4.) Mark-up percentage from full costs for the following product
b.) Frans is planning to reduce the company fixed cost by $50,000 and variable cost by $0.5
per unit while continuing and selling 125.000 units. Using the same markup percentage as
requirement (a), calculate the ice cream’s new selling price!
c.) The changes made in condition (b) caused a drop in the product’s quality. The drop in
quality resulted in a 10% decrease of ice cream sold. Calculate the operating income (loss)!

Problem 3 - Management Control System and Cost Pricing

Daun Teh is a tea leaves manufacturer. The company operates through two divisions, which
are the harvesting division and the processing division. All of the harvested tea leaves will be
processed to produce dry tea leaves, which will be more suitable to be further processed into
a drink. The tea leaves will be sold to Teh Mangkok to be processed into a bottled drink. Every
500gr of harvested leaves will be able to produce 200gr dried tea leaves. Here are other
information regarding the two division:

Harvesting Division Processing Division

Variable cost per $0.25 Variable $0.27

gram of processing cost
harvested tea per gram of
leaves dried tea leaves

Fixed cost per $0.16 Fixed cost per $0.10

gram of gram of dried tea
harvested tea leaves
leaves

Selling price per $0.65 Selling price per $3.80

gram of gram of dried tea
harvested tea leaves
leaves in outside
market

Required:
a.) Compute Daun Teh’s operating income from harvesting 400kg of tea leaves during August
2021 and processing them into juice!
b.) Daun Teh rewards its division manager with a bonus equal to 5% of operating income.
Compute the bonus for each division manager in August 2021 for each of the following
transfer-pricing method:
1.) 200% of full cost
2.) Market price
c.) Which of the methods will be more preferable for each of the division managers? How
would Daun Teh resolve any conflicts that may arise on the issue of transfer pricing?

Problem 4 - Performance Evaluation

Aikia is a company that specializes in selling home appliances. The company operates through
2 different divisions, furniture division and decorative division. Here are some additional
information regarding the division’s financial measures in 2020:

Home Appliances Division Decorative Division

Total assets $56,700,000 $43,000,000

Current liabilities $6,340,000 $8,600,000

Operating income $5,450,000 $4,400,000

Required rate of return 12% 12%

Required:
a.) Calculate return on investment (ROI) for each division using operating income as a
measure of income and total assets as a measure of investment!
b.) Calculate residual income (RI) for each division using operating income as a measure of
income and total assets minus current liabilities as a measure of investment!
c.) The manager of the furniture division argues that the decorative division “loaded up on a
lot of short-term debt” to boost its RI. Calculate an alternative RI for each division that is not
sensitive to the amount of short-term debt taken on by the performance parts division.
Comment on the result!
d.) The company tax rate is 25% and has two sources of funds: long-term debt with a market
value of $20,000,000 at an interest rate of 10% and equity capital with a market value of
$11,000,000 and a cost equity of 15%. Applying the same weighted-average cost of capital
(WACC) to each division, calculate EVA for each division!
e.) Use your preceding calculations to comment on the relative performance of each division!

Problem 5 - Balanced Scorecards

Walkmart is one of the biggest food wholesalers in the industry. Walkmart sold groceries and
other daily necessities. On the basis of market research, Walkmart determines that 65% of
the overall printing machine market consists of “service-oriented customers''. This indicates
that medium to high income individuals are willing to pay and spend more if the store provides
better customer service, such as: clean store, friendly employees, and quality products. While
the remaining 35% of the customers are “price shoppers” who only buy the product if they are
the cheapest. Walkmart’s strategy is to focus on the “service-oriented customer”. Here are
Walkmart’s Balanced Scorecard (initiative taken under each objectives are omitted):
 Objectives Measures Target Performance Actual Performance

Financial
Perspective

Increase shareholder Operating income $55,000,000 $68,000,000

value changes from price
recovery

Operating income $50,000,000 $52,500,000

changes from growth

Customer
Perspective

Increase market Market share of 5% 4.78%

share overall market

Internal-Business-
Process
Perspective

Improve products Quality index 90 points 93 points

quality

Improve post sales Service response 92% 92%

service time

Ensure products Product availability 94% 95%

availability index (%)

Learning-and-
Growth Perspective

Develop process Percentage of 93% 95%

skills employee trained in
process and quality
management

Increase information Percentage of selling 93% 94%

system capabilities process with real time
feedback

Required:
a.) Was Walkmart successful in implementing its strategy in 2020? Explain your answer!
b.) Would you have included some measure of employee satisfaction in the learning-and-
growth perspective? Is the objective critical to Walkmart’s strategy implementation?
c.) Explain how Walkmart did not achieve its target market share in the total market but still
exceeded its financial targets. Is “market share of overall market” the correct measure of
market share?
d.) Is there a cause-and-effect linkage between improvements in the measures in the internal-
business-process perspective and the measure in the customer perspective? Would you add
other measures to the internal-business-process perspective and customer perspective?