San Diego State University Operations And Supply Chain Management Assignment Help - Imelda Sanchez

Question - Imelda Sanchez, manager of the Arias Division of PoncA? Chemical, is evaluated based on the
division's return on investment and residual income. Near the end of November 2010, she was
reviewing the division's financial information as well as some activities projected for the remainder of
the year. The information she was reviewing follows.
1. Annual sales were projected at 100,000 units, each with a selling price of $30.
Sanchez has received a purchase order from a new customer for 5,000 units. The purchase order
states that the units should be shipped on January 3, 2011, for arrival on January 5.
2. The division's 2010 beginning inventory was 500 units, each with a cost of $11.
Purchases of 99,500 units have been made steadily thro ...Read More ughout the year, and the per-unit cost has
been constant at $10. Sanchez intends to make a purchase of 5,200 units before year-end, providing
a 200-unit balance in inventory after making the shipment to the new customer. Carrying costs for the
units are quite high, but ordering costs are extremely low. The division uses a last-in, first-out (LIFO)
cost flow assumption for inventory.
3. Shipping expenses are $0.50 per unit sold.
4. Sanchez has just received a notice from her primary supplier that he is going out of business and is
selling his remaining stock of 15,000 units for $9 each. She makes a note to herself to place her final
order for the year from this supplier.
5. Division advertising is $5,000 per month for newspaper inserts and television spots.
No advertising has yet been purchased for December, but Sanchez intends to have her sales
manager call the paper and TV station early next week.
6. Salaries through the end of the year are projected at $700,000. This amount assumes that the
position to be vacated by the division's personnel manager will be filled on December 1. The
personnel manager's job pays $66,000 per year. Sanchez has an interview on Monday with an
individual who appears to be a good candidate for the position.
7. Other general and administrative costs for the full year are estimated to total $590,000.
8. As Sanchez was reviewing the divisional information, she received a phone call from the division's
maintenance supervisor. He informed her that $10,000 of electrical repairs to the office heating
system are necessary. W hen asked if the repairs were essential, the supervisor replied, "No, the
office won't burn down if you don't make them, but they are advisable for energy efficiency and long-
term operation of the system." Sanchez tells the supervisor to see her on Monday at 8:00 a.m.
Using her information, Sanchez prepared a budgeted income statement and was fairly pleased with
the division's results. Although providing the 13 percent rate of return on investment desired by
corporate management, the results did not reach the 16 percent rate needed for Sanchez to receive a
bonus for the year.
a. Prepare a 2010 budgeted income statement for the Arias Division. Determine the division's residual
income, assuming that the division has an asset investment base of $4,500,000.
b. Sanchez's less-than-scrupulous friend, John Greer, walked into the house at this time. When he
heard that she was not going to receive a bonus, Greer said,
"Here, let me take care of this for you." He proceeded to recompute the budgeted income statement
and showed Sanchez that, based on his computation of $723,000 in income, she would receive her
bonus. Prepare Greer's budgeted income statement.
c. What future difficulties might arise if Sanchez acts in a manner that will make Greer's pro forma
income statement figures a reality? ...Read Less

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