Manual Answers

The capacity of an existing plat can be increased by adding more space. Each addition will provide extra space. Each addition will provide extra space for housing one more production line

False

When building a new plant construction costs can be paid to the contractor in 3 equal quarterly installments over the construction period

False

It will cost twice as much for a company to deactivate a first-shift production line than to reactivate it

True

While deactivating production lines will hurt the morale and productivity of the remaining employees, temporary idling of production lines will not have similar effects

False

The demand for products of higher quality trends to be more price elastic than for those of lower quality

False

The demand for products of higher quality tends to be more price elastic than for those of lower quality

False

 Higher quality products generally require less marketing effort than low quality products

False

Company policy limits any price change in domestic markets to a maximum of 40 percent per quarter

False

A company can purchase 3-month certificates of deposit in multiples of $100,000 to a maximum amount of $9,900,000

True

Product markets are segmented by product quality and product features

 True

Introducing a new product model can raise sales by as much as 20% or lower sales by as much as 5%

True

Bank loans are all secured by inventory and receivables, and they cannot exceed 50% of the total value of inventory and receivables

True

The transfer price of goods sold to a company’s affiliates is equal to 1.2 times of the average production cost

True

Most companies are headquartered in Merica 1 but have a sales office and an active sales force in there different market areas

False

It is a company policy to limit any price change in overseas markets to within 30% per quarter

 False

Both standard and emergency bank loans will be automatically repaid at the beginning of the following quarter by deducing the repayment amount directly from the borrowing company’s bank account

True

Salespeople in training will be carried on the training roster for one quarter, and they will then be assigned by the parent company to work in any market area in the following quarter

False

After a plant is closed down, it’s closed down, its building and equipment will both be sold. The company will then receive the proceeds of the sale in the following quarter

False

When producing a new product model a company may choose from 3 alternative levels of product features 1 for enhanced features 2 for standard features and 3 for basic features

False

Stockouts may arise from unexpectedly high product demand, production disruptions or poor management of inventory in individual market areas

True

The price sensitivity of product demand will change immediately when the company begins to produce a new model with different product features or quality

False

When constructing a new plant production lines must be installed separately. This can be done during the last quarter of construction or after the construction is fully completed

True

A stockout will result in sales losses not just in the current quarter but also in subsequent quarters

True

Equipment is depreciated on a straight-line basis over 7 years with no salvage value

True

Seasonal variations of product demand can be rather different across countries

False

Deactivating a production line will take effect immediately but reactivating a previously deactivated line will take 3 months

True

 Advertising expenditures in one quarter can affect sales over several quarters into the future

True

Products may be differentiated in terms of the level of product quality 1 for deluxe quality. 2 for standard quality and 3 for economy quality

False

Production workers overseas plants will be paid at 1.5 times the regularly hourly rate if they work overtime

False

Plant construction will take no more than 9 months to complete

True

Overtime work will be paid at twice the normal hourly rate for all production workers at manufacturing plants in Merica

False

A company cannot have more than one plant in any of the four market areas the company serves

True

A company with a superior credit rating can issue and sell new shares of common stock at a price at least 20 % higher than what it would get if the company had just an average credit rating

True

Following union contracts, all companies will pay second shift workers at 1,2 times the normal hourly rate

False

Companies are required to pay a 10% value added tax for all their sales in overseas markets

True

Information on any newly released product model. When available. Will be given in the company’s operating information report

True

It will take 3 months to hire and train workers to run a second shift on a production line

True

Emergency borrowing by a company can cause some of its salespeople to leave the company and work elsewhere

True

All second shift production lines must be either scheduled for production or idled by a temporary layoff

False

 The compan’s operating costs and expenses will all rise with inflation

False

If R and D spening is cut severely, the next new product modle that is close to release may be scrapped due to lack of funding support

True

Actual production can differ significantly from its scheduled level due to e.g. unexpected machinery downtime and delayed deliveries of raw materials and parts. Production uncertainty at overseas facilities can be three times as high as that a domestic facility

True

Temporarily idled production lines are automatically available for production two quarters later

True

If a company finds its newly introduced product model not selling well. It may go back to produce and sell the previous model

False

Too much advertising spending can reduce and limit its effectiveness

True

A company may draw against a line of credit ( up to $2,000,000) by floating a 3-month bank loan interest will be charged at the short-term rate available during the quarter the loan is issued

False

The level of safety stock should be determined by weighting the costs of carrying extra inventory against the costs of stocking out

True

A company’s profitability ratios (including net profit margin, return on assets and return on equity) are presented in Quarterly Industry Report

True

A second- shift line can be added at either a home-area plant or an overseas plant ( if built) to raise production when needed

False

The adverse effect of deactivating production lines on worker productivity can last for several quarters

True

Stock repurchases will not permitted if a company’s accumulated retained earnings are not positive

True

 While a sales office is given priority in obtaining goods produced from its local plant/ any goods produced and not ordered by the sales office may still be said to affiliates in other areas

True

To avoid any potential confusion among customers, product quality and features can be changed only when a new model is introduced

True

 With space additions, an existing plant can e expanded in size to house more than 12 production lines

False

Frequent stockouts can breed distrust of the company and unhappiness among salespeople thus increasing turnover in the sales force

False

All-regular-shift production lines have to be either scheduled for production or deactivated

False

Standard unit labor costs reported in a company’s operations report will incorporate all inflation-related cost increases along with any cost savings from productively improvement realized from the company’s employee training programs

True

Stockouts can demoralize production and operations employees and decrese their productivity

False

A company may pay dividends to the stockholds, provided that current dividends plus dividends paid over the previous 3 quarters do not exceed the total earnings in the past 4 quarters

True

In each market area, the existing inventory of goods will be sold first before any newly produced units are shipped and sold on a first-in first-out basis

True

A company may choose to leave a market area. To do so it will have to discharge all the salespeople at the local sales office there

False

Less than half of production costs and operating expenses are payable the following quarter

True

Three or more emergency bank loans will qualify a company for a number 4 credit rating ( the lowest possible rating)

False

All corporate bonds must be secured by plant and equipment such that the total value of new bonds to be issued plus bonds already outstanding must not exceed 50% of net fixed assets

False

Dividends cannot be declared if accumulated earnings were negative in the previous quarter

True

Companies can receive different credit ratings: 1 for superior. 2 for preferred. 3 for average. And 4 for poor. Every company starts with a 2 rating

False

 A company may elect to close a plant down. The building will then be sold for 90 percent of book value

True

It will cost less for company to reactive a second shift production line than to reactivate a first-shift line

False

All expenses on training of salespeople will be shared by both the parent company and its subsidiaries

False

Large swings in the R and D budget from quarter to quarter can cause some of the best people in the department to quit, thereby hampering product development

False

Outstanding shares of common stock may be repurchase ( in multiples of 100,000 shares) at a price 5% above the latest reported market price

False

Production of a new product model should start 3 months prior to selling the model. During the start-up quarter, sales of the old model will continue until the old-model inventory is completely depleted

True

Plant is depreciated on a straight-line basis over 30 years with no salvage value

False

Not all taxes incurred in any given quarter are payable in the following quarter

False

A subsidiary can pay only 50% of its profits to its parent company unless the subsidiary’s accumulated retained earnings have been built up to at least 50% of the book value of capital stock

False

Storage costs will be paid at the begriming of every quarter on the number of units of goods in storage at the end of the preceding quarter

True

By scheduling overtime, a company may raise production by up to 20 percent over the normal amount

True

All companies are detailed by their corporate charter to have at least 3 million shares of common stocks outstanding available for trading on stock exchange

True

 Inventories of goods can be shipped from one market area to another to meet customer demand

False

Maintaining sufficient cash reserves, having strong earnings growth and making regular dividend payments can all help improve a company’s credit rating

True

The demand for products with more features tends to be more price elastic than for those with fewer features

False

To obtain a new product model next quarter, the company will need to sharply increase its R and D spending this quarter

False

Companies are required to pay a 10% value added tax for all their sales in overseas markets

True

Total production costs equal the sum of labor costs materials costs and maintenance cost

False

Subsidiaries will get reimbursed by their parent company for any expenses they incur for sharing goods in a public warehouse in their own market area

False

A second shift can be added to every production line in operation at any plant

False

Shipping goods from a manufacturing plant to a sales office in another market area can be costly in general. It will cost at least 2 times as much to ship goods to be a sales office in another country than to one within the same country

False

If a company needs to get emergency loans it will weaken the public’s confidence in the company, therby reducing demand for its product

True

A new plant can be built with space can be built with space to house anywhere from 1 to 10 production lines initially

False

Product demand has consistently displayed a strong seasonal pattern with sales being the highest in the fourth quarter and lowest in the first quarter of each year

False

Business is generally slow in the first and third quarters of each year with product sales being about 8 to 9 percent below the quarterly average

True

Extra capacity may be added to an existing plant. Each capacity addition will be completed in 3 months and provide extra space for operating more production lines

False

A company may draw against a line of credit (up to $2,000,000) by floating a 3-month bank loan. Interest will be charged at the short-term rate available during the quarter the loan is issued

False

Training expenses include the costs of training new salespeople, training new production workers and ongoing training of existing production and operations employees

True

Introducing a new model can change product demand with a 90% chance of an increase and a 10% chance of a decrease in sales

False

Even operating overtime every week 6 production lines can produce at most a total 360,000 units in a quarter

False

When a company has more than one production plant any goods produced and available affiliates are shipped from the home plant first from domestic non-home plant second and finally the overseas plant

False

At the normal rate a production line can produce 52000 units per quarter

True

When needed, a company can always obtain additional emergency bank loans so long as it is willing to pay a penalty rate of interest that is five percentage points higher than the current market rat

True

If there are no salespeople assigned to work in a market area, its local sales office will be closed and sold

False

 For the market area with a manufacturing plant, no costs are incurred for shipping goods to the area sales office as shipments are made directly from the plant to customers when filing orders

True

When a company has successfully developed a new product model its availability together with relevant together with relevant information will be shown in the quarterly industry report

False

When having insufficient cash to fund all its operations a company will automatically receive an emergency bank loan

True

Outstanding bonds previously issued by a company may be called and redeemed ( in multiples of $100,000) by paying a 5% call premium

False

Every manufacturing plant has internal warehouse space to store finished goods. Should additional storage be needed a company may rent public warehouse space that will cost 3 times as much

True

The credit rating of a company will be automatically assessed by credit analysis every quarter based upon the firm’s financial performance

False

The home plant of every company initially has space to house two additional production lines only

True

Under the union contract, all workers will work no more than 48 hours a week

False

 Before a new product model officially goes on sale any unsold units of the old model will be automatically sold to a liquidation firm at below book value

False