Under what circumstances should a company’s management team give serious consideration to bidding
Based on the industry-low, industry-average, and industry-high values for the benchmarked data in each issue of the FIR, which of the following is an unconvincing or untrustworthy indication that one or more elements of your company’s costs are too high relative to the costs of rival companies?
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❌Your company’s labor costs per pair produced at one or more plants are 20% or more above the industry-average number
❌The reject rates for branded shoe production at one or more of your company’s plants are well above the industry average
✅Your company’s operating profits per pair sold in all 4 geographic regions of the wholesale segment for branded footwear are below the industry-high values
❌Your company’s warehouse expenses per pair sold in both the wholesale and Internet segments are above the industry average
❌Your company’s marketing expenses per pair sold in both the Internet and wholesale segments are the highest in the industry
The most important/essential results from the latest decision round that company managers need to review/study in order to guide their strategic moves and decisions to improve their company’s competitiveness and rank among the top-performing companies in the upcoming decision round are
❌the Industry Performance Benchmarks on p. 6 of the FIR.
❌the strategic group maps for each geographic region that appear in the middle of each page of the Competitive Intelligence Report.
❌each company’s performance on EPS, ROE, stock price, credit rating, and image rating displayed on pp. 2 and 3 of the FIR.
✅the Market Snapshot data in the top half of the Competitive Intelligence Report that shows each company’s competitive efforts (prices, S/Q rating, models available, and so on) in each geographic region.
❌the celebrity endorsement data and the 4 graphs showing branded price and S/Q rating trends in each of the four geographic regions on p. 7 of the FIR.
Managerial efforts to boost a company’s stock price should entail such actions as
❌paying off all long-term debt as rapidly as possible, keeping the company’s dividend payout ratio between 25% and 50%, spending additional money on corporate citizenship and social responsibility, and maintaining a credit rating that is no less than B+.
✅increasing the company’s dividends each year by $0.25 or more, keeping the company’s credit rating at A (or above), spending sufficient money on corporate citizenship and social responsibility to earn a Gold Star Award for Exemplary Corporate Citizenship, and issuing a sufficient number of shares of common stock to pay off all long-term debt within 1-2 years.
❌raising the company’s dividend each year (ideally by at least $.05 per share) and repurchasing shares of common stock.
❌charging a price for branded footwear that is below the industry average in all geographic regions, spending amounts on corporate citizenship and social responsibility that are below the industry average, keeping the company’s image rating above 70, paying a dividend each year that equals projected EPS, and repurchasing shares of common stock.
❌spending amounts on corporate citizenship and social responsibility that are above the industry average, boosting the company’s dividend payout ratio to more than 100%, and paying off all long-term debt within 2 years.
The most attractive way to reduce or eliminate the impact of paying tariffs on pairs imported to a company’s distribution warehouse in Latin America is to
❌pursue a strategy of selling fewer pairs in Latin America than rival companies, which will then keep the company’s costs for import tariffs in Latin America lower than those of rivals and give the company a low tariff cost advantage on its sales in Latin America.
✅build a plant in Latin America and then expand it as may be needed so that the company has sufficient capacity to supply all (or at least most) of the pairs the company intends to try to sell in Latin America.
❌simply stop selling footwear in Latin America.
❌pursue a strategy of only selling footwear with an S/Q rating of just 1 star or 2 stars in Latin America–no tariffs have to be paid on imported branded footwear having an S/Q rating of 2-stars or below.
❌only sell the company’s branded footwear at its Internet site for Latin America; no import tariffs have to be paid on Internet sales–import tariffs only have to be paid on footwear shipped from the company’s Lain America warehouse to footwear retailers in Latin America.
Pursuing a strategy of social responsibility and corporate citizenship
❌helps increase a company’s global sales volume and global market share of branded footwear whenever the company’s annual spending for socially responsible activities is above $10 million.
❌boosts a company’s sales of branded footwear when a company wins one or more Gold Star Awards for Corporate Citizenship given by the World Council to Promote Exemplary Corporate Citizenship.
❌has the effect of boosting the company’s EPS, ROE, and stock price whenever the company’s spending for socially responsible activities is the highest in the industry.
❌enhances the power and effectiveness of a company’s advertising expenditures whenever the company’s spending for socially responsible activities is above the industry average.
✅helps increase a company’s image rating, provided the company spends a meaningful amount on socially responsible activities and such spending is sustained over a multi-year period.
Which one of the following is NOT a way to effectively differentiate a company’s branded footwear from the brands of rivals?
❌Deliver orders for branded footwear to footwear retailers in a shorter time than most all other rivals
❌Win sufficient celebrity endorsement contacts to achieve higher celebrity appeal ratings in the various geographic regions than most all other rivals
❌Provide free shipping to all buyers at the company’s websites
✅Compensate plant workers at levels that exceed all other companies in those geographic regions where the company has plants–and thereby boost the company’s image as a great place to work
❌Produce and market branded footwear with a higher S/Q rating than the branded footwear of most all other rivals
The plant and production benchmark data on p. 6 of each issue of the Footwear Industry Report
❌are especially helpful to company managers in determining whether they need to spend more/less on enhanced styling/features at each of the company’s plants.
❌are especially helpful to company managers in determining whether their company is overspending on advertising.
❌provide valuable feedback to company managers regarding whether the prices being charged for the company’s branded footwear are too high or too low.
❌are primarily useful to managers in determining whether their company’s total manufacturing costs are low enough to enable the company to meet or beat the EPS targets established by investors.
✅provide valuable feedback to company managers regarding the efficiency with they are managing labor costs, reject rates, and branded manufacturing costs per pair produced at each plant.
Based on information on the Help Screen for the Plant Operations Report (see the Plant Investment section), if a company adds new plant capacity at a cost of $50 million, then its annual depreciation costs will rise by
✅5% or $2,500,000.
❌4% or $2,000,000.
❌6% or $3,000,000.
❌10% or $5,000,000.
❌20% or $10,000,000
If a company wants to enhance the profitability of differentiating its branded product offering from rivals by offering buyers 500 models/styles to choose from, then it should consider reducing the $14 million annual costs for production run setup costs associated with producing 500 models/styles at each plant by
❌building plants in all four geographic regions to produce 500 models/styles and installing plant upgrade options C and D in all four plants.
❌instituting plant upgrade option A at each of the company’s plants, so as to conserve on expenditures for TQM/Six Sigma programs.
✅instituting plant upgrade option B at one or more of its plants (but most especially the company’s smallest plants where the associated capital costs are quickly paid for by the savings on production run setup costs).
❌instituting plant upgrade option D and not having more than 2 plants.
❌instituting plant upgrade option C.
Based on the above income statement data (assume interest income is zero), the company’s interest coverage ratio is
Which one of the following is NOT a way to improve the S/Q rating of branded pairs produced at a particular plant?
❌Increasing the percentage use of superior materials
❌Increasing expenditures for TQM/Six Sigma programs
✅Increasing piecework incentive pay per non-defective pair produced
❌Increasing Best Practices Training expenditures per worker
❌Increasing expenditures for best practices training per worker
Under what circumstances should a company’s management team give serious consideration to entering a bid to supply private-label footwear to chain retailers in a particular geographic region?
❌When the data in the latest Competitive Intelligence Report indicates that some of the winning bidders for private-label footwear were able to win contracts at a bid price above $25 per pair
✅When the company has excess production capacity not being devoted to producing branded footwear
❌When the data in the latest Competitive Intelligence Report indicates that one or more rival firms successfully won bids for private-label contracts
❌When no seller of private-label footwear in the prior year captured as much as a 20% share of the private-label market
❌When the company has the ability to produce private-label footwear at a manufacturing cost per pair that is more than $5 below its manufacturing cost per pair of branded footwear
According to the cost allocation procedures discussed on the Help screens for the Private Label Sales Report and the Marketing and Admin Report, which one of the following is included as part of a company’s cost in supplying private-label footwear to chain retailers?
❌A proportionate share of companywide expenditures for retailer support
✅A proportionate share of plant supervision costs, plant maintenance, and plant depreciation in those plants where private-label pairs are produced
❌A proportionate share of companywide costs for celebrity endorsement contracts
❌A proportionate share of corporate administrative expenses
❌A proportionate share of companywide advertising expenditures
Which one of the following actions is NOT an attractive option for trying to lower production costs per pair produced at one of your company’s plants?
✅Increased spending for enhanced styling and features for branded footwear
❌Reducing the number of branded models/styles produced from 350 to 250
❌Installing plant upgrade option D
❌Reducing the use of superior materials
❌Increasing piecework incentive pay
Which of the following statements about striving to reduce labor costs per pair produced at each of the company’s plants is true?
❌The most cost effective way for a company to achieve low labor costs per pair produced is to give plant workers annual base pay increases in the range of 10% to 15% annually in each geographic region where it has plants.
❌The simplest and most effective way for a company to achieve labor costs per pair produced that are below the industry average is to compensate plant workers at levels that are below the industry average in each geographic region where it has plants.
❌Companies producing branded footwear with a high S/Q rating are unlikely to achieve labor costs per pair produced that are below the industry average in those geographic regions where they have plants.
✅To achieve below-average labor costs per pair produced at a particular plant over the long-term, company managers must–each decision round–diligently seek out a combination of base pay increases, piecework incentives per non-defective pair produced, and expenditures for best practices training at the plant that is projected to drive down labor costs even further.
❌As long as labor productivity at each of the company’s plants is in the range of 2,750 to 3,000 pairs produced per worker, then a company’s labor costs per pair produced will be competitive with the labor costs per pair produced achieved by other companies in the industry.
Based on the above figures and the formula for calculating the debt-assets ratio, the company’s debtassets ratio (where debt is defined to include both short-term and long-term debt) is
In supplying private-label footwear to chain retailers, the sizes of a company’s margins over direct costs (as reported on p. 6 of each issue of the FIR) should be viewed as
✅how much each pair of private-label footwear sold adds to the company’s pretax profits, assuming that the company’s margins on branded footwear were sufficient to cover all administrative expenses and all interest costs.
❌how much the company received from private-label sales over and above materials costs and direct labor costs–these dollars thus represent a “contribution” to the payment of the company’s plant overhead costs and to warehouse expenses and marketing expenses in the region where the private-label pairs were sold.
❌how much the company receives on each pair of private-label footwear supplied to chain retailers over and above materials costs and direct labor costs–these dollars represent free cash flow that management can use for whatever purpose it sees fit.
❌how much the company received from private-label sales over and above materials costs and direct labor costs–these dollars are automatically deposited in the company’s retained earnings account and help boost the company’s ROE and stock price.
❌the net profit a company earns on each pair of private-label footwear supplied to chain retailers.
Based on the above data, which of the following statements is false?
❌Marketing costs are 14.1% of net revenues.
❌Administrative expenses are 2.5% of net revenues.
❌Warehouse expenses are 5.3% of net revenues.
✅Interest expenses are 3.6% of net revenues.
❌Cost of pairs sold are 62.5% of net revenues.
Based on the above income statement data, the company’s operating profit margin and EPS are
❌15.6% and $5.00.
✅15.6% and $2.80.
❌12.5% and $5.00.
❌8.75% and $2.80.
❌15.6% and $4.00
The branded market benchmarking data on p. 6 of each issue of the Footwear Industry Report showing the industry-low, industry-average, and industry-high values for operating profit per branded pair sold in each geographic region
❌are of considerable value to the managers of companies looking for evidence that their company needs to cut branded footwear prices and spend more money on marketing efforts so as to increase sales of branded footwear and gain a bigger share of the market for branded footwear.
❌have the greatest value to the managers of companies having above-average market shares of branded footwear sales in one or more geographic regions.
❌are least valuable to the managers of companies whose operating profits per pair sold are below the industry average benchmark.
✅always merit close attention because when these benchmarks reveal that a company’s operating profit margins are negative (and perhaps even less than $1.00) in one or more geographic regions, managers are well-advised to take immediate corrective actions in the upcoming decision round.
❌have little-decision-making value because the benchmarking data do not identify which companies have the lowest/highest operating profit margins per branded pair sold