Unit 1 SCM Activities KEY Answer PDF

AE 313 SUGGESTED ANSWER Unit 1: SCM Activities
Prepared by: Maybel Kua

Activity 1-1: Matching Type Activity 1-2: True or False
1. E 11. D 1. True 11. False 21. True
2. W 12. S 2. False 12. True 22. True
3. C 13. F 3. True 13. False 23. False
4. O 14. I 4. True 14. True 24. False
5. U 15. V 5. False 15. False 25. True
6. T 16. L 6. False 16. False
7. M 17. G 7. False 17. True
8. Q 18. K 8. False 18. False
9. A 19. N 9. False 19. True
10. B 20. J 10. True 20. False
Activity 1-3: Cases

A. Life Cycle Costing
1. Product life cycle income statement. (10 pts)
Year 0 Year 1 Year 2 Year 3 Totals Percent
Selling price per unit 0 500 600 700
Multiplied by: Units to be sold 0 70,000 100,000 60,000
Sales 0 35,000,000 60,000,000 42,000,000 137,000,000 100%
Less: Costs
Research and Development 4,000,000 3,000,000 200,000 - 7,200,000 5.26%
Product Design 1,500,000 800,000 400,000 - 2,700,000 1.97%
Manufacturing 1,000,000 15,000,000 19,000,000 10,000,000 45,000,000 32.85%
Marketing 1,000,000 4,000,000 800,000 500,000 6,300,000 4.60%
Distribution - 3,000,000 4,500,000 2,500,000 10,000,000 7.30%
Customer Service - 1,800,000 2,100,000 1,100,000 5,000,000 3.65%
Incremental Administrative 500,000 2,000,000 2,000,000 1,500,000 6,000,000 4.38%
Less: Total Costs 8,000,000 29,600,000 29,000,000 15,600,000 82,200,000 60.00%
Profit (8,000,000) 5,400,000 31,000,000 26,400,000 54,800,000 40.00%
2. Interpret the income statement. Is the product profitable (5 pts)?

The product is profitable. It is normal to incur costs before the actual sale of a product. Management can expect a loss of P8,000,000
before the launch of the product for costs such as research and development, product design, manufacturing costs, marketing
costs and administrative costs. Year 1 may still be the introductory phase of the product. During this year, sales may pick up and
result to a profit of P5,400,000. This may still not be enough to earn a net profit cumulatively, considering the pre-sale loss. Years
2 and 3 will be the most profitable years for the product. The maturity and delinked phases can be observed here. Bulk of the sales
are forecasted to be earned during these periods.
The research and development, and product design costs incurred mostly during the introductory stage would only be around 7%
of the product sales. Almost one-third of the product's cost over its life would be for manufacturing costs. Marketing, distribution,
customer service and administrative costs would be 4.60%, 7.30%, 3.65% and 4.38% respectively. Overall, the product will provide
a 40% profit rate during the whole of its life cycle.
B. Equivalent Annual Cost of a Capital Investment

3. Equivalent annual cost of using the semi-automated vacuum sealer. (5 pts)
Amount PVF PV of CF
Purchase price 20,000 1 20,000.00
Salvage value (3,000) 0.7938322 (2,381.50)
Annual repair cost 2,000 2.577097 5,154.19
Major maintenance cost to be incurred at end of 2nd year 4,000 0.8573388 3,429.36
Annual operating cost 10,000 2.577097 25,770.97
NPV of cash outflows 51,973.02
Divided by: PVFA, 3 years, 8% 2.577097
Equivalent annual cost of SA 20,167.27
AE 313 SUGGESTED ANSWER Unit 1: SCM Activities
Prepared by: Maybel Kua
4. Effective annual cost of using the fully-automated vacuum sealer. (5 pts)

Amount PVF PV of CF
Purchase price 45,000 1 45,000.00
Salvage value -8,000 0.6805832 (5,444.67)
Annual repair cost 3,000 3.99271 11,978.13
Major maintenance cost to be incurred at the end of the 4th
year 5,000 0.7350299 3,675.15
Annual operating cost 8,000 3.99271 31,941.68
NPV of cash outflows 87,150.29
Divided by: PVFA, 5 years, 8% 3.99271
Equivalent annual cost of FA 21,827.35
5. SA Model is the better model. (1 pt)

6. Net annual benefit of using the better model than the other. (1 pt)
Equivalent annual cost of FA 21,827.35
Equivalent annual cost of SA (20,167.27)
Net annual benefit of SA 1,660.08
7. Guided by your answers in numbers 3 to 6, interpret your suggested choice of model (3 pts).
After accounting for the implicit interest rate, the semi-automated vacuum sealer would be overall cheaper considering all
cash flows from the acquisition, operation and disposal. An average of around P1,660 of cost could be avoided if the semi-
automated vacuum sealer is chosen over the fully-automated one.

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AE 313 SUGGESTED ANSWER Unit 1: SCM Activities

Prepared by: Maybel Kua

Activity 1-3: Cases

2. Interpret the income statement. Is the product profitable (5 pts)?

B. Equivalent Annual Cost of a Capital Investment

4. Effective annual cost of using the fully-automated vacuum sealer. (5 pts)

5. SA Model is the better model. (1 pt)

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