UGGL Boots UGGL Boots manufactures fashion footware products and sells them thro
ID: 2445056 • Letter: U
Question
UGGL Boots
UGGL Boots manufactures fashion footware products and sells them through retailers. UGGL would like to devise and offer a supply contract to the retailers it works with in order to share risk and/or revenue. As discussed in
class, retailers face an uncertain demand and must decide how many units to order from UGGL. UGGL has decided to base the calculations on a medium sized retail chain. Suppose that the table on the right summarizes the forecast of total demand faced by the retailer (all stores of the chain). The retailer buys boots from UGGL at a price of 180TL and sells them at 300TL. UGGL has a variable production cost of 90TL per unit and a fixed cost of 150,000TL regardless of the quantity. Any units that cannot be sold by the retailer due to low demand are sold to an outlet store at a salvage price of 110TL. In case UGGL and the supplier agree on a supply contract that allows the retailer to return some units back then UGGL will sell those units to an outlet store at the same salvage price of 110TL.
Demand Probability
2000
10%
2250
12%
2500
16%
2750
24%
3000
18%
3250
3500
12%
8%
Prepare a written report presenting calculation tables, graphs, and discussions. Submit your report at the beginning of the class.
a) Under the sequential supply chain assumption (i.e. no supply contract), find the expected profit of the retailer for each of the demand forecast quantities. What is the optimum order quantity for the retailer? What is UGGL’s profit for this quantity?
b) (Buyback Contract) Assume that UGGL agrees to buyback any units that cannot be sold by the end of the season from the retailer at a price of 150TL. UGGL sells those units bought back to the outlet store. Find the expected profit of the retailer and the expected profit of UGGL for each order quantity. Prepare a graph showing the expected profits. What is the optimum order quantity for the retailer? What are the expected profits of the retailer and UGGL for this quantity?
c) (Revenue Sharing Contract) Assume that UGGL agrees to lower the wholesale price from 180TL to 150TL and in return retailer shares 12% of its revenue with UGGL. In this case define retailer’s revenue as the total earnings from regular sales only, earnings from salvaged units are not included in the retailer revenue (i.e. are not shared). Find the expected profit of the retailer and the expected profit of UGGL for each order quantity. Prepare a graph showing the expected profits. What is the optimum order quantity for the retailer? What are the expected profits of the retailer and UGGL for this quantity?
d) (Quantity Flexibility Contract) Assume that UGGL agrees for the retailer to return back up to a maximum of 500 unsold units (UGGL provides a full refund of the wholesale price 180TL for each unit returned back). UGGL then sells those units to the outlet store. Also if the retailer has unsold units in excess of 500 then it sells those units to the outlet store as well. Find the expected profit of the retailer and the expected profit of UGGL for each order quantity. Prepare a graph showing the expected profits. What is the optimum order quantity for the retailer? What are the expected profits of the retailer and UGGL for this quantity?
e) (Sales Rebate Contract) Assume that UGGL agrees to pay a rebate of 30TL to the retailer for each unit sold in excess of 2500. Any unsold units are sold to the outlet store by the retailer. Find the expected profit of the retailer and the expected profit of UGGL for each order quantity. Prepare a graph showing the expected profits. What is the optimum order quantity for the retailer? What are the expected profits of the retailer and UGGL for this quantity?
f) (Risk Analysis) Prepare a separate risk analysis plot for the retailer for each of the supply contracts comparing profit distribution at the optimum order quantity versus the optimum of the sequential supply chain. Identify the supply contract you would choose and discuss why.
2000
10%
2250
12%
2500
16%
2750
24%
3000
18%
3250
3500
12%
8%
Explanation / Answer
Balancesheet and Profit and loss account should be taken into consideration to arrive at the analysis of the statement .We also requires the cash flow statement for the year ended
When a bond is sold at a premium, the amount of the bond premium must be amortized to interest expense over the life of the bond. In other words, the credit balance in the account Premium on Bonds Payable must be moved to the account Interest Expense thereby reducing interest expense in each of the accounting periods that the bond is outstanding.
The preferred method for amortizing the bond premium is the effective interest rate method or the effective interest method. Under the effective interest rate method the amount of interest expense in a given year will correlate with the amount of the bond's book value. This means that when a bond's book value decreases, the amount of interest expense will decrease. In short, the effective interest rate method is more logical than the straight-line method of amortizing bond premium.
Before we demonstrate the effective interest rate method for amortizing the bond premium pertaining to a 5-year 9% $100,000 bond issued in an 8% market for $104,100 on January 1, 2014, let's outline a few concepts:
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