Question 1:

·         suggest the critical impact that the principles of sovereignty can have when Nationalism or Imperialism exists in general. Provide a rationale for your response.

·         Take a position on the role of the U.S. has occupied in addressing terrorism in social and economic sectors during the invasions of Iraq. Support your position with a discussion of the attributes of war (e.g., manpower, weaponry, rules of engagement) in which terrorism played a part.  

Question 2:

·         examine the overall roles of the Non-State participants within a current event that requires a foreign policy on terrorism to be developed. Provide a rationale for your response.

·         Infer whether Non-State participants create either sources of power or new constraints when developing effective and acceptable approaches to solve international, political, and economic problems. Provide at least two (2) examples to support your rationale.

Reading material:

The Historical Evolution of International Politics

This week we will examine the history of international politics, from the early Greek city-states through the 2008 global economic crisis. Many histories of international politics begin with a discussion of the Greek city-states because they are an early example of what later came to be viewed as a system of independent states.

Today’s modern state system is often called the Westphalian system, after the Treaty of Westphalia, signed in 1648, ending the thirty Years’ War. The Treaty of Westphalia established a number of principles that still define the system today. First, it recognized the existence of sovereign states. Second, it defined the rights of sovereign states. The main actor in this system is the state, and the key principle is sovereignty. Recognition is also very important in this system, which is also called a state system.

The state system exists in an anarchic world that is characterized by the balance of power, which means that no single state was powerful enough to defeat the others.

In the nineteenth century, Napoleon Bonaparte attempted to expand French influence across Europe and beyond in a series of wars. The Napoleonic wars led to the Concert of Europe where the four powers agreed to work together to preserve the status quo in European politics.

Imperialism and colonialism characterized much of the nineteenth century. The doctrines of nationalism, self-determination, and democracy also had profound effects. Nationalism helped spur a new wave of colonialism in the second half of the nineteenth century.

By the beginning of the twentieth century there was intense competition among the European powers. The decline of the Austro-Hungarian and Ottoman empires had left Europe in a delicate balance between two great alliances—the Triple Alliance and the Triple Entente. This delicate balance was destroyed with the assassination of Archduke Franz Ferdinand. World War I began soon after. The Treaty of Versailles ended World War I, and it also created the League of Nations.

Only 21 years later, in 1939, World War II began, and it was even more brutal than World War I. World leaders had attempted to use collective security to prevent another world war, but it failed for a number of reasons, including the U.S. policy of isolationism. Prior to World War II, the British attempted to appease Germany and prevent war at a conference in Munich in 1938. The attempt at appeasement failed, and World War II began with Hitler’s attack on Poland, France, and the United Kingdom.

World War II was followed by the Cold War, a period of intense conflict between the United States and the Soviet Union without any actual “hot” war. During the Cold War, the period of highest tension culminated in the Cuban Missile Crisis. After the crisis, both sides agreed to take steps to reduce the chances of such a crisis in the future.

World War II and the Cold War also demonstrated the importance of international economic collaboration. The Bretton Woods system was created to foster expanded international trade in order to increase prosperity. It was also founded to provide stability in the international financial system, as well as promote economic development.

Decolonization followed World War II as many colonial relationships ended due to weakened colonial powers and the increasing importance of the doctrine of self-determination. Poverty was the major problem in most of these countries.

After World War II, the world also saw an increase in the importance of nonstate actors, including multinational corporations, international organizations, and nongovernmental organizations.

The Cold War ended in 1991, and it was followed by an increased willingness to tackle global problems through international collaboration. This period saw some successes, as nonstate actors took on a more significant role in the world.

The events of September 11, 2001 brought a common purpose and common threat, but there was disagreement over the best means of combating terrorism quickly. New challenges also appeared, like the outbreak of H1N1 influenza, but there were also bright spots, like the expansion of the European Union. Amidst these highs and lows, the global economic crisis of 2008 brought up new questions and arguments about the free market and global economic policy

ACCT640 – Managerial Accounting

Fall 2013

Case #3 – Performance Drinks – A further study of:

Regression Analysis

Contribution Margin Reporting

Cost-Volume-Profit Analysis

Differential Analysis

Capital Budgeting

Written by:

Tim Bergsma, CMA, CFE

Assistant Professor – Accounting

Davenport University

Donald W. Maine – College of Business

Email: tbergsma@davenport.edu

Background:

Performance Drinks, LLC is owned by Dave N. Port. Performance Drinks produces a variety of sports centered drinks. They began operations in 1993 shortly after Mr. Port graduated with his M.B.A. from Davenport University. The company saw early success as sports and fitness nutritional products gained new popularity in the 1990’s. Financially the company is sound and has been wise in controlling their growth over the years. However, within the last 18 months Mr. Port has noticed a drop in overall company profitability. This is especially troubling considering that the company has continued to experience top-line growth. Mr. Port and his management team have been considering developing a new product line. However, those plans have been put on hold until they can figure out why their profits are shrinking.

Performance Drinks makes four different kinds of sports drinks. Those drinks are as follows:

• Basic

• Hydration

• Intensity

• Post-Workout

Each of these drinks contains a slightly different nutritional profile and is targeted for different users and uses. The Basic drink has the least nutritional benefit and is targeted for general consumption. The Hydration product targets endurance athletes and specializes in hydration replacement. The Intensity product was designed with energy enhancement in mind. It serves the needs of extreme athletes who need long durations of sustained energy. Lastly, the Post-Workout product is a nutritional replacement product that is generally used following exertion.

Information Related to Case #2 (this section is the same as you received when you were assigned Case #2):

You are the Controller for Performance Drinks. You feel as though you have a good handle on the financial reporting and the overall company performance. However, admittedly, your accounting information system has been designed to serve the needs of external users from an aggregate perspective. To that end you utilize absorption costing exclusively within the organization. You recall studying the concept of Activity Based Management (ABM) and Activity Based Costing (ABC) while taking a managerial accounting course. You wonder if applying those ideas to your business would help to uncover the mystery of the disappearing profits.

You recall from your Management Accounting class that product costs are comprised of:

• Direct Materials

• Direct Labor

• Manufacturing Overhead

You don’t suspect that anything strange is going with your direct costs. You do wonder, however, if a more thorough understanding of your indirect costs may be in order. Over a series of weeks you talk with a variety of employees, representing a multitude of functional areas, from within the company. During those conversations you take careful note on what activities might be consuming resources and how those activities might be measured. You sharpen your pencil and begin to unpack what you’ve learned. You start with reviewing last month’s Product-Level Profit Report. That report is following:

Since your primary area of focus is on the indirect costs you compile the following report which further details your overhead charges:

Overhead Activities:

Using traditional costing methods, which support your absorption costing system, you base overhead allocation on direct labor cost. Furthermore, “fringe benefits” are a function of direct labor cost.

As a result of your many meetings to discuss company overhead you determine that the majority of your indirect costs are related to four primary activities. Those activities are equipment set-ups, production runs, production management and machine-hour capacity. “Production Management” refers to a number of items that are correlated to the number of products the company produces. Ultimately you determine that your key activities have the following usage patterns, as they pertain to the monthly overhead costs:

Upon reviewing budget data from the last budget cycle you discover that the monthly number of set-ups was estimated to be 85. The number of production runs was estimated to be 250. That monthly machine-hour capacity is presently at 20,000 machine-hours. Lastly, Performance Drinks produces a total of four products.

After talking with the Plant Manager you create the following usage data relative to products and activities:

New Information Pertaining to Case #3:

The financial reporting to date has been done using absorption costing. That is to say that the manufacturing costs included direct materials, direct labor, variable manufacturing overhead and fixed manufacturing overhead. In this sense the Income Statements have historically reported Gross Margin. Following is a Monthly Income Statement, based on absorption costing, for Performance Drinks:

You begin to wonder if there would be any value in repackaging the income statement in a way that would report Contribution Margin as opposed to Gross Margin. You know that in order to report Contribution Margin you will need to understand your costs as variable and fixed. Unfortunately the general ledger does not specifically report costs as variable and fixed. You remember learning that regression analysis can be used to generate data that can be used to create a total cost equation. With the total cost equation we can understand our total cost as the sum of fixed costs and variable costs. After doing some research your collect the following data related to overhead and possible causal factors:

Requirement #1

Using the data above, which has also been provided electronically in Excel, run the following regression analyses:

• Linear regression analyzing total overhead cost and units sold

• Linear regression analyzing total overhead cost and machine hours used

• Multiple regression analysis analyzing total overhead cost along with both units sold and machine hours used

Requirement #2

Based on the results from the three regression analyses determine which correlation provides the best estimate of the total cost equation. Explain why you selected the correlation that you did.

Requirement #3

Write out the total cost equation using the results from the multiple regression test.

Requirement #4

Create a “Contribution” formatted income statement using the results from the multiple regression test. Your selling price per unit and your direct material cost per unit and your direct labor cost per unit and your fringe benefits all come from the original “Traditional” income statement. Use the following additional information regarding machine hours, used by each product, to compute variable overhead.

Reference the following sales volumes, by product, for your cost allocation related to units sold. This data will help you calculate variable overhead.

Use the following template as a guide for the format of your “Contribution” Income Statement:

Requirement #5

Compute the following:

• Break-even point in units

• Break-even point in sales dollars

• Targeted profit point in units (use $50,000 as your targeted profit point)

• Margin of Safety

Requirement #6

A new customer has surfaced. That customer has asked you to consider producing a special one-time order for them. This special order would require a modification to the recipe that will slightly increase the variable cost per unit. Furthermore, there would be a small fixed cost addition. The details for the order as follows:

Conduct a differential analysis regarding this special order. Would you accept this order under the conditions provided? Explain and defend your position.

Requirement #7:

Your management team has asked you to consider investing in a new piece of equipment. The details of that investment opportunity are following:

The discount rate for this project is 5%. Compute the following:

• Net Present Value

• Internal Rate of Return

Would you recommend investing in this new piece of equipment? Explain and defend your position.

Clarification on format and data:

Clear communication and professionalism are important. Defending your answer with data is important.

• An electronic copy of this Case (this document) is available within Blackboard. Additionally, an Excel file, containing the necessary data for the case will be available within Blackboard.

• Create one professional report, in Word, that contains all of answers. In that report you should clearly label all of your answers. Make your answers easy to read and find. Imagine you were giving this report to your boss. Further imagine you have to lead your boss and the executive team through your findings. You will then have one Word document as your final product. You will also have one Excel file.

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