finance question

 In this fictitious case, you are a financial analyst in the Automotive Strategy staff of Millennial Automotive Company (MAC), a global manufacturer of automotive vehicles and products. Your responsibilities include evaluating the financial and strategic implications of corporate investment decisions.

Attached are relevant e-mails and data you have received from Manufacturing and Product Development.

For your meeting with the Ford Finance interviewers:

1. Review the attached material and prepare a one-page executive summary that addresses the alternative strategies outlined in the series of e-mail communications.

2. Please include the following items in your summary:

a. Financial analyses for each alternative you consider, as directed by Jess Greentree in her e-mail

b. Your recommendation for which alternative should be chosen (if any)

c. Additional information that would assist you in your evaluation of the alternatives

 From: Jess Greentree

To: Analyst

Subject: FW: New Vehicle for US Market

Date: June 26, 2014

Analyst,

I need your help evaluating a manufacturing sourcing decision. Millennial Automotive is investigating selling a new vehicle, the Ray, in the U.S. market. We need to determine if the Ray should be sourced locally in the U.S. by re-tooling an existing facility or by building a new plant in an emerging market. See the notes below from Product Development and the Manufacturing teams providing the program financial assumptions to use in your analysis.

Please evaluate the following in your analysis:

1. Provide a profit sensitivity analysis using the range of volume projections and the variable freight cost depending on diesel fuel prices for both source locations. Assume a one period analysis.

2. At what combination of diesel prices and volume is the program profitable in each sourcing scenario?

3. What market share should we recommend for the Marketing & Sales team target?

As you will see, there are trade-offs with each sourcing location option. Let me know which one you would recommend based on the available data, and please let me know what other risks or concerns you have with each alternative.

Jess Greentree

Manager – New Model Programs

From: Les Gass

To: Jess Greentree

Subject: FW: New Vehicle for US Market

Date: June 25, 2014

Jess,

As a follow-up to my phone call, here is the data my team was able to pull together.

U.S. Source:

Investment $350 Million – will enable us to re-tool an existing facility where the new vehicle would be produced.

Variable Labor -- $(5,000) per unit

Variable Freight Costs – This is a little more complicated due to the volatility of diesel fuel prices. We’ve estimated the cost to be 500 gallons of diesel fuel per 10 vehicles. We can fit 10 cars on each car hauler.

Emerging Market Source:

Investment $575 Million – will enable us to build a new facility where the new vehicle would be produced.

Variable Labor -- $(1,500) per unit

Variable Freight Costs – This is a little more complicated due to the volatility of diesel fuel prices. We’ve estimated the cost to be 500,000 gallons of diesel fuel per 500 vehicles. We can fit 500 cars on each ocean freight carrier.

The economics office has estimated that diesel cost could range between $3.75/gallon and $6.25/gallon by the time this vehicle is ready for sale in the U.S.

From a Labor Affairs & Human Resources perspective, re-tooling the U.S. plant would mean new jobs in the U.S. These are new jobs that the unions would support, and this would also be positively received by the local media.

If you need any more data from my team, just let me know.

Les Gass

Manager -- Manufacturing Finance

From: Seymore Dinero

To: Les Gass

Subject: New Vehicle for US Market

Date: June 25, 2014

Les,

Per the discussion at our team meeting, we were able to pull together some data for the study of the Ray.

The average material cost estimates for the new vehicle are below (all in $USD):

U.S. Source -- $(14,000) / Unit

Emerging Market -- $(12,000) / Unit

Note that the emerging market material cost is significantly lower than the U.S. sourced vehicle since many of the parts would be sourced locally (in their local currency) around the assembly facility. While the local suppliers don’t have the experience of our U.S. suppliers, they have proven they can meet our stringent specifications.

Additionally, U.S. Marketing & Sales has provided a volume projection for the vehicle segment for our planned launch year which is about four years away. They also provided their market share projection given different price points. Please see their data in the attachment below and incorporate into your sourcing decision analysis.

Projected Original Base Case Vehicle Segment Volume 1,500,000 Ray Market Share Projections at Various Price Points Vehicle Revenue $23,500 $23,000 $22,500 $22,000 $21,500 $21,000 $20,500 Vehicle Segment Share                            7%        8%        9%        10%       11%       12%      13%

 In this fictitious case, you are a financial analyst in the Automotive Strategy staff of Millennial Automotive Company (MAC), a global manufacturer of automotive vehicles and products. Your responsibilities include evaluating the financial and strategic implications of corporate investment decisions.

Attached are relevant e-mails and data you have received from Manufacturing and Product Development.

For your meeting with the Ford Finance interviewers:

1. Review the attached material and prepare a one-page executive summary that addresses the alternative strategies outlined in the series of e-mail communications.

2. Please include the following items in your summary:

a. Financial analyses for each alternative you consider, as directed by Jess Greentree in her e-mail

b. Your recommendation for which alternative should be chosen (if any)

c. Additional information that would assist you in your evaluation of the alternatives

 From: Jess Greentree

To: Analyst

Subject: FW: New Vehicle for US Market

Date: June 26, 2014

Analyst,

I need your help evaluating a manufacturing sourcing decision. Millennial Automotive is investigating selling a new vehicle, the Ray, in the U.S. market. We need to determine if the Ray should be sourced locally in the U.S. by re-tooling an existing facility or by building a new plant in an emerging market. See the notes below from Product Development and the Manufacturing teams providing the program financial assumptions to use in your analysis.

Please evaluate the following in your analysis:

1. Provide a profit sensitivity analysis using the range of volume projections and the variable freight cost depending on diesel fuel prices for both source locations. Assume a one period analysis.

2. At what combination of diesel prices and volume is the program profitable in each sourcing scenario?

3. What market share should we recommend for the Marketing & Sales team target?

As you will see, there are trade-offs with each sourcing location option. Let me know which one you would recommend based on the available data, and please let me know what other risks or concerns you have with each alternative.

Jess Greentree

Manager – New Model Programs

From: Les Gass

To: Jess Greentree

Subject: FW: New Vehicle for US Market

Date: June 25, 2014

Jess,

As a follow-up to my phone call, here is the data my team was able to pull together.

U.S. Source:

Investment $350 Million – will enable us to re-tool an existing facility where the new vehicle would be produced.

Variable Labor -- $(5,000) per unit

Variable Freight Costs – This is a little more complicated due to the volatility of diesel fuel prices. We’ve estimated the cost to be 500 gallons of diesel fuel per 10 vehicles. We can fit 10 cars on each car hauler.

Emerging Market Source:

Investment $575 Million – will enable us to build a new facility where the new vehicle would be produced.

Variable Labor -- $(1,500) per unit

Variable Freight Costs – This is a little more complicated due to the volatility of diesel fuel prices. We’ve estimated the cost to be 500,000 gallons of diesel fuel per 500 vehicles. We can fit 500 cars on each ocean freight carrier.

The economics office has estimated that diesel cost could range between $3.75/gallon and $6.25/gallon by the time this vehicle is ready for sale in the U.S.

From a Labor Affairs & Human Resources perspective, re-tooling the U.S. plant would mean new jobs in the U.S. These are new jobs that the unions would support, and this would also be positively received by the local media.

If you need any more data from my team, just let me know.

Les Gass

Manager -- Manufacturing Finance

From: Seymore Dinero

To: Les Gass

Subject: New Vehicle for US Market

Date: June 25, 2014

Les,

Per the discussion at our team meeting, we were able to pull together some data for the study of the Ray.

The average material cost estimates for the new vehicle are below (all in $USD):

U.S. Source -- $(14,000) / Unit

Emerging Market -- $(12,000) / Unit

Note that the emerging market material cost is significantly lower than the U.S. sourced vehicle since many of the parts would be sourced locally (in their local currency) around the assembly facility. While the local suppliers don’t have the experience of our U.S. suppliers, they have proven they can meet our stringent specifications.

Additionally, U.S. Marketing & Sales has provided a volume projection for the vehicle segment for our planned launch year which is about four years away. They also provided their market share projection given different price points. Please see their data in the attachment below and incorporate into your sourcing decision analysis.

Projected Original Base Case Vehicle Segment Volume 1,500,000 Ray Market Share Projections at Various Price Points Vehicle Revenue $23,500 $23,000 $22,500 $22,000 $21,500 $21,000 $20,500 Vehicle Segment Share                            7%        8%        9%        10%       11%       12%      13%

 In this fictitious case, you are a financial analyst in the Automotive Strategy staff of Millennial Automotive Company (MAC), a global manufacturer of automotive vehicles and products. Your responsibilities include evaluating the financial and strategic implications of corporate investment decisions.

Attached are relevant e-mails and data you have received from Manufacturing and Product Development.

For your meeting with the Ford Finance interviewers:

1. Review the attached material and prepare a one-page executive summary that addresses the alternative strategies outlined in the series of e-mail communications.

2. Please include the following items in your summary:

a. Financial analyses for each alternative you consider, as directed by Jess Greentree in her e-mail

b. Your recommendation for which alternative should be chosen (if any)

c. Additional information that would assist you in your evaluation of the alternatives

 From: Jess Greentree

To: Analyst

Subject: FW: New Vehicle for US Market

Date: June 26, 2014

Analyst,

I need your help evaluating a manufacturing sourcing decision. Millennial Automotive is investigating selling a new vehicle, the Ray, in the U.S. market. We need to determine if the Ray should be sourced locally in the U.S. by re-tooling an existing facility or by building a new plant in an emerging market. See the notes below from Product Development and the Manufacturing teams providing the program financial assumptions to use in your analysis.

Please evaluate the following in your analysis:

1. Provide a profit sensitivity analysis using the range of volume projections and the variable freight cost depending on diesel fuel prices for both source locations. Assume a one period analysis.

2. At what combination of diesel prices and volume is the program profitable in each sourcing scenario?

3. What market share should we recommend for the Marketing & Sales team target?

As you will see, there are trade-offs with each sourcing location option. Let me know which one you would recommend based on the available data, and please let me know what other risks or concerns you have with each alternative.

Jess Greentree

Manager – New Model Programs

From: Les Gass

To: Jess Greentree

Subject: FW: New Vehicle for US Market

Date: June 25, 2014

Jess,

As a follow-up to my phone call, here is the data my team was able to pull together.

U.S. Source:

Investment $350 Million – will enable us to re-tool an existing facility where the new vehicle would be produced.

Variable Labor -- $(5,000) per unit

Variable Freight Costs – This is a little more complicated due to the volatility of diesel fuel prices. We’ve estimated the cost to be 500 gallons of diesel fuel per 10 vehicles. We can fit 10 cars on each car hauler.

Emerging Market Source:

Investment $575 Million – will enable us to build a new facility where the new vehicle would be produced.

Variable Labor -- $(1,500) per unit

Variable Freight Costs – This is a little more complicated due to the volatility of diesel fuel prices. We’ve estimated the cost to be 500,000 gallons of diesel fuel per 500 vehicles. We can fit 500 cars on each ocean freight carrier.

The economics office has estimated that diesel cost could range between $3.75/gallon and $6.25/gallon by the time this vehicle is ready for sale in the U.S.

From a Labor Affairs & Human Resources perspective, re-tooling the U.S. plant would mean new jobs in the U.S. These are new jobs that the unions would support, and this would also be positively received by the local media.

If you need any more data from my team, just let me know.

Les Gass

Manager -- Manufacturing Finance

From: Seymore Dinero

To: Les Gass

Subject: New Vehicle for US Market

Date: June 25, 2014

Les,

Per the discussion at our team meeting, we were able to pull together some data for the study of the Ray.

The average material cost estimates for the new vehicle are below (all in $USD):

U.S. Source -- $(14,000) / Unit

Emerging Market -- $(12,000) / Unit

Note that the emerging market material cost is significantly lower than the U.S. sourced vehicle since many of the parts would be sourced locally (in their local currency) around the assembly facility. While the local suppliers don’t have the experience of our U.S. suppliers, they have proven they can meet our stringent specifications.

Additionally, U.S. Marketing & Sales has provided a volume projection for the vehicle segment for our planned launch year which is about four years away. They also provided their market share projection given different price points. Please see their data in the attachment below and incorporate into your sourcing decision analysis.

Projected Original Base Case Vehicle Segment Volume 1,500,000 Ray Market Share Projections at Various Price Points Vehicle Revenue $23,500 $23,000 $22,500 $22,000 $21,500 $21,000 $20,500 Vehicle Segment Share                            7%        8%        9%        10%       11%       12%      13%

 Anna Van Degna, supervisor, of housecleaning for Hotel Dell, was surprised by her summary performance report for March given below.

Anna was disappointed. She thought she had done a good job controlling housekeeping labor and materials usage but her performance report revealed an unfavorable variance of $10,544. She had been hoping for a bonus for her good work but now expected a series of questions from her manager.

The cost budget for housekeeping is based on standard costs. At the beginning of a month, Anna receives a report from Hotel Delll’s Sales Department outlining the planned room activity for the month. Anna then schedules labor and materials using this information. The March budget for the housekeeping was based on 8,000 room nights. Each room night is budgeted based on the following standards for various materials, labor, and overhead:

With 8,900 room nights sold, actual costs and usage for housekeeping during April were:

$8,190 for 26,500 bottles of shower supplies.

$15,563 for 7,900 towels.

$27,339 for 88,500 lbs. of laundry.

$51,591 for 4,350 labor hours.

$25,839 in total VOH

$41,222 in FOH

QUESTIONS TO ANSWER:

(A) Develop a complete budget column for the above performance report presented to Anna. Break it down by expense category. The following format, with additional lines for expense categories is suggested:

(B) Evaluate the usefulness of the cost center performance report presented to Anna.

(C) Prepare a more logical performance report where standard allowed is based on actual output. Also, split each variance into its price/rate/spending and quantity/efficiency components (except fixed of course). The following format, with additional lines for expense categories, is suggested:

(D) Explain to Anna's boss what your report suggests about Anna's department performance.
(E) Identify additional non financial performance measures management might consider when evaluating the performance of the housekeeping department and Anna as a manager.