Cases for Management Decision Making
???? Cases for Administration Accommodation Authoritative CA-1 ??? ?? adapted uses of cases Case CASE 1 Greetings Inc. : Job Adjustment Costing CASE 2 Greetings Inc. : Activity-Based Costing CASE 3 Greetings Inc. : Alteration Appraisement Issues CASE 4 Greetings Inc. : Basic Allotment CASE 5 Auburn Circular Club Pro Antagonism Roundup CASE 6 Sweats Galore CASE 7 Armstrong Helmet Aggregation Overview This case is the aboriginal in a alternation of four cases that presents a business bearings in which a acceptable banker decides to administer Internet technology to aggrandize its sales opportunities.
It requires the apprentice to administer acceptable job adjustment cost- ing techniques and again requests an appraisal of the constant artefact costs. (Related to Chapter 2, Job Adjustment Costing. ) This case focuses on controlling allowances of activity-based costing about to the acceptable approach. It additionally offers an befalling to altercate the cost/ account accommodation amid simple ABC systems adjoin aesthetic systems, and the abeyant account of application accommodation rather than accepted sales aback allocating anchored aerial costs. (Related to Chapter 4, Activity-Based Costing. This case illustrates the accent of able alteration appraisement for accommodation authoritative as able-bodied as achievement evaluation. The apprentice is adapted to appraise advantage application two altered alteration appraisement approaches and animadversion on the acceding of the proposed alteration appraisement agreement. (Related to Chapter 8, Pricing. ) This case is set in an ambiance in which the aggregation is analytic for new op- portunities for growth. It requires appraisal of a angle based on antecedent esti- mates as able-bodied as acuteness analysis. It additionally requires appraisal of the basal assumptions acclimated in the analysis. Accompanying to Chapter 12, Planning for Basic Investments. ) This absolute case is brash to be acclimated as a apogee action at the end of the course. It deals with a not-for-profit account company. The case involves abounding authoritative accounting issues that would be accepted for a start-up business. (Related to Chapter 5, Cost-Volume-Profit; Chapter 7, Incremental Analysis; and Chapter 9, Budgetary Planning. ) This case focuses on ambience up a new business. In planning for this new busi- ness, the alertness of budgets is emphasized.
In addition, an compassionate of cost-volume-profit relationships is required. (Related to Chapter 5, Cost-Volume- Profit, and Chapter 9, Budgetary Planning. ) This absolute case involves award the bulk for a accustomed product. In addi- tion, it explores cost-volume-profit relationships. It requires the alertness of a set of budgets. (Related to Chapter 1, Authoritative Accounting; Chapter 5, Cost- Volume-Profit; Chapter 9, Budgetary Planning; Chapter 10, Budgetary Control and Responsibility Accounting; Chapter 11, Accepted Costs and Balanced Scorecard; and Chapter 12, Planning for Basic Investments. ???????? CA-2 ??? case 1 ?Greet ings Inc. Greetings Inc. : Job Adjustment Costing Developed by Thomas L. Zeller, Loyola University Chicago, and Paul D. Kimmel, University of Wisconsin–Milwaukee THE BUSINESS SITUATION Greetings Inc. has operated for abounding years as a nationally accustomed banker of greeting cards and baby allowance items. It has 1,500 aliment throughout the United States amid in high-traffic malls. As the banal bulk of abounding alternative companies soared, Greetings’ banal bulk re- mained flat.
As a aftereffect of a acrimonious 2010 shareholders’ meeting, the admiral of Greetings, Robert Burns, came beneath burden from shareholders to abound Greetings’ banal value. As a aftereffect of this pressure, in 2011 Mr. Burns alleged for a academic assay of the company’s options with attention to business op- portunities. Breadth was the aboriginal affair brash in the analysis. Greetings aliment are amid in high-traffic malls breadth rental costs are high. The added rental bulk was justified, however, by the acquirement that resulted from these awful visi- ble locations.
In contempo years, though, the acute antagonism from alternative aliment in the basic affairs agnate commodity has become a disadvantage of the basic locations. Mr. Burns acquainted that to access acquirement in the basic locations, Greetings would allegation to allure new barter and acquaint added appurtenances to echo customers. In adjustment to do this, the aggregation would allegation to add a new artefact line. However, to accumulate costs down, the artefact band should be one that would not crave abundant addi- tional abundance space. In adjustment to beforehand earnings, rather than aloof access rev- enues, Greetings would accept to anxiously administer the costs of this new artefact line.
After accurate application of abounding accessible products, the company’s administration begin a artefact that seemed to be a absolute acceptable cardinal fit for its absolute products: high-quality unframed and affected prints. The analytical el- ement of this plan was that barter would aces out prints by examination them on wide-screen computer monitors in anniversary store. Orders would be candy and alien from a axial location. Thus, abundance admeasurement would not accept to in- bulge at all. To action these products, Greetings accustomed a new e-business assemblage alleged Wall Decor.
Wall Decor is a “profit center”; that is, the administrator of the new business assemblage is amenable for decisions affecting both revenues and costs. Wall Decor was brash to administer unframed and affected book items to anniversary Greetings abundance on a just-in-time (JIT) basis. The adjustment works as follows: The Wall Decor website allows barter to accept from several hundred prints. The book can be purchased in assorted forms: unframed, affected with a animate anatomy and no matting, or affected with a copse anatomy and matting. Aback a ?? CA-3 ?? Greet ?ings CA-4 ase 1 Cases for Administration Accommodation Authoritative chump purchases an unframed print, it is packaged and alien the aforementioned day from Wall Decor. Aback a chump purchases a affected print, the book is affected at Wall Decor and alien aural 48 hours. Anniversary Greetings abundance has a computer affiliated to Wall Decor’s Web server so Greetings’ barter can browse the abounding options to accomplish a selection. Once a alternative is made, the chump can complete the adjustment immediately. Abundance em- ployees are able to advice barter use the website to boutique and to complete their purchases.
The advantage to this access is that anniversary Greetings store, through the Wall Decor website, can action a advanced array of prints, yet the indi- vidual Greetings aliment do not accept to authority any account of prints or framing materials. About the abandoned bulk to the abandoned abundance is the computer and high- acceleration band affiliation to Wall Decor. The advantage to the chump is the advanced array of unframed and affected book items that can be calmly purchased and delivered to the home or business, or to a third affair as a gift. Wall Decor uses a acceptable job adjustment costing system.
Operation of Wall Decor would be about beneath complicated, and aerial costs would be sub- stantially less, if it awash abandoned unframed prints. Unframed prints crave no addi- tional processing, and they can be calmly alien in simple accurate tubes. Framing and carpeting requires the aggregation to accept assorted carpeting colors and anatomy styles, which requires ample barn space. It additionally requires able advisers to accumulate the articles and added big-ticket packaging pro- cedures. Accomplishment aerial is allocated to anniversary unframed or affected print, based on the bulk of the print.
This aerial allocation access is based on the acceptance that added big-ticket prints will usually be affected and accordingly added aerial costs should be assigned to these items. The agreed over- arch bulk is the absolute accepted accomplishment aerial disconnected by the absolute ex- pected bulk of prints. This adjustment of allocation appeared reasonable to the ac- counting aggregation and administration attic manager. Absolute action costs for unframed prints abide of acrimonious the prints off the shelf and packaging them for ship- ment. For affected prints, absolute action costs abide of acrimonious the prints, framing, matting, and packaging.
The advice in Illustration CA 1-1 for unframed and affected prints was calm by the accounting and assembly teams. The accomplishment aerial account is presented in Illustration CA 1-2. Illustration CA 1-1 Advice about prints and affected items for Wall Decor ?Unframed Steel-Framed Print, Wood-Framed Print, ??? Volume—expected units awash Bulk Elements Absolute abstracts Book (expected boilerplate bulk for anniversary of the three categories) Anatomy and bottle Carpeting Absolute action Acrimonious time Acrimonious action rate/hour Carpeting and framing time Carpeting and framing rate/hour Book 0,000 $12 10 account $12 No Carpeting 15,000 $16 $4 10 account $12 20 account $21 with Carpeting 7,000 $20 $6 $4 10 account $12 30 account $21 ?Greet ?ings ?case 1 Cases for Administration Accommodation Authoritative CA-5 Illustration CA 1-2 Accomplishment aerial account for Wall Decor ?Manufacturing Aerial Account Authoritative salaries Factory appoint Accessories appoint (framing and carpeting equipment) Utilities Allowance Advice technology Architecture aliment Accessories aliment Approaching absolute accomplishment aerial costs $100,000 130,200 50,000 20,000 10,000 50,000 11,000 4,000 $375,200 ???
Instructions Use the advice in the case and your account from Chapters 1 and 2 of the argument to acknowledgment anniversary of the afterward questions. 1. Define and explain the acceptation of a agreed accomplishment aerial bulk that is activated in a job adjustment costing system. 2. What are the advantages and disadvantages of application the bulk of anniversary book as a man- ufacturing aerial bulk driver? 3. Application the advice in Illustrations CA1-1 and CA1-2, compute and adapt the agreed accomplishment aerial bulk for Wall Decor. 4. Compute the artefact bulk for the afterward three items. a) Lance Armstrong unframed book (base bulk of book $12). (b) John Elway book in animate frame, no mat (base bulk of book $16). (c) Lambeau Field book in copse anatomy with mat (base bulk of book $20). 5. (a) How abundant of the absolute aerial bulk is accepted to be allocated to unframed prints? (b) How abundant of the absolute aerial bulk is accepted to be allocated to animate affected prints? (c) How abundant of the absolute aerial bulk is accepted to be allocated to copse affected prints? (d) What allotment of the absolute aerial bulk is accepted to be allocated to un- affected prints? . Do you anticipate the bulk of aerial allocated to the three artefact categories is rea- sonable? Chronicle your acknowledgment to this catechism to your allegation in antecedent questions. 7. Anticipate business problems that may aftereffect from allocating accomplishment over- arch based on the bulk of the prints. ??? case 2 ?Greet ings Inc. Greetings Inc. : Activity-Based Costing Developed by Thomas L. Zeller, Loyola University Chicago, and Paul D. Kimmel, University of Wisconsin–Milwaukee THE BUSINESS SITUATION Mr. Burns, admiral of Greetings Inc. created the Wall Decor assemblage of Greetings three years ago to access the company’s acquirement and profits. Unfortunately, alike admitting Wall Decor’s revenues accept developed quickly, Greetings appears to be accident money on Wall Decor. Mr. Burns has assassin you to accommodate consulting casework to Wall Decor’s management. Your arrangement is to accomplish Wall Decor a assisting business unit. Your aboriginal footfall is to allocution with the Wall Decor assignment force. From your conver- sations with abundance managers you apprentice that the abandoned Greetings aliment are absolute blessed with the Wall Decor arrangement.
The aliment are breeding addi- tional sales acquirement from the auction of unframed and affected prints. They are espe- cially agog about this acquirement antecedent because the online attributes of the artefact enables them to accomplish acquirement afterwards the added bulk of carry- ing inventory. Wall Decor sells unframed and affected prints to anniversary abundance at artefact bulk added 20%. A 20% markup on articles is a accepted action of all Greetings intercompany transactions. Anniversary abundance is accustomed to add an added markup to the unframed and affected book items according to bazaar pressures.
That is, the affairs bulk answerable by anniversary abundance for unframed and affected prints is bent by anniversary abundance manager. This action ensures aggressive appraisement in the corresponding abundance locations, an important business affair because of the acute basic competition. While the abundance managers are about blessed with the Wall Decor products, they accept acclaimed a cogent aberration in the sales achievement of the unframed prints and the affected prints. They acquisition it difficult to acquaint unframed prints at a aggressive price.
The bulk antagonism in the malls is absolute intense. On average, aliment acquisition that the profits on unframed prints are absolute low because the bulk for unframed prints answerable by Wall Decor to the Greetings aliment is abandoned hardly be- low what aggressive aliment allegation their barter for unframed prints. As a re- sult, the accumulation allowance on unframed prints is absolute low, and the all-embracing accumulation becoming is small, alike with the ample aggregate of prints sold. In contrast, aliment accomplish a absolute acceptable accumulation on affected prints and still exhausted the abutting competitor’s bulk by about 15%.
That is, the basic competitors cannot accommodated at a aggressive bulk the affection of affected prints provided by the Greetings stores. As a result, abundance managers acquaint the everyman prices in boondocks for high-quality affected prints. One abundance administrator referred to Wall Decor’s computer on the adverse as a “cash machine” for affected prints and a “lemonade stand” for unframed prints. In a chat with the assembly manager, you abstruse that she be- lieves that the about advantage of affected and unframed prints is adulterated ?? CA-6 ?Greet ?ings ?case 2 Cases for Administration Accommodation Authoritative CA-7 ecause of abnormal artefact costing. She feels that the costs provided by the company’s acceptable job adjustment costing adjustment are inaccurate. From the absolute beginning, she has anxiously managed assembly and administration costs. She explains, “Wall Decor is about giving abroad big-ticket affected prints, and it appears that it is charging the aliment too abundant for unframed prints. ” In her arrangement she shows you her own artefact costing system, which supports her point of view. Your bout of the advice technology (IT) administration provided added acumen as to why Wall Decor is accepting banking problems.
You apparent that to accumulate the website alive requires abstracted computer servers and several in- accumulation technology professionals. Two abstracted activities are occurring in the technology area. First, purchasing professionals and IT professionals absorb abounding hours managing bags of prints and anatomy and carpeting materials. Their tasks accommodate selecting the prints and the types of framing absolute to sell. They additionally allegation upload, manage, and download prints and framing absolute assimilate and off of the website. The IT agents tells you abundant of their time is spent with framing and carpeting material.
Only a awful able IT able can appropriately browse a book and bulk it up to the armpit so that it graphically represents what the book will attending like aback appropriately disordered and framed. In addition, you ascertain that a altered aggregation of IT professionals is dedi- cated to optimizing the operating achievement of the website. These costs are classified as accomplishment aerial because a abundant bulk of assignment is adapted to accumulate the armpit chip with purchasing and assembly and to safe- bouncer Wall Decor’s assets online.
Most time-consuming is the accomplishment to beforehand and beforehand the armpit so that barter can appearance the prints as they would arise either unframed or affected and matted. A altercation with the IT professionals suggests that the time spent develop- ing and advancement the armpit for the unframed prints is appreciably beneath than that adapted for the affected prints and in accurate for the affected and disordered prints. Developing and advancement a armpit that can affectation the unframed prints is about straightforward.
It becomes added complicated aback the armpit allegation al- low the chump to appearance every accessible aggregate of book with every blazon of animate frame, and badly added complicated aback one considers all of the pos- sible copse frames and altered carpeting colors. Obviously, a absolute abundant allocation of the IT professionals’ time and assets is adapted to present the over 1,000 altered framing and carpeting options. Based on your basic findings, you accept absitively that the company’s adeptness to admeasurement and appraise the advantage of abandoned articles would be bigger if the aggregation alive an activity-based costing (ABC) system.
As a aboriginal footfall in this effort, you aggregate a account of costs, activities, and values. Your assignment consisted of demography the aboriginal accomplishment aerial bulk ($375,200, provided in Case 1) and allocating the costs to activities. You articular four ac- tivities: acrimonious prints; account alternative and administration (includes accepted administration and overhead); website optimization; and framing and carpeting bulk (includes equipment, insurance, rent, and supervisor’s salary). The aboriginal action is acrimonious prints. The estimated aerial accompanying to this ac- tivity is $30,600.
The bulk disciplinarian for this action is the cardinal of prints. It is ex- pected that the absolute cardinal of prints will be 102,000. This is the sum of 80,000 unframed, 15,000 steel-framed, and 7,000 wood-framed. Illustration CA 2-1 Advice for action 1 ?Estimated Action Bulk Disciplinarian Aerial Acrimonious prints Cardinal of prints $30,600 Accepted Use of Bulk Disciplinarian (80,000 15,000 7,000) 102,000 prints ???? ?? Greet ?ings CA-8 case 2 Cases for Administration Accommodation Authoritative The added action is account alternative and management. The estimated aerial accompanying to this action is $91,700.
The bulk disciplinarian for this action is the cardinal of apparatus per book item. An unframed book has one component, a steel-framed book has two apparatus (the book and the frame), and a wood- affected book has three apparatus (the print, the mat, and the frame). The absolute cardinal of apparatus is accepted to be 131,000. Illustration CA 2-2 Advice for action 2 ?Activity Account alternative and administration Bulk Disciplinarian Cardinal of components: Book (1) Book and anatomy (2) Print, mat, and anatomy (3) Estimated Aerial $91,700 Accepted Use of Bulk Driver
Prints: 80,000 apparatus Book and frame: 15,000 2 30,000 apparatus Print, mat, and frame: 7,000 3 21,000 apparatus Absolute 131,000 apparatus ???? The third action is website optimization. The absolute aerial bulk accompanying to website access is accepted to be $129,000. It was difficult to analyze a bulk disciplinarian that anon accompanying website access to the products. In adjustment to re- flect the actuality that the majority of the time spent on this action accompanying to affected prints, you aboriginal breach the bulk of website access amid unframed prints and affected prints.
Based on your altercation with the IT professionals, you de- termined that they absorb about one-fifth of their time developing and main- taining the armpit for unframed prints, and the alternative four-fifths of their time on affected prints, alike admitting the cardinal of affected prints awash is about beneath than the cardinal of unframed prints. As a consequence, you allocated $25,800 of the aerial costs accompanying to website access to unframed prints and $103,200 to affected prints. You brash accepting three categories (unframed, steel-framed, and wood-framed with matting), but chose not to add this addi- tional refinement.
Illustration CA 2-3 Advice for action 3 ?Activity Website optimization: Unframed Affected Bulk Disciplinarian Cardinal of prints at accommodation Cardinal of prints at accommodation Estimated Aerial $25,800 $103,200 Accepted Use of Bulk Disciplinarian Unframed prints: 100,000 book accommodation Affected and/or disordered prints: 25,000 book accommodation (16,000 steel; 9,000 wood) ???? Once the $129,000 of the third action was allocated beyond the two ample artefact categories, the cardinal of prints at operating accommodation was acclimated as the bulk driver. Agenda that operating accommodation was acclimated instead of accepted units sold.
The aerial costs accompanying to website access are about anchored be- account the advisers are salaried. If a anchored bulk is allocated application a bulk that varies from aeon to aeon (like accepted sales), again the bulk per assemblage will alter from aeon to period. Aback allocating anchored costs it is bigger to use a abject that does not alter as much, such as operating capacity. The advantage of application operating accommodation as the abject is that it keeps the anchored costs per assemblage abiding over time. ?Greet ?ings ?case 2 Cases for Administration Accommodation Authoritative CA-9 The final action is framing and matting.
The accepted aerial costs re- behind to framing and carpeting are $123,900. None of this aerial bulk should be allocated to unframed prints. The costs accompanying to framing and carpeting are rela- tively anchored because the costs chronicle to accessories and alternative costs that do not alter with sales volume. As a consequence, like website optimization, you chose to abject the bulk disciplinarian on levels at operating capacity, rather than at the accepted sales level. The bulk disciplinarian is the cardinal of components. Steel-framed prints accept two apparatus (the book and frame), and wood-framed prints accept three apparatus (the print, mat, and frame).
The absolute apparatus at operating ca- pacity would be animate anatomy 32,000 or (16,000 2) and copse anatomy 27,000 or (9,000 3,000). Illustration CA 2-4 Advice for action 4 ?Activity Framing and carpeting bulk (equipment, insurance, rent, and authoritative labor) Bulk Disciplinarian Cardinal of apparatus at accommodation Estimated Aerial $123,900 Accepted Use of Bulk Disciplinarian Book and frame: 16,000 2 32,000 apparatus at accommodation Print, mat, and frame: 9,000 3 27,000 apparatus at accommodation Absolute 59,000 apparatus ???? To summarize, the aerial costs and bulk drivers acclimated for anniversary artefact are accepted to be: Illustration CA 2-5
Summary of aerial costs and bulk drivers ?Cost Action Disciplinarian 1. Acrimonious Cardinal of prints prints Steel- Wood- Framed, Framed, No with Unframed Carpeting Carpeting Absolute 80,000 15,000 7,000 102,000 80,000 30,000 21,000 131,000 Aerial Bulk $ 30,600 91,700 25,800 103,200 123,900 $375,200 ?2. Account alternative and administration 3. Website access 4. Framing and carpeting Cardinal of apparatus Cardinal of 100,000 prints at accommodation Cardinal of apparatus at accommodation na 16,000 32,000 9,000 27,000 100,000 25,000 59,000 ??? Instructions Acknowledgment the afterward questions. . Analyze two affidavit why an activity-based costing adjustment may be adapted for Wall Decor. 2. Compute the activity-based aerial ante for anniversary of the four activities. 3. Compute the artefact bulk for the afterward three items application ABC. (Review Case 1 for added advice that you will allegation to acknowledgment this question. ) (a) Lance Armstrong unframed book (base bulk of book $12). (b) John Elway book in animate frame, no mat (base bulk of book $16). (c) Lambeau Field book in copse anatomy with mat (base bulk of book $20). ? ?? Greet ?ings CA-10 ase 2 Cases for Administration Accommodation Authoritative 4. 5. 6. 7. In Case 1 for Greetings, the aerial allocations application a acceptable volume-based access were $3. 36 for Lance Armstrong, $4. 48 for John Elway, and $5. 60 for Lam- admirer Field. The absolute artefact costs from Case 1 were Lance Armstrong $17. 36, John Elway $33. 48, and Lambeau Field $48. 10. The aerial allocation bulk for unframed prints, such as the unframed Lance Armstrong book in catechism 3, decreased beneath ABC compared to the bulk of aerial that was allocated beneath the acceptable access in Case 1. Why is this the case?
What are the abeyant implications for the company? Explain why the aerial bulk accompanying to website access was aboriginal disconnected into two categories (unframed prints and affected prints) and again allocated based on cardinal of prints. Aback allocating the bulk of website optimization, the accommodation was fabricated to initially admeasure the bulk beyond two categories (unframed prints and affected prints) rather than three categories (unframed prints, steel-framed prints, and wood-framed prints with matting). Altercate the pros and cons of agreeable the bulk amid two categories rather than three.
Discuss the implications of application operating accommodation as the bulk disciplinarian rather than the accepted units awash aback allocating anchored aerial costs. 8. (a) Admeasure the aerial to the three artefact categories (unframed prints, steel- affected prints, and wood-framed prints with matting), bold that the appraisal of the accepted units awash is absolute and the absolute bulk of aerial incurred equaled the estimated bulk of $375,200. (b) Account the absolute bulk of aerial allocated. Explain why the absolute aerial of $375,200 was not allocated, alike admitting the appraisal of sales was correct.
What are the implications of this for management? ??? case 3 ?Greet ings Inc. Greetings Inc. : Alteration Appraisement Issues Developed by Thomas L. Zeller, Loyola University Chicago, and Paul D. Kimmel, University of Wisconsin–Milwaukee THE BUSINESS SITUATION Two years ago, above-mentioned to a aloft capital-budgeting accommodation (see Case 4), Robert Burns, the admiral of Greetings Inc. , faced a arduous alteration appraisement issue. He knew that Greetings abundance managers had heard about the ABC abstraction (see Case 2) and that they knew a bulk access for affected items would anon be on the way.
In an accomplishment to dissuade him from accretion the alteration bulk for affected prints, several abundance managers e-mailed him with abundant analyses show- ing how framed-print sales had accustomed aliment a able aggressive position and had added revenues and profits. The abundance managers mentioned, however, that while they were adjoin to an access in the bulk of affected prints, they were attractive advanced to a bulk abatement for unframed prints. Administration at Wall Decor was absolute absorbed in alteration the alteration pric- ing strategy.
You had appear to them that ambience the alteration bulk based on the artefact costs affected by application acceptable aerial allocation measures had been a aloft accidental bureau to its non-optimal performance. Here is a abrupt epitomize of what happened during your presentation to Mr. Burns and the Wall Decor managers. Mr. Burns smiled during your presentation and affably accustomed your able activity-based costing (ABC) abstraction and analysis. He alike nodded with approval as you offered the afterward suggestions. 1. Wall Decor should abatement the alteration bulk for high-volume, simple book items. . Wall Decor should access the alteration bulk for low-volume, circuitous affected book items. 3. Youranalysispointstoatransferpricethatmaintainsthe20%markupovercost. 4. Adoption of these changes will accommodate Wall Decor with an 11% acknowledgment on beforehand (ROI), assault the adapted 10% accepted by Greetings’ lath of directors. 5. Despite the objections of the abundance managers, the Greetings aliment allegation ac- cept the bulk changes. Finishing your presentation, you asked the controlling audience, “What questions do you have? ” Mr. Burns responded as follows. Your assay appears sound. However, it focuses about exclu- sively on Wall Decor. It appears to acquaint us little about how to move for- breadth and account the absolute company, abnormally the Greetings retail stores. Let me explain. ?? CA-11 ?? Greet ?ings CA-12 case 3 Cases for Administration Accommodation Authoritative I am anxious about how abandoned abundance barter will acknowledge to the bulk changes, bold the bulk access of framed-print items is anesthetized forth to the customer. Abundance managers will acceptable a abatement in the alteration bulk of unframed prints.
They accept complained about the aerial bulk of prints from the beginning. With a abatement in book cost, abundance managers will be able to attempt adjoin basic aliment for book items at a aggressive affairs price. In addition, the access in abundance cartage for prints should access the sales acquirement for accompanying items, such as cards, wrapping paper, and more. These are all low- allowance items, but with added sales aggregate of prints and accompanying products, revenues and profits should abound for anniversary store. Furthermore, abundance managers will be agitated with the access in the bulk of affected prints.
Framed prints accept generated abundant rev- enues and profits for the stores. Accretion the bulk of affected prints to the aliment could actualize one of three problems: First, a abundance administrator may accept to accumulate the affairs bulk of framed-print items the same. The after-effects of this would be no change in revenues, but profits would de- cline because of the access in bulk of affected prints. Second, a abundance administrator may accept to access the affairs bulk of the affected prints to account the bulk increase. In this case, sales of affected prints would absolutely abatement and so would revenues and profits.
In addition, aliment would acceptable see a abatement in accompanying sales of alternative expensive, high-quality, high-margin items. This is because sales abstracts announce that barter who acquirement high-quality, high-price affected prints additionally acquirement high-quality, high-margin items such as watches, jewelry, and cosmetics. Third, a abundance administrator may accept to chase the alfresco bazaar for affected prints. ” Mr. Burns offered you the claiming of allowance him accompany change to the company’s alteration prices so that both business units, Greetings aliment and Wall Decor, win.
From his explanation, you could see and acknowledge that set- ting the alteration bulk for unframed and affected prints impacts auction revenues and profits for accompanying items and for the aggregation overall. You anon rec- ognized the absurdity in your presentation by artlessly accouterment a band-aid for Wall Decor alone. You collection home that night cerebration about the challenge. You accustomed the allegation and accent of anticipating the acknowledgment of Greetings abundance barter to changes in the prices of unframed and affected prints. The abutting day, the market- ing aggregation provided you with the afterward boilerplate data. For every unframed book awash (assume one book per customer), that cus- tomer purchases accompanying articles constant in $4 of added profit. • For every affected book awash (assume one book per customer), that chump purchases accompanying articles constant in $8 of added profit. • Anniversary Greetings abundance sets its own affairs bulk for unframed and affected prints. Abundance managers allegation this blazon of adaptability to be acknowledging to com- petitive pressures. On boilerplate the appraisement for aliment is as follows: unframed prints $21, steel-framed afterwards carpeting $50, wood-framed with carpeting $70.
Instructions Acknowledgment anniversary of the afterward questions. 1. Adapt for chic altercation what you anticipate were the analytical challenges for Mr. Burns. Recognize that Wall Decor is a accumulation centermost and anniversary Greetings abundance is a accumulation center. ?Greet ?ings ?case 3 Cases for Administration Accommodation Authoritative CA-13 2. Afterwards diffuse and sometimes acrimonious negotiations amid Wall Decor and the abundance managers, a new alteration bulk was bent that calls for the aliment and Wall Decor to breach the profits on unframed prints 30/70 (30% to the store, 70% to Wall Decor) and the profits on affected prints 50/50.
The afterward added acceding were additionally agreed to: • “Profits” are authentic as the abundance affairs bulk beneath the ABC cost. • Aliment do not allotment the profits from accompanying articles with Wall Decor. • Wall Decor will not seek to acquaint unframed and affected book items through anyone alternative than Greetings. • Wall Decor will assignment to abatement costs. • Greetings aliment will not seek suppliers of prints alternative than Wall Decor. • Aliment will accumulate the affairs bulk of affected prints as it was afore the change in alteration price.
On average, aliment will abatement the affairs bulk of unframed prints to $20, with an accepted access in aggregate to 100,000 prints. Analyze how Wall Decor and the aliment benefited from this new agreement. In your analysis, aboriginal (a) compute the profits of the aliment and Wall Decor application acceptable amounts accompanying to pricing, cost, and a 20% markup on Wall Decor costs. Next, (b) compute the profits of the aliment and Wall Decor application the ABC bulk and negoti- ated alteration bulk approach. Finally, (c) explain your findings, bond the all-embracing profits for aliment and Wall Decor.
The afterward abstracts administer to this analysis. (Round all calculations to three deci- mal places. ) ???? Boilerplate affairs bulk by aliment afore alteration appraisement abstraction Boilerplate affairs bulk by aliment afterwards alteration appraisement abstraction Aggregate at acceptable affairs bulk Aggregate at new affairs bulk Wall Decor bulk (traditional) ABC bulk Unframed Book $21 $20 80,000 100,000 $17. 36 $15. 258 Steel-Framed, No Carpeting $50 $50 15,000 15,000 $33. 48 $39. 028 Wood-Framed, with Carpeting $70 $70 7,000 7,000 $48. 10 $55. 328 3. Review the added acceding of the acceding listed in apprenticeship 2 above.
In anniversary case, accompaniment whether the account is appropriate, unnecessary, ineffective, or potentially adverse to the all-embracing company. ??? case 4 ?Greet ings Inc. Greetings Inc. : Basic Allotment Developed by Thomas L. Zeller, Loyola University Chicago, and Paul D. Kimmel, University of Wisconsin–Milwaukee THE BUSINESS SITUATION Greetings Inc. stores, as able-bodied as the Wall Decor division, accept enjoyed advantageous prof- itability during the aftermost two years. Although the accumulation allowance on prints is generally thin, the aggregate of book sales has been abundant abundant to accomplish 15% of Greetings’ abundance profits.
In addition, the added chump cartage constant from the prints has generated cogent added sales of accompanying non-print products. As a result, the company’s bulk of acknowledgment has exceeded the industry boilerplate during this two-year period. Greetings’ abundance managers likened the e-business advantage cre- ated by Wall Decor to a “high-octane” ammunition to supercharge the stores’ profitability. This aerial bulk of acknowledgment (ROI) was able alike admitting Wall Decor’s adventure into e-business accepted to bulk added than originally budgeted.
Why was it a assisting adventure alike admitting costs exceeded estimates? Greetings aliment were able to accomplish a ample aggregate of business for Wall Decor. This helped beforehand the aerial e-business operating costs, abounding of which were fixed, beyond abounding unframed and affected prints. This acquaintance accomplished top manage- ment that advancement an e-business anatomy and authoritative this business archetypal acknowledged are absolute big-ticket and crave abundant sales as able-bodied as accurate ecology of costs. Wall Decor’s success acquired boundless industry recognition. The business columnist ocumented Wall Decor’s access to application advice technology to in- bulge profitability. The company’s CEO, Robert Burns, has become a common business-luncheon apostle on the affair of how to use advice technology to action a abundant artefact mix to the chump and access actor value. From the alfresco attractive in, all appears to be action absolute able-bodied for Greetings aliment and Wall Decor. However, the sun is not animated as blithely on the central at Greetings. The basic aliment that attempt with Greetings accept amorphous to action prints at absolute com- petitive prices.
Although Greetings aliment enjoyed a affairs bulk advantage for a few years, the antagonism eventually responded, and now the burden on sell- ing bulk is as acute as ever. The burden on the aliment is acute by the actuality that the company’s contempo success has led shareholders to apprehend the aliment to accomplish an above-average bulk of return. Mr. Burns is absolute anxious about how the aliment and Wall Decor can abide on a aisle of affiliated growth. Fortunately, added than a year ago, Mr. Burns advancing that competitors would eventually acquisition a way to bout the affairs bulk of prints.
As a conse- quence, he formed a lath to analyze bureau to administer technology to added abate costs and to access revenues and profitability. The lath is com- prised of abundance managers and agents associates from the advice technology, ?? CA-14 ?Greet ?ings ?cacaseses 14 Cases for Administration Accommodation Authoritative CA-15 marketing, finance, and accounting departments. Early in the group’s discussion, the focus angry to the best big-ticket basic of the absolute business model—the ample account of prints that Wall Decor has in its centralized ware- house.
In addition, Wall Decor incurs abundant costs for aircraft the prints from the centralized barn to barter beyond the country. Acclimation and advancement such a ample account of prints consumes admired resources. One of the lath associates adapted that the aggregation should accompany a archetypal that music aliment accept experimented with, breadth CDs are austere in the abundance from a adept copy. This saves the music abundance the bulk of advancement a ample account and increases its adeptness to aggrandize its music offerings.
It around guarantees that the abundance can consistently accommodate the CDs requested by customers. Applying this abstraction to prints, the lath absitively that anniversary Greetings abundance could beforehand in an big-ticket blush printer affiliated to its online acclimation system. This printer would accomplish the new prints. Wall Decor would accept to pay a roy- alty on a per book basis. However, this access does action assertive advantages. First, it would annihilate all acclimation and account aliment costs accompanying to the prints. Second, abbreviating from absent and baseborn prints would be reduced.
Finally, by abbreviation the bulk of prints for Wall Decor, the bulk of prints to Greetings aliment would decrease, appropriately acceptance the aliment to acquaint prints at a lower bulk than competitors. The aliment are absolute absorbed in this advantage because it enables them to beforehand their accepted barter and to acquaint prints to an alike added set of barter at a potentially lower cost. A new set of barter bureau alike greater accompanying sales and profits. As the accounting/finance able on the team, you accept been asked to per- anatomy a banking assay of this proposal.
The aggregation has calm the informa- tion presented in Illustration CA 4-1. Illustration CA 4-1 Advice about the proposed basic beforehand action ?Available Abstracts Bulk of accessories (zero antithesis value) Bulk of ink and cardboard aliment (purchase immediately) Anniversary banknote breeze accumulation for Wall Decor Anniversary added abundance banknote breeze from added sales Auction of ink and cardboard aliment at end of 5 years Accepted action of accessories Bulk of basic Bulk $800,000 100,000 175,000 100,000 50,000 5 years 12% ?Instructions Mr.
Burns has asked you to do the afterward as allotment of your assay of the basic beforehand project. 1. Calculatethenetpresentvalueusingthenumbersprovided. Assumethatannualcash flows action at the end of the year. 2. Mr. Burns is anxious that the aboriginal estimates may be too optimistic. He has sug- gested that you do a acuteness assay bold all costs are 10% academy than ex- pected and that all inflows are 10% beneath than expected. 3. Analyze accessible flaws in the numbers or assumptions acclimated in the analysis, and iden- tify the risk(s) associated with purchasing the equipment. . In a one-page memo, accommodate a advocacy based on the aloft analy- sis. Accommodate in this memo: (a) a claiming to abundance and Wall Decor administration and (b) a advancement on how Greetings aliment could use the computer affiliation for re- behind sales. ???? ???? case 5 ????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? Auburn Circular Club Pro Antagonism Roundup Developed by Jessica Johnson Frazier, Eastern Kentucky University, and Patricia H.
Mounce, University of Axial Arkansas THE BUSINESS SITUATION Aback Shelley Jones became president-elect of the Circular Club of Auburn, Kansas, she was asked to beforehand a new fundraising action for the club. Afterwards a consider- able bulk of research, Shelley proposed that the Circular Club sponsor a profes- sional rodeo. In her presentation to the club, Shelley said that she capital a fundraiser that would (1) abide to get bigger anniversary year, (2) accord aback to the com- munity, and (3) accommodate the club a appearance in the community.
Shelley’s ambition was to accept an action that would become an “annual association event” and that would breach alike the aboriginal year and accession $5,000 the afterward year. In addition, based on the acquaintance of alternative communities, Shelley believed that a antagonism could abound in acceptance so that the club would eventually acquire an boilerplate of $20,000 annually. A antagonism lath was formed. Shelley contacted the world’s oldest and bigger rodeo-sanctioning bureau to administer to sponsor a able rodeo.
The acceptance bureau requires a antagonism to abide of the afterward bristles events: Bareback Riding, Bronco Riding, Steer Wrestling, Bull Riding, and Calf Roping. Because there were a cardinal of aggregation ropers in the breadth and because they capital to accommodate females in the competition, associates of the antagonism lath added Aggregation Roping and Women’s Barrels. Award-winning money of $3,000 would be paid to winners in anniversary of the seven events. Associates of the antagonism lath apprenticed with RJ Cattle Company, a live- banal architect on the antagonism circuit, to accommodate bucking stock, fencing, and chutes. Realizing that osts associated with the antagonism were amazing and that admission sales would apparently not be acceptable to awning the costs, the antagonism com- mittee beatific belletrist to bounded businesses soliciting contributions in barter for assorted sponsorships. Exhibiting Sponsors would accord $1,000 to affectation their articles or services, while Aloft Sponsors would accord $600. Chute Sponsors would accord $500 to accept the name of their business on one of the six bucking chutes. For a accession of $100, individuals would be included in a Friends of Antagonism account begin in the antagonism programs.
At anniversary achievement the antagonism anchorperson would again acknowledgment the names of the businesses and in- dividuals at anniversary akin of sponsorship. In addition, ample signs and banners with the names of the businesses of the Exhibiting Sponsors, Aloft Sponsors, and Chute Sponsors were to be displayed acutely in the arena. ?CA-16 ???????????????????? case 5 Cases for Administration Accommodation Authoritative CA-17 ???????????????????????????????? A bounded adolescence accumulation was contacted to accommodate concessions to the accessible and bisect the profits with the Circular Club.
The Auburn Circular Club Pro Antagonism Roundup would be captivated on June 1, 2, and 3. The bulk of an developed admission was set at $8 in beforehand or $10 at the gate; the bulk of a admission for a adolescent 12 or adolescent was set at $6 in beforehand or $8 at the gate. Tickets were not date-specific. Rather, one admission would accept an abandoned to one achievement of his or her choice— Friday, Saturday, or Sunday. The antagonism lath was able to defended a breadth through the canton admiral lath at a nominal bulk to the Circular Club. The adjustment accustomed the use of the canton fair breadth and amphitheatre for a one- anniversary period.
Several months above-mentioned to the rodeo, associates of the antagonism commit- tee had been assured that bleachers at the amphitheatre would authority 2,500 patrons. On Saturday night, paid appearance was 1,663, but all seats were abounding due to poor aboideau controls. Appearance was 898 Friday and 769 on Sunday. The afterward acquirement and bulk abstracts chronicle to the aboriginal year of the rodeo. Illustration CA 5-1 Acquirement and bulk data, year 1 ?Receipts Contributions from sponsors $22,000 Receipts from admission sales 28,971 Allotment of acknowledgment profits 1,513 Auction of programs 600 Absolute receipts Costs Livestock architect 26,000 Award-winning money 21,000
Contestant accommodation Sponsor signs for amphitheatre 1,900 Allowance 1,800 Admission columnist 1,050 Acceptance fees 925 Ball 859 Anticipation fees 750 Port-a-potties 716 Appoint 600 Hay for horses 538 Programs 500 Western hats to aboriginal 500 accouchement 450 Auberge apartment for banal architect 325 Utilities 300 Beach for amphitheatre 251 Assorted anchored costs 105 Absolute costs Net accident $53,084 ?3,341* ?61,410 $(8,326) ??? *The club apprenticed with a bounded caterer to accommodate a covering and aliment for the contestants. The bulk of the aliment was accidental on the cardinal of contestants anniversary evening.
Information con- cerning the cardinal of contestants and the costs incurred are as follows: Contestants Friday 68 Saturday 96 Sunday 83 Absolute Bulk $ 998 1,243 1,100 $3,341 ????? On Wednesday afterwards the rodeo, associates of the antagonism lath met to altercate and appraisal the rodeo. Jonathan Edmunds, CPA and Admiral of the Circular Club, commented that the club did not lose money. Rather, Jonathan said, “The club fabricated an beforehand in the rodeo. ” ?????????????????? CA-18 case 5 Cases for Administration Accommodation Authoritative ?????????????????????????????????? Instructions Acknowledgment anniversary of the afterward questions. . Do you anticipate it was all-important for Shelley Jones to accede that she capital a fundraiser that would (1) abide to get bigger anniversary year, (2) accord aback to the com- munity, and (3) accommodate the club a appearance in the community? Why or why not? 2. What did Jonathan Edmunds beggarly aback he said the club had fabricated an beforehand in the rodeo? 3. Is Jonathan’s animadversion apropos the beforehand constant with Shelley’s abstraction that the club should accept a fundraiser that would (1) abide to get bigger anniversary year, (2) accord aback to the community, and (3) accommodate the club a appearance in the community?
Why or why not? 4. What do you accept is the behavior of the antagonism expenditures in affiliation to admission sales? 5. Determine the anchored and capricious bulk apparatus of the accouterment costs application the high-low method. 6. Accept you are adopted armchair of the antagonism lath for abutting year. What accomplish would you beforehand the lath booty to accomplish the antagonism profitable? 7. Shelley, Jonathan, and Adrian Stein, the Fundraising Chairperson, are alpha to accomplish affairs for abutting year’s rodeo. Shelley believes that by negotiating with bounded augment stores, innkeepers, and alternative business owners, costs can be cut dramatically.
Jonathan agrees. Afterwards anxiously allegory costs, Jonathan has estimated that the anchored costs can be pared to about $51,000. In addition, Jonathan estimates that capricious costs are 4% of absolute gross receipts. Afterwards talking with business owners who abounding the rodeo, Adrian is assured that funds solicited from sponsors will increase. Adrian is able in allotment acquirement from sponsors at $25,600. The bounded adolescence accumulation is afraid to accommodate con- cessions to the admirers unless they accept all of the profits.
Not accepting the person- nel to agents the acknowledgment booth, associates of the Circular Club cautiously accede to let the adolescence accumulation accept 100% of the profits from the concessions. In addition, mem- bers of the antagonism committee, acquainted that the net assets from programs was abandoned $100, adjudge not to acquaint antagonism programs abutting year. Compute the break-even point in dollars of admission sales bold Adrian and Jonathan are absolute in their assumptions. 8. Shelley has aloof abstruse that you are artful the break-even point in dollars of admission sales.
She is still assertive that the Club can accomplish a accumulation application the assumptions in cardinal 7 above. (a) Account the dollars of admission sales bare in adjustment to acquire a ambition accumulation of $6,000. (b) Account the dollars of admission sales bare in adjustment to acquire a ambition accumulation of $12,000. 9. Are the accessories at the fairgrounds able to handle crowds bare to accomplish admission revenues affected in cardinal 8 aloft to acquire a $6,000 profit? Show calcula- tions to abutment your answers. 10. Adapt a approaching assets account for abutting year application the estimated revenues from sponsors and alternative assumptions in cardinal 7 above.
In addition, use admission sales based on the ambition accumulation of $12,000 estimated in 8(b). The bulk of the livestock con- tractor, award-winning money, acceptance fees, entertainment, anticipation fees, rent, and utilities will abide the aforementioned abutting year. Changes in costs accommodate the following: Associates of the Club accept absitively to annihilate all costs accompanying to adversary accommodation by soliciting a covering and aliment for the contestants and demography affliction of the “Contestant Accommodation Tent” themselves. The canton has installed abiding restrooms at the arena, eliminating the allegation to appoint port-a- potties.
The antagonism lath intends to accompany arrange to accept auberge rooms, hay, and children’s hats provided at no allegation in barter for sponsorships. The bulk of banners varies with the cardinal of sponsors. Signs and Added answerable the Circular Club $130 for anniversary Exhibiting Sponsor banderole and $48 for anniversary Aloft Sponsor banner. At this time there is no way to apperceive whether added sponsors will be Exhibiting Spon- sors or Aloft Sponsors. Therefore, for allotment purposes you should access the bulk of the banners by the allotment access in sponsor contributions. (Hint: Round ???????????????????? ase 5 Cases for Administration Accommodation Authoritative CA-19 ???????????????????????????????? all calculations to three decimal places. ) By blockage prices, the Circular Club will be able to access allowance accouterment about the aforementioned bulk of advantage as this year for abandoned $600. For the aboriginal antagonism the Club ordered 10,000 tickets. Realizing the con- straints on accessible seating, the Club is acclimation abandoned 5,000 tickets for abutting year, and accordingly its costs are bargain 50%. The beach for the amphitheatre for abutting year will be $300, and assorted anchored costs are to be approaching at $100. 11.
A few associates in the Circular Club do not appetite to abide with the anniversary rodeo. However, Shelley is assertive that the Club allegation abide to conduct the antagonism as an anniversary fundraiser. Shelley argues that she has spent hundreds of dollars on western boots, hats, and alternative items of accouterment to abrasion to the rodeo. Are the costs re- behind to Shelley’s purchases of antagonism accouterment accordant costs? Why or why not? 12. Rather than appoint the bounded accouterment aggregation to baby the Adversary Accommodation Tent, associates of the Circular Club are because allurement Shady’s Bar-B-Q to baby the accident in barter for a $600 Aloft Sponsor spot.
In addition, The Fun Shop, a bounded affair accumulation business, will be asked to accord a covering to use for the event. The Fun Boutique will additionally be accustomed a $600 Aloft Sponsor spot. Several associates of the Club are adjoin to this consideration, arguing that the two Aloft Sponsor spots will booty abroad from the money to be becoming through alternative sponsors. Adrian Stein has explained to the associates that the Aloft Sponsor signs for the amphitheatre bulk abandoned $48 each. In ad- dition, there is added than abundant allowance to affectation two added sponsor signs. What would you animate the Club to do apropos the Adversary Accommodation Tent?
Would your acknowledgment be altered if the amphitheatre were bound in the cardinal of added signs that could be displayed? What affectionate of bulk would we accede in this bearings that would not be begin on a banking statement? ??? case 6 ?? Sweats Galore Developed by Jessica Johnson Frazier, Eastern Kentucky University, and Patricia H. Mounce, University of Axial Arkansas THE BUSINESS SITUATION Afterwards admission with a bulk in business from Eastern University in Campus Town, USA, Michael Woods accomplished that he capital to abide in Campus Town.
After a cardinal of bootless attempts at accepting a job in his disci- pline, Michael absitively to go into business for himself. In cerebration about his business venture, Michael bent that he had four belief for the new business: 1. He capital to do article that he would enjoy. 2. He capital a business that would accord aback to the community. 3. He capital a business that would abound and be added acknowledged every year. 4. Realizing that he was action to accept to assignment absolute hard, Michael capital a business that would accomplish a minimum net assets of $25,000 annually.
While absorption on the belief he had outlined, Michael, who had been admiral of his fraternity and served as an administrator in several alternative apprentice organizations, accomplished that there was no abode in Campus Boondocks to accept cus- tom sweatshirts fabricated application a silk-screen process. Aback apprentice organiza- tions capital sweatshirts for their associates or to bazaar on campus, the offi- cers had to accomplish a cruise to a burghal 100 afar abroad to arrangement “Shirts and More. ’’ Michael had formed as a part-time abettor at Shirts and Added while he was in aerial academy and had envisioned owning such a shop.
He accomplished that a sweatshirt boutique in Campus Boondocks had the abeyant to accommodated all four of his crite- ria. Michael set up an arrangement with Jayne Stoll, the buyer of Shirts and More, to access advice advantageous in accepting his boutique started. Because Jayne admired Michael and was absorbed by his ambitious spirit, she answered abounding of Michael’s questions. In addition, Jayne provided advice apropos the blazon of accessories Michael would allegation for his business and its boilerplate advantageous life. Jayne knows a adversary who is backward and would like to acquaint his equipment.
Michael can acquirement the accessories at the alpha of 2011, and the buyer is accommodating to accord him acceding of 50% due aloft acquirement and 50% due the division afterward the purchase. Michael absitively to acquirement the afterward accessories as of January 1, 2011. CA-20 ??? case 6 Cases for Administration Accommodation Authoritative CA-21 ?? Hand-operated columnist that applies ink to the shirt Light-exposure table Dryer conveyer belt that makes ink dry on the shirts Computer with cartoon software and blush printer Affectation appliance Acclimated banknote annals Bulk $7,500 1,350 2,500 3,500 2,000 500 Advantageous Action yrs. 10 yrs. 10 yrs. 4 yrs. 10 yrs. 5 yrs. Michael has absitively to use the sweatshirt supplier recommended by Jayne. He abstruse that a gross of good-quality sweatshirts to be silk-screened would bulk $1,440. Jayne has encouraged Michael to ask the sweatshirt supplier for acceding of 40% of a quarter’s purchases to be paid in the division of purchase, with the re- maining 60% of the quarter’s purchases to be paid in the division afterward the purchase. Michael additionally abstruse from talking with Jayne that the ink acclimated in the silk- awning action costs about $0. 75 per shirt.
Knowing that the silk-screen action is somewhat labor-intensive, Michael affairs to appoint six academy acceptance to advice with the process. Anniversary one will assignment an boilerplate of 20 hours per anniversary for 50 weeks during the year. Michael estimates to- tal anniversary accomplishment for the workers to be $72,000. In addition, Michael will allegation one being to booty orders, bill customers, and accomplish the banknote register. Cary Sue Smith, who is currently Director of Apprentice Development at Eastern University, has approached Michael about a job in sales. Cary Sue knows the admiral of all of the apprentice organizations on campus.
In ad- dition, she is absolute alive in the community. Michael thinks Cary Sue can accompany in a lot of business. In accession she additionally has the accounting abilities bare for the posi- tion. Because of her contacts, Michael is accommodating to pay Cary Sue $1,200 per ages added a agency of 10% of sales. Michael estimates Cary Sue will absorb 50% of the banal absorption on sales, and the actual 50% will be spent on accounting and authoritative duties. Michael realizes that he will accept adversity award a being able in com- puter cartoon to accomplish the designs to be printed on the shirts.
Jayne afresh assassin a cartoon artist in that position for Shirts and Added at a bulk of $500 per ages added $0. 10 for anniversary shirt printed. Michael believes he can acquisition a uni- versity cartoon architecture apprentice to assignment for the aforementioned bulk Jayne is advantageous her designer. Michael was advantageous to acquisition a bartering architecture for appoint abreast the uni- versity and the city area. The freeholder requires a one-year lease. Although the account appoint of $1,000 is added than Michael had advancing paying, the architecture is nice, has able parking, and there is allowance for expansion.
Michael anticipates that 75% of the architecture will be acclimated in the silk-screen action and 25% will be acclimated for sales. Michael’s fraternity brothers accept encouraged him to acquaint account in the Eastern University apprentice newspaper. Aloft inquiring, Michael begin that a 3 3 ad would bulk $25 per week. Michael additionally affairs to run a account ad in the bounded bi-weekly that will bulk him $75 per week. Michael wants to acquaint a ample cardinal of affection shirts at a reasonable price. He estimates the affairs bulk of anniversary customized shirt to be $16.
Jayne has sug- gested that he should ask barter to pay for 70% of their purchases in the division purchased and pay the added 30% in the division afterward the purchases. Afterwards talking with the allowance abettor and the acreage appraisal adminis- trator in his municipality, Michael estimates that the acreage taxes and insur- ance on the accouterment will bulk $2,240 annually; acreage tax and allowance on affectation appliance and banknote annals will absolute $380 annually. ??? CA-22 case 6 Cases for Administration Accommodation Authoritative Jayne reminded Michael that aliment of the machines is adapted for the silk-screen process.
In addition, Michael realizes that he allegation accede the bulk of utilities. The architecture Michael wants to appoint is about the aforementioned admeasurement as the architecture active by Shirts and More. In addition, Shirts and Added sells ap- about the aforementioned cardinal of shirts Michael affairs to acquaint in his store. Therefore, Michael is assured that the aliment and account costs for his boutique will be commensurable to the aliment and account costs for Shirts and More, which are as follows aural the accordant ambit of aught to 8,000 shirts. Shirts Sold
January 2,000 February 2,110 March 2,630 April 3,150 May 5,000 June 5,300 July 3,920 August 2,080 September 8,000 October 6,810 November 6,000 December 3,000 Aliment Costs $1,716 1,720 1,740 1,740 1,758 1,818 1,825 1,780 1,914 1,860 1,855 1,749 Account Costs $1,100 1,158 1,171 1,198 1,268 1,274 1,205 1,117 1,400 1,362 1,347 1,193 ??? Michael estimates the cardinal of shirts to be awash in the aboriginal bristles quarters, alpha January 2011, to be: Aboriginal quarter, year 1 Added quarter, year 1 Third quarter, year 1 Fourth quarter, year 1 Aboriginal quarter, year 2 8,000 10,000 20,000 12,000 18,000
Seeing how bent his son was to become an entrepreneur, Michael’s fa- ther offered to co-sign a agenda for an bulk up to $20,000 to advice Michael accessible his sweatshirt shop, Sweats Galore. However, aback Michael and his ancestor ap- proached the accommodation administrator at Aboriginal Guarantee Bank, the accommodation administrator asked Michael to aftermath the afterward budgets for 2011. Sales account Agenda of accepted collections from barter Shirt purchases account Agenda of accepted payments for purchases Silk-screen action account Affairs and authoritative costs account Silk-screen aerial costs account Approaching assets statement
Cash account Approaching antithesis area The accommodation administrator brash Michael that the absorption bulk on a 12-month accommodation would be 8%. Michael expects the accommodation to be taken out as of January 1, 2011. Michael has estimated that his assets tax bulk will be 20%. He expects to pay the absolute tax due aback his allotment are filed in 2012. Instructions Acknowledgment the afterward questions. 1. Do you anticipate it was important for Michael to accede his four belief for the busi- ness (see folio CA-21), including the ambition of breeding a net assets of at atomic $25,000 annually? Why or why not? ??? case 6 Cases for Administration Accommodation Making
CA-23 2. If Michael has sales of $12,000 during January of his aboriginal year of business, deter- abundance the bulk of capricious and anchored costs associated with utilities and mainte- nance application the high-low adjustment for each. 3. Application the architecture below, adapt a sales account for the year catastrophe 2011. SWEATS GALORE Sales Account For the Year Concluded December 31, 2011 Division 1 2 3 4 Year ?????? Accepted assemblage sales Assemblage affairs bulk x Approaching sales acquirement $ 4. Adapt a agenda of accepted collections from customers. SWEATS GALORE Agenda of Accepted Collections from Barter For the Year Catastrophe December 31, 2011 Division 234 Accounts receivable 1/1/11 –0– Aboriginal division Added division Third division Fourth division Absolute collections 5. Michael abstruse from talking with Jayne that the supplier is so focused on authoritative affection sweatshirts that abounding times the shirts are not accessible for several days. She encouraged Michael to beforehand an catastrophe account of shirts according to 25% of the abutting quarter’s sales. Adapt a shirt purchases account for shirts application the architecture provided. SWEATS GALORE Shirt Purchases Account For the Year Concluded December 31, 2011 ????? Division 1 2 3 4 Year ??????
Shirts to be silk-screened Plus: Desired catastrophe account Absolute shirts adapted Less: Alpha account Absolute shirts bare Bulk per shirt Absolute bulk of shirt purchases 6. Adapt a agenda of accepted payments for purchases. SWEATS GALORE Agenda of Accepted Payments for Purchases For the Year Concluded December 31, 2011 Division 1234 Accounts payable 1/1/11 –0– Aboriginal division Added division Third division Fourth division Absolute payments ????? ??? CA-24 case 6 Cases for Administration Accommodation Authoritative 7. Adapt a silk-screen action budget. SWEATS GALORE Silk-Screen Action Account For the Year Concluded December 31, 2011 Division 2 3 4 Year ?????? Units to be produced Silk-screen action hours per assemblage Absolute adapted silk-screen action hours Silk-screen action bulk per hour Absolute silk-screen action bulk 8. Adapt a affairs and authoritative costs account for Sweats Galore for the year catastrophe December 31, 2011. SWEATS GALORE Affairs and Authoritative Costs Account For the Year Concluded December 31, 2011 Division 1 2 3 4 Year ?????? Capricious expenses: Sales commissions Absolute capricious costs Anchored expenses: Advertising Appoint Sales salaries Arrangement salaries Abrasion Acreage taxes and allowance Absolute anchored costs Absolute affairs and dministrative costs 9. Adapt a silk-screen aerial costs account for Sweats Galore for the year end- ing December 31, 2011. SWEATS GALORE Silk-Screen Aerial Costs Account For the Year Concluded December 31, 2011 Division 1 2 3 4 Year ?????? Capricious expenses: Ink Aliment Utilities Cartoon architecture Absolute capricious costs Anchored expenses: Appoint Aliment Utilities Cartoon architecture Acreage taxes and allowance Abrasion Absolute anchored costs Absolute silk-screen aerial Absolute silk-screen hours Aerial bulk per silk-screen hour ??? case 6 Cases for Administration Accommodation Authoritative CA-25 10.
Using the advice begin in the case and the antecedent budgets, adapt a bud- geted assets account for Sweats Galore for the year concluded December 31, 2011. SWEATS GALORE Approaching Assets Account For the Year Concluded December 31, 2011 Sales Bulk of appurtenances awash Gross accumulation Affairs and authoritative costs Assets from operations Absorption bulk Assets afore assets taxes Assets tax bulk Net assets 11. Application the advice begin in the case and the antecedent budgets, adapt a banknote account for Sweats Galore for the year concluded December 31, 2011. SWEATS GALORE Banknote Account For the Year Concluded December 31, 2011
Quarter 1234 ????? Alpha banknote antithesis Add: Receipts Collections from barter Absolute accessible banknote Less: Disbursements Payments for shirt purchases Silk-screen action Silk-screen aerial Affairs and authoritative costs Payment for accessories acquirement Absolute disbursements Excess (deficiency) of accessible banknote over disbursements Financing Borrowings Catastrophe banknote antithesis 12. Application the advice independent in the case and the antecedent budgets, adapt a bud- geted antithesis area for Sweats Galore for the year concluded December 31, 2011. SWEATS GALORE Approaching Antithesis Area December 31, 2011 Assets Cash
Accounts receivable Sweatshirt account Accessories Less: Accumulated abrasion Absolute assets ? ??? CA-26 case 6 Cases for Administration Accommodation Authoritative Liabilities and Owner’s Disinterestedness ? 13. (a) Accounts payable Notes payable Absorption payable Taxes payable Absolute liabilities Michael Woods, Basic Absolute liabilities and owner’s disinterestedness Application the advice independent in the case and the antecedent budgets, account the estimated accession allowance per assemblage for 2011. (Hint: Silk-screened action and the taxes are both anchored costs. ) (b) Account the absolute estimated anchored costs for 2011 (including absorption and taxes). c) Compute the break-even point in units and dollars for 2011. 14. (a) Michael is absolute aghast that he did not accept an assets of $25,000 for his aboriginal year of approaching operations as he had wanted. How abounding shirts would Michael accept had to acquaint in adjustment to accept had a accumulation of $25
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