Adhesion Inc. is currently evaluating an expansion plan for its operations using an eight-year planning horizon. If the plan is accepted, then a new plant will be built at a cost of $2,500,000 on a vacant lot owned by Adhesion. The land originally cost Adhesion $400,000, although its current market value is $750,000. The expansion plan also requires the purchase of a new machine at a cost of $800,000. This new machine has an annual production capacity of 160,000 units. Installation of the machine will cost an additional $50,000. Finally, an investment of $100,000 in working capital will be required for the operation of the new plant.
Based on its current business, management believes that there is
market demand for an additional 200,000 units of its product
annually at the current price of $15 per unit. Direct costs of
production are estimated to be $8 per unit. Management also intends
to allocate $250,000 of corporate (head office) overhead to the new
plant.
At the end of the eight-year planning horizon, salvage on the
building is estimated to be 25% of its original cost, the salvage
value of the machine is estimated at $85,000 and the anticipated
market value for the land is $900,000. If Adhesion’s marginal tax
rate is 32%, its cost of capital is 14% and the CCA rates on the
building and the machine are 7.5% and 15%, respectively, then
should Adhesion implement the expansion plan? How many minimum
units must Adhesion produce and sell in order for the plan to be
worthwhile?
Answer in Excel would be prefered with calculations please.
In: Accounting
*** PLEASE ANSWER ALL QUESTIONS IN PARAGRAPH FORMAT.
The following case study provides information for a hotel chain. They have recently conducted a customer satisfaction survey. Given these research results and the other information in the case, what advice would you give them? This is a good exercise in utilizing the results of market research.
ACTIVITY/TASK
The Quick-Stop Hotel Chain
Quick-Stop Hotels is a small hotel chain located along on the north coast of New South Wales. This chain consists of five different hotel complexes located several hours drive apart along the main coastal highway between Sydney and Brisbane.
Their prime target market is the family segment. This is because families often choose to drive from Sydney to Brisbane (or Brisbane to Sydney) and back again for their holidays. As this trip is around a 12-hour drive, many travelers choose to stop overnight in order break up their journey. Therefore, Quick-Stop has deliberately chosen popular stopover towns for their hotels.
In line with this location strategy, they promote themselves with the slogan, “the “perfect place for a break”.
Their individual hotels vary a little in quality, but all have either a 3 or a 4 star rating. This means that they are either medium (3 star) or good (4 star) quality in terms of facilities and general standard of accommodation. On average, they each have around 80 rooms and a fairly broad range of facilities (that is, a heated swimming pool, room service, restaurant and bar, a kid’s club during school holidays, a small gym, and some have tennis courts and a couple of stores).
In terms of promotion, they are heavy outdoor (billboard) advertisers on the coastal highway. They also advertise in various holiday and travel directories, and on the government tourism website.
As you can see from the table below, they vary pricing throughout the year. Pricing is generally used as a tool to increase demand in the low season and to increase revenue in the high season. This is necessary as they have highly seasonal demand, being frequently being booked out over the Christmas holiday period, and with very high demand in other school holiday periods.
The table also shows the results of a customer satisfaction survey for Quick-Stop Hotels. On average, 80% of customers indicated that they were satisfied with their stay and 10% were delighted with their stay. However, 10% indicated they were dissatisfied. These figures vary by season, whether the customer was a first-time customer, and by the quality of the individual hotel. Additionally, the table includes information on average room rates (per night) and occupancy levels. (Note: The occupancy level is the percentage of rooms occupied per night.)
|
Average |
Low Season |
High Season |
1st Time Customers |
Repeat Customers |
3-star locations |
4-star locations |
|
|
Delighted customers |
10% |
20% |
5% |
25% |
5% |
10% |
20% |
|
Satisfied customers |
80% |
70% |
75% |
60% |
90% |
70% |
70% |
|
Dissatisfied customers |
10% |
10% |
20% |
15% |
5% |
20% |
10% |
|
Average Room Price |
$120 |
$75 |
$160 |
$140 |
$100 |
$100 |
$140 |
|
Occupancy Level |
80% |
50% |
100% |
N/A |
N/A |
85% |
75% |
QUESTIONS
In: Operations Management
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost.
Last year, the company sold 62,000 of these balls, with the following results:
| Sales (62,000 balls) | $ | 1,550,000 |
| Variable expenses | 930,000 | |
| Contribution margin | 620,000 | |
| Fixed expenses | 426,000 | |
| Net operating income | $ | 194,000 |
Required:
1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year’s sales level.
2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per ball. If this change takes place and the selling price per ball remains constant at $25.00, what will be next year's CM ratio and the break-even point in balls?
3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $194,000, as last year?
4. Refer again to the data in (2) above. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement 1a), what selling price per ball must it charge next year to cover the increased labor costs?
5. Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40.00%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company’s new CM ratio and new break-even point in balls?
6. Refer to the data in (5) above.
a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $194,000, as last year?
b. Assume the new plant is built and that next year the company manufactures and sells 62,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage.\
Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40.00%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company’s new CM ratio and new break-even point in balls? (Round "CM Ratio" to 2 decimal places and "Unit sales to break even" to the nearest whole unit.)
Show less
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Assume the new plant is built and that next year the company manufactures and sells 62,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage. (Round "Degree of operating leverage" to 2 decimal places.)
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In: Accounting
The Great Depression was ended in the United States by:
1)the government running budget surpluses throughout the
1930s.
2)the government increasing the money supply throughout the
1930s.
3)central planning of the economy by the government.
4)the huge amounts of government spending required to fight WWII
during the early 1940s.
The main difference between the classical model of the price level and the modern understanding of the relationship between the money supply, the price level, and real GDP is that according to classical economists, _____, while today's economists _____.
1)money is neutral in the long run; do not consider money to be
neutral in the long run.
2)the adjustment of prices takes some time; expect changes in the
money supply to be instantaneous.
3)did not consider money to be neutral in the long run; consider
money neutral in the long run.
4)the adjustment of prices to changes in the money supply is
instantaneous; argue that this adjustment process takes some
time.
The main idea behind monetarism is that:
1)the aggregate output will be even greater than potential
output if the money supply grows at a constant rate.
2)the aggregate price level will increase proportionally if the
money supply grows at a constant rate.
3)the government budget will have a deficit if the government
spending grows at a constant rate.
4)the aggregate output will grow steadily at a constant rate if the
money supply also grows at a constant rate.
In: Economics
Explain how the hypothesis below came up/was developed based on the initial observations (see below).
Hypothesis: The recombinant-based assay for HCV will detect HCV antibodies in blood samples of people with hepatitis C or who are carriers of HCV, but not in non-HCV individuals.
Initial Observations:
I. Hepatitis is a general category of liver diseases. Several different viral agents have been found to infect the liver and cause inflammation and damage.
II. In the 1940s, researchers identified two forms of viral hepatitis. Infectious hepatitis, or hepatitis A, is transmitted by contact with feces from infected individuals. Serum hepatitis, or hepatitis B, is transmitted through the blood and other body fluids. The hepatitis B virus was isolated in the 1960s and the hepatitis A virus was isolated in the 1970s.
III. Following the isolation of these two viruses, assays were developed in order to identify individuals infected with hepatitis A or hepatitis B viruses.
IV. A form of hepatitis occurs in patients that test negative for hepatitis A or B. This form of hepatitis, initially called non-A, non-B hepatitis (NANBH) but now referred to as hepatitis C, represented greater than 90% of transfusion-associated hepatitis.
V. Hepatitis C causes chronic disease which can lead to cirrhosis of the liver and liver cancer.
VI. A recombinant-based assay for the hepatitis C virus (HCV) has been developed, using RNA isolated from the hepatitis C virus.
In: Anatomy and Physiology
In: Economics
In: Economics
Gutierrez Company, a publicly held corporation,
operates a regional chain of large drugstores. Each drugstore is
operated by a general manager and a controller. The general manager
is responsible for the day-to-day operations of the store, while
the controller is responsible for the budget and other financial
tasks. The general manager, Tracie Kappan, has been at Gutierrez
Company for several years. Employee turnover is high at Gutierrez
Company, just as it is in the retail industry in general. Kappan
just hired a new controller, Min Yang.
Yang was asked to prepare the master budget. Each
retail location prepares its master budget once a year and then
submits that budget to company headquarters for approval. Once
approved by headquarters, the master budget is used to evaluate the
store’s performance. These performance evaluations directly affect
the managers’ bonuses and whether additional company funds are
invested in that location.
When Yang was almost done preparing the budget, Kappan
instructed him to increase the amounts budgeted for labor and
supplies by 20%. When asked why, Kappan responded that this
budgetary cushion gives store management flexibility in running the
store. For example, because company headquarters tightly controls
operating funds and capital improvement funds, any extra money
budgeted for labor and supplies can be used to replace store
furnishings or to pay bonuses to help to retain good employees. She
explains that the chance of getting extra funds from company
headquarters is not good; this “cushion” is usually the only
opportunity to replace store décor or to pay bonuses to key
employees. Kappan also needs extra funds occasionally to make
“under the table” payments to employees as incentives to work extra
hours or to keep them from leaving for a higher-paying
job.
Yang feels conflicted. He is eager to please Kappan,
and he is wondering what he should do in this situation.
Requirements:
Using the IMA Statement of Ethical Professional Practice(Exhibit 1-7 pg.13 of the textbook) as an ethical framework, answer the following questions:
What are the ethical issue(s) in this
situation?
What are Yang’s responsibilities as a management
accountant?
Would your answer differ if Gutierrez Company were
instead owned by one individual instead of being publicly held? Why
or why not?
Would anyone be harmed if slack were to be built into
the budget? Why or why not?
Discuss the specific steps Yang should take in this
situation. Refer to the IMA Statement of Ethical Professional
Practice(Exhibit 1-7 pg.13 of the textbook) in your
response.(not less than 200 words)
In: Accounting
Gutierrez Company, a publicly held corporation,
operates a regional chain of large drugstores. Each drugstore is
operated by a general manager and a controller. The general manager
is responsible for the day-to-day operations of the store, while
the controller is responsible for the budget and other financial
tasks. The general manager, Tracie Kappan, has been at Gutierrez
Company for several years. Employee turnover is high at Gutierrez
Company, just as it is in the retail industry in general. Kappan
just hired a new controller, Min Yang.
Yang was asked to prepare the master budget. Each
retail location prepares its master budget once a year and then
submits that budget to company headquarters for approval. Once
approved by headquarters, the master budget is used to evaluate the
store’s performance. These performance evaluations directly affect
the managers’ bonuses and whether additional company funds are
invested in that location.
When Yang was almost done preparing the budget, Kappan
instructed him to increase the amounts budgeted for labor and
supplies by 20%. When asked why, Kappan responded that this
budgetary cushion gives store management flexibility in running the
store. For example, because company headquarters tightly controls
operating funds and capital improvement funds, any extra money
budgeted for labor and supplies can be used to replace store
furnishings or to pay bonuses to help to retain good employees. She
explains that the chance of getting extra funds from company
headquarters is not good; this “cushion” is usually the only
opportunity to replace store décor or to pay bonuses to key
employees. Kappan also needs extra funds occasionally to make
“under the table” payments to employees as incentives to work extra
hours or to keep them from leaving for a higher-paying
job.
Yang feels conflicted. He is eager to please Kappan,
and he is wondering what he should do in this situation.
Requirements:
Using the IMA Statement of Ethical Professional Practice(Exhibit 1-7 pg.13 of the textbook) as an ethical framework, answer the following questions:
What are the ethical issue(s) in this
situation?
What are Yang’s responsibilities as a management
accountant?
Would your answer differ if Gutierrez Company were
instead owned by one individual instead of being publicly held? Why
or why not?
Would anyone be harmed if slack were to be built into
the budget? Why or why not?
Discuss the specific steps Yang should take in this
situation. Refer to the IMA Statement of Ethical Professional
Practice(Exhibit 1-7 pg.13 of the textbook) in your
response.
(at least 200 words)
In: Accounting
The market for hotels in Sacramento is described by the following equations: Qd=80−P and Qs=2P−100
(a) What is the equilibrium price and quantity?
(b) Suppose the city places a $2 tax on hotel rooms. How much do consumers now pay? How much do producers receive? How much tax revenue is raised by the tax?
(c) Based on your answer to part (b) is supply or demand more elastic?
In: Economics