The builder of a new movie theater complex is trying to decide how many screens she wants. Below are her estimates of the number of patrons the complex will attract each year, depending on the number of screens available.

After paying the movie distributors and meeting all other noninterest expenses, the owner expects to net $2.5 per ticket sold. Construction costs are $1,000,000 per screen.

Instructions: Enter your responses as whole numbers.

a. Make a table showing the value of marginal product for each screen from the first through the fifth.

What property is illustrated by the behavior of marginal products?

• Diminishing returns to capital

• Increasing returns to capital

• Negative returns to capital

b. How many screens will be built if the real interest rate is 5.5 percent?

screen(s)


c. How many screens will be built if the real interest rate is 7.5 percent?

screen(s)


d. How many screens will be built if the real interest rate is 10 percent?

screen(s)

e. If the real interest rate is 5.5 percent, what is the highest construction cost per screen that would make a five-screen complex profitable?

Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,900,000. The project was begun in 2020 and completed in 2021. Cost and other data are presented below:

Assume that Beavis recognizes revenue on this contract over time according to percentage of completion.

Required:
Prepare all journal entries to record costs, billings, collections, and profit recognition. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,720,000. The project was begun in 2015 and completed in 2016. Cost and other data are presented below: 2015 2016 Costs incurred during the year $ 411,000 $1,020,000 Estimated costs to complete 959,000 0 Billings during the year 465,000 1,310,000 Cash collections during the year 365,000 1,410,000 Assume that Beavis recognizes revenue on this contract over time according to percentage of completion. Required: Prepare all journal entries to record costs, billings, collections, and profit recognition. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

What kind of forward and backward linkages would each of the following publicly funded program might have? Comment on the number, strength, and intrinsic profitability of the linkages. Do you recommend that this initiative should be funded by the government or should it be left to the private sector?

a. Construction of a big hospital in a rural area where is no such hospital for 200 miles.

b. Creation of a large public park that from purchasing private agricultural property from private landowners.

c. Discovery and development of large deposits of natural gas

Ludmilla Construction Company is composed of two divisions: (1) Home Construction and (2) Commercial Construction. The Home Construction Division is in the process of building 12 houses and the Commercial Construction Division is working on three projects.

Required

1. Identify each cost as being a direct or indirect cost assuming the cost objects are the individual products (houses or projects).

2. Identify each cost as being a direct or indirect cost, assuming the cost objects are the two divisions.

3. Identify each cost as being a direct or indirect cost assuming the cost object is Ludmilla Construction Company as a whole.

Identify each cost as being a direct or indirect cost assuming the cost objects are the individual products (houses or projects).

dentify each cost as being a direct or indirect cost, assuming the cost objects are the two divisions.

dentify each cost as being a direct or indirect cost assuming the cost object is Ludmilla Construction Company as a whole.

A company began work in 2020 on a contract for $7,800. Other data are as follows:

If the company uses the percentage-of-completion method, for the journal entry that records construction revenue, construction expense, and gross profit for 2020, how much will be recorded for Construction in Process?

A company began work in 2020 on a contract for $7,800. Other data are as follows:

                                                   2020                         2021

Costs incurred to date                 $3,000 $5,600

Estimated costs to complete         2,000       —

Billings to date    4,400                   7,800

Collections to date                       2,000                      4,800

If the company uses the percentage-of-completion method, for the journal entry that records construction revenue, construction expense, and gross profit for 2020, how much will be recorded for Construction in Process?

New York City is the most expensive city in the United States for lodging. The mean hotel room rate is $204 per night (USA Today, April 30, 2012). Assume that room rates are normally distributed with a standard deviation of $55. a. What is the probability that a hotel room costs $225 or more per night (to 4 decimals)? b. What is the probability that a hotel room costs less than $140 per night (to 4 decimals)? c. What is the probability that a hotel room costs between $200 and $300 per night (to 4 decimals)? d. What is the cost of the 20% most expensive hotel rooms in New York City? Round up to the next dollar. $ or

Fatima Hopkins, the CEO of Central Adventures, is having difficulties with all three of her top management level employees. With one manager making questionable decisions, another threatening to leave, and the third likely ‘in the red’, Fatima is hoping there is a simple answer to all her difficulties. She is asking you (her accountant) for some advice on how to proceed.

Central Adventures owns and operates three amusement parks in Michigan: Funland, Waterworld, and Treetops. Central Adventures has a decentralized organizational structure, where each park is run as an investment center. Park managers meet with the CEO at least once annually to review their performance, where each park manager’s performance is measured by their park’s return on investment (ROI). The park manager then receives a bonus equal to 10% of their base salary for every ROI percentage point above the cost of capital.

Fatima’s first difficulty is with the Funland park. Funland is an outdoor theme park, with twelve roller coaster rides and several other attractions. This park has first opened 1965, and most of the rides have been in operation for 20+ years. Attendance at this park has been relatively stable over the past ten years. The park manager of Funland, Janet Lieberman, recently shared with Fatima a proposal to replace one of their older rides with a new roller coaster, a hybrid steel and wood roller coaster with a 90 degree, 200 foot drop and three inversions. The proposal indicated that the ride would cost $8,000,000 with an estimated life of 20 years. In addition, this new style of coaster would require additional maintenance and insurance, costing $125,000 each year. However, it projected that this new attraction would boost attendance, earning the park an additional $1,190,000 per year in revenues. Janet ultimately decided not to invest in this new attraction. Fatima (doing a quick mental calculation) saw that the investment had a payback period of eight years—much shorter than the life of the roller coaster—and is perplexed at Janet’s decision.

The second dilemma concerns the Waterworld park. Waterworld is an indoor water park, operating year-round. Run by park manager David Copperfield, Waterworld was built in 2016 and has increased attendance by 20% every year since. David recently sent you an email complaining that, based on the current bonus payout schedule, Janet Lieberman’s bonus last year was significantly higher than his. He points to the increasing attendance, and says that his park is being punished for having opened so recently (his park assets are much more recent than the roller coasters at Funland). He currently has an employment offer from another company at the same base pay rate, which he says he will accept if his performance is not appropriately acknowledged. Fatima needs to look at the relative performance across parks to determine how to proceed with David.

Central Treetops includes a high ropes course and has a series of ziplines that criss-cross over the Chippewa River. For many years, it was a popular venue for corporate team-building activities, so it is equipped with a main indoor facility with cafeteria and overnight guest rooms. This park has lost popularity in recent years, and has been ‘in the red’ for the past two years. If the park is not profitable this year, you will need to decide whether to close it - permanently. Included in the ‘Fixed COGS’ for Treetops is a $86,000 mortgage payment on the land and buildings for the park, which would still need to be paid by Central Adventures if the park is closed. Incidentally, you recently had a conversation with the regional head of the YMCA, who would like to open a summer camp in the central Michigan region. If you decided to close Treetops, you are fairly certain that you could lease that land to the YMCA for $250,000 annually.

A partial report of this year’s financial results for Central Adventures shows the following:

The ‘Selling and administrative costs’ are all incurred directly by each park, and are determined at the beginning of each year (that is, they do not change with the number of tickets sold). In addition to the information above, there are $2,542,920 in corporate costs, which are currently allocated evenly between the three parks. These costs are primarily due to employee benefits costs, which are billed at the corporate level. If the Treetops park is closed, the allocated corporate costs would decrease by $12,000. Central Adventures has a cost of capital of 12 percent (and Fatima uses the cost of capital as their required rate of return) and are subject to 18% income taxes.

Fatima needs to evaluate this year’s performance results before she can make any decisions. Is David’s complaint about the performance evaluation metrics valid? Is that also affecting management decisions in the form of Janet’s rejection of the proposed new rollercoaster? And is the company better off without Treetops? She sets off to the company accountant’s office to help get some answers.

Required:

Write your response in the form of a 1-2 page memo to Fatima Hopkins, from the perspective of the company accountant. Be sure to include all your financial analyses, clearly showing your calculations, to support your conclusions. Be sure to include the following points in your memo, and provide the appropriate financial analysis(es) to support your conclusions.

a. Evaluate Janet Lieberman’s (the Funland park manager) decision. Explain why it was/was not in Central Adventure’s overall best interest for Funland to reject the new rollercoaster.

B. Evaluate the validity of David Copperfield’s (the Waterworld park manager) complaint. Explain why it is (or is not valid), and what further information would be necessary.

Kelly Hayes operates a bed and breakfast hotel in a beach resort area of Noosa. Depreciation on the hotel is $60,000 per year. Kelly employs a maintenance person at an annual salary of $30,000 per year and a cleaning person at an annual salary of $24,000 per year. Rates and taxes are $10,000 per year. The rooms rent at an average price of $50 per person per night including breakfast. Other costs are laundry service at $4.00 per person per night and the cost of food which is $6.00 per person per night.

Instructions:

(a)what are total fixed cost and Variable cost per person per night ?


b)Determine the number of rentals and the sales revenue Kelly needs to break even using the contribution margin technique.

(c) If the current level of rentals is 4,000, by what percentage (Margin of Safety) can rentals decrease before Kelly has to worry about having a net loss?

(d) Kelly is considering upgrading the breakfast service to attract more business and increase prices. This will cost an additional $5.00 for food costs per person per night. Kelly feels she can increase the room rate to $65 per person per night. Determine the number of rentals and the sales revenue Kelly needs to break even if the changes are made.

e) Determine the contribution margin per person per night ?