Introduction - AdCreate's Client Portfolio. Read the overview below and complete the activities that follow.

AdCreate is a full-service advertising agency with several high profile marketing firms as clients. Given their vast client list and the varied services they provide to different clients, they are compensated differently by different clients. Jacob Stein, who recently joined AdCreate in the finance department, was asked to review the various compensation models being used by some of AdCreate's biggest clients.

CONCEPT REVIEW: The type and amount of services an ad agency performs vary from one client to another. As a result, agencies use a variety of methods to get paid for their services. Agencies are typically compensated in three ways: commissions, some type of fee arrangement, or percentage charges.

Case Analysis

Agency Compensation Methods:

Read the report below, which provides a summary of AdCreate's compensation agreements with four of its major clients, and answer the questions that follow. NOTE: There may be more than one answer to each question. You MUST list all potential answers for full marks.

AdCreate has a negotiated commission system agreement with Worry Free Financial. Worry FreeFinancial advertises on T.V. mainly and has the following sliding scale for media commissions in its agreement with AdCreate: 15% commission for media expenditures of less than $ 300,000, 12.5%commission for media expenditures between $ 300,000 and $ 400,000 and 10% commission for media expenditures above $ 500,000.

AdCreate has a cost-plus agreement with Still Water Furnishings. Under the cost-plus terms, AdCreate uses a mark up of 13% for services provided to Still Water Furnishings.

With Anchor Motors, AdCreate has an incentive-based agreement. Under the terms of this agreement, AdCreate gets to keep the full 15% commission from media if Anchor Motor's sales for the period of advertising show an increase of 5% or greater compared to sales in the same period the previous year. For sales increase between 3% and 5%, AdCreate gets to keep 13% out of the 15% media commission. Finally, for sales increase between 1% and 3%, AdCreate gets to keep 10% out of the 15% media commission.

AdCreate has a percentage charges agreement with Globe Travel Adventures. Under these terms, AdCreate charges a mark up of 17.65% on services from outside providers like printers, photographers, etc.

Please explain your answers, and why you chose that specific answer over others.

Question 1.

AdCreate has negotiated a rate of 12.5% for a commission system payment, with Worry Free Financial for a campaign in 2010. AdCreate arranged for airing three ads, during Newshour on CNN, in the first week of the launch campaign. AdCreate's income for these three ads in the first week was $49,375. Based on this information, which of the following is true?

• I. The client (Worry Free Financial) paid AdCreate $425,625 for the three ads

• II. AdCreate paid CNN $425,625 for the three ads

• III. AdCreate paid CNN $345,625 for the three ads

Question 2.

Under the cost-plus agreement that AdCreate has with its client Still Water Furnishings, Jacob Stein noticed that AdCreate incurred costs of $625,000 for a print and direct mail campaign during 2010. Under the cost-plus terms, AdCreate used a mark up of 13% for services provided to Still Water Furnishings. Based on this information, which of the following is true?

• a. The client (Still Water Furnishings) paid AdCreate $706,250 in 2010

• b. AdCreate's income from the Still Water Furnishings account in 2010 was $81,250

• c. The client (Still Water Furnishings) paid AdCreate $700,000 in 2010

Question 3.

In reviewing the incentive-based agreement between AdCreate and Anchor Motors, Jacob Stein found that sales of Anchor rose 5.2% compared to the previous year in the second quarter. AdCreate paid the media $895,000 for Anchor Motors ads during the same period. Based on this information, which of the following is true for the second quarter billings?

• a. AdCreate billed Anchor Motors $1,152,941 for the second quarter in 2010

• b. AdCreate's income from the Anchor Motors account for the second quarter of 2010    

       was $257,941

• c. AdCreate billed Anchor Motors $1,052,941 for the second quarter in 201

Question 4.

In reviewing the agreement between AdCreate and Anchor Motors, Jacob Stein found that sales of Anchor rose 2.8% compared to the previous year in the third quarter. AdCreate paid the media $450,000 for Anchor Motors ads during the same period. Based on this information, which of the following is true for the third quarter billings?

• 1. AdCreate billed Anchor Motors $502,941 for the third quarter in 2010

  2. AdCreate's income from the Anchor Motors account for the third quarter of 2010 was $79,412

• 3. AdCreate billed Anchor Motors $529,412 for the third quarter in 2010

• Question 5.

In reviewing the percentage charges agreement between AdCreate and Globe Travel Adventures, Jacob Stein found that AdCreate paid a printing firm $220,000 for a direct mail brochure for Globe Travel Adventures in 2010. Based on this information, which of the following is true?

• 1. AdCreate's income from Globe Travel Adventures in 2010 was $28,830

• 2. The mark up of 17.65% of the cost amounts to a 15% commission

3. AdCreate billed Anchor Motors $258,830 in 2010

1.

Superior Paver sued homeowners Pamela and Mark for $14,350 it claimed was still owed as extra work incurred in installing concreate pavers in the driveway of their residence. Pamela and Mark had previously paid the $45,000 contract price, and they counterclaimed for $60,500 for the reasonable cost of making the contractor’s work conform to the contract. The evidence established that Superior did not install a proper base of 3” to 4” of crushed limestone before installing the pavers as required by the contract, which caused the pavers to move creating gaps between the pavers and causing water to flow into the garage. To correct the problem the pavers needed to be removed and the area excavated and replaced with a crushed limestone base before, again, installing the pavers. Superior claimed it had substantially performed the contract as their performance resulted in a fully usable driveway, and, the proper remedy, if any, was the reduction of the market value of Pamela and Mark’s property due to any defective performance. Superior further asserted that the cost of redoing the entire job would be economic waste.

The result?

2.

A franchisee owner (Owner) of a popular hotel chain was bound by their franchise agreement with Mega Hotel Inc (Mega). Part of Owner’s obligations included that Owner maintain their 60 room hotel to at least minimum quality assurance standards. Owner’s hotel failed five consecutive quality inspections over two years, with the inspector noting damaged guest rooms, burns in the bedding, and severely stained carpets. Mega canceled the franchise agreement. Owner sued Mega for wrongfully canceling the agreement (breach of contract).

Owner’s defense against Mega cancelling the franchise was the following. The bridge repairs on the road leading to the hotel had adversely affected the hotels ability to live up to the franchise agreement. Further, the repairs made it commercially impractical for Owner to live up to the franchise agreement. For reasons such as the inability of hotel staff to arrive on time and properly clean the rooms. Will Owner’s defense prevail?

Since its opening in 1977, Ocean Park was the only theme park in Hong Kong. The park, owned by the Hong Kong government, is a nonprofit organization that aims to provide visitors a unique experience in entertainment, education, and conservation. In the absence of competition, Ocean Park had existed without direction and focus. When Hong Kong officials signed an agreement to bring Disneyland to Hong Kong in 1999, it seemed as if it would be the end of Ocean Park. In this unequal competition, Ocean Park emerged the surprise winner. Quickly sprucing up its act, it has managed to outperform Disneyland and has emerged as the number one amusement park in Hong Kong .

How was Ocean Park able to turn a threat into an opportunity?

Ocean park made the decision not to compete head to head with Disneyland. Will this strategy always work when local companies face multinational giants? Explain.

How can Ocean Park further capitalize on Disneyland’s presence? (hint: check out how other parks surrounding Disney, such as Sea World and Universal Studios, survive and thrive in

Anaheim, California, and Orlando, Florida.)

How can Hong Kong Disneyland turn around its lackluster performance?

Case:

Rent Relief Caravans4Hire Ltd1 provides short-term rental of caravans to tourists for camping holidays throughout Australia. Caravans4Hire Ltd leases several large properties in Adelaide, Perth and Sydney, which it needs to park its caravans when not in use.

Due to border restrictions, travel restrictions, localised lockdowns and Government advice to stay home, Caravans4Hire Ltd has suffered a significant loss of revenue and cash flow. On 1 May 2020 the National Hotel and Tourism Industry Association which is a non-government, not-for-profit industry association. It supports its members, who are businesses operating in the hospitality and tourism industry awarded Caravans4Hire Ltd a grant of $360 000 in total for rent relief for the three months ended 31 July 2020. The grant was received in cash on 1 May 2020. Caravans4Hire Ltd is under no obligation to repay the money received.

REQUIRED

All questions should be answered from the perspective of Caravans4Hire Ltd. The word lengths are a suggestion only, i.e., they are NOT strict word limits for each part.

a) What is the main accounting policy issue(s) that need to be resolved to account for the grant from the National Hotel and Tourism Industry Association? (20%) (part a) 15 – 50 words)

b) i) Identify one principle that is relevant to the accounting policy issue that you identified in part a) by providing a reference for that principle (e.g., AASB XXX, para. zz; or Conceptual Framework, Chapter X, para. x.xx) AND explain why you chose that principle. (20%)

ii) identify another principle that is relevant to the accounting policy issue that you identified in part a) by providing a reference for that principle.(10%) (part b) 50 – 100 words).

c) Describe an accounting policy to account for the grant from the National Hotel and Tourism Industry Association. Do not justify your policy. Just describe it. (50%) (part c) 20 - 80 words)

Please give answers of the following questions:

1. What are the strengths and limitations of using estimates of total economic value to

develop environment policy recommendations? How does your answer relate to your

worldview (anthropocentric or ecocentric)?

2. Do you think contingent valuation should be widely used as a tool for developing environmental policy recommendations? What do you think is the main strength of CV?

What do you think is its main weakness?

3. Suppose that you are asked to conduct a cost-benefit study of a proposed coal-fired

power plant. The plant will be built on the outskirts of a residential area and will emit a

certain volume of pollutants. It will require a substantial amount of water for its cooling

system. Industries in the region argue that the additional power is urgently needed, but

local residents oppose construction. How would you evaluate social and environmental

costs and weigh them against economic benefits?

4. As mentioned in the text, under U.S. law federal agencies must use cost-benefit analysis to evaluate major policy proposals. Do you agree with this requirement, in particular for environmental policies? How much weight do you believe should be given to the results of cost-benefit analyses when making policy decisions? Discuss how economic, health, and environmental criteria should be balanced in formulating regulations.

5. Suppose that the government of a developing country is considering the establishment of a national park in a scenic forested area. Local opposition arises from those who wish to use the forest land for timbering and agriculture. But the national park would draw both local and foreign visitors as tourists. Could cost-benefit analysis aid the decision on whether to establish the park? What factors would you consider, and how would you measure their economic value?

6. In what respects is “natural capital” similar to human-made capital, and in what respects does it differ? We often speak of a “return to capital,” meaning the stream of income generated by a capital investment. Can we speak of a return to natural capital? What are examples of investment in natural capital? Who is motivated to make such investments? Who would suffer if such investments were not made, or if “disinvestment” occurs due to resource depletion or environmental degradation?

7. Is the concept of optimal scale for an economy useful? If so, how would you go about

determining it? Do you think that economies such as those in the United States, Europe,

and Japan have reached optimal scale? Exceeded it? How about the economies of Latin America, Asia, and Africa? How would you relate the concept of optimal scale in the global economy to economic growth in national economies at different levels of development?

8. Distinguish the concepts of strong and weak sustainability, and give some practical examples, other than those cited in the text, for their application. Where is each concept most appropriate? Which economic policy measures are relevant to achieving sustainability?

Allen

Furnishings manufactures upscale custom furniture.

AllenAllen

Furnishings currently uses a plan twide overhead rate based on direct labour hours to allocate its

$1,170,000

of manufacturing overhead to individual jobs.​ However, Werner

Allen​,

owner and​ CEO, is considering refining the​ company's costing system by using departmental overhead rates.​ Currently, the Machining Department incurs

$725,000

of MOH while the Finishing Department incurs

$445,000

of MOH. Ernie has identified machine hours​ (MH) as the primary MOH cost driver in the Machining Department and direct labour​ (DL) hours as the primary cost driver in the Finishing Department.

The

Allen

Fine Furnishings plant completed Jobs 450 and 455 on May 15. Both jobs incurred a total of

9

DL hours throughout the entire production process. Job 450 incurred

3

MH in the Machining Department and

6

DL hours in the Finishing Department. Job 455 incurred

5

MH in the Machining Department and

4

DL hours in the Finishing Department.

Requirement 1

Compute the plantwide overhead rate assuming that

Allen

expects to incur

26,000

total DL hours during the year.

First identify the​ formula, and then compute the rate.

Requirement 2. Compute departmental overhead rates assuming that

Allen

expects to incur

14,500

MH in the Machining Department and

17,800

DL hours in the Finishing Department during the year.

First identify the​ formula, and then compute the rate for each department.

Requirement 3. If

Allen

continues to use the plantwide overhead​ rate, how much manufacturing overhead would be allocated to Job 450 and Job​ 455?

First identify the​ formula, and then calculate the amount of manufacturing overhead that would be allocated to the jobs if the plantwide overhead rate is used.

Requirement 4. If

Allen

uses departmental overhead​ rates, how much MOH would be allocated to Job 450 and Job​ 455?

Use the following table to calculate the amount of manufacturing overhead that would be allocated to the jobs if the departmental overhead rates are used. ​(Round your interim and final answers to the nearest whole​ dollar.)

Requirement 5. Based on your answers to Requirements 3 and​ 4, does the plantwide overhead rate overcost or undercost either of the​ jobs? Explain. If

Allen

sells his furniture at​ 125% of​ cost, will his choice of allocation systems affect product​ pricing? Explain.

Is the product or service of the hotel industry standardized or differentiated? Explain. Compared to other industries, is it difficult or easy to enter the hotel industry? Explain. Are there examples of nonprice competition in the hotel industry? Illustrate. Based on the above, would you say that the hotel industry is monopoly, oligopoly, monopolistic competition or perfect competition? Explain.

Listed below are binary systems for VLE. Which can be approximately modeled using Raoult’s Law? Clearly state your reasons for or against the use of Raoult’s Law. Table B.1 (Appendix B) may be useful. (a) Argon/hexane at 200K. (b) o-Xylene/p-Xylene at 413K. (c) n-butane/i-butane at 30 bar. (d) CO2/water at 1 bar.

t beginning of this year, XYZ Company has a machine worth 1000k, cash 30k, account receivable 200k, inventory 100k, account payable 50k, and notes payable 80k. During this year, XYZ had sold 75k of inventory, which brought in 120k in revenue (with half cash and half credit). In addition, the company also paid down 37.5% of the notes payable. What is the change of NWC this year?

Deductible expenses for a service member’s moving do not include:

a. the cost of transporting household goods

b. Hotel Cost while moving to the new locations

c. Meals Incurred during the move

d. storage of household goods for a limited time upon arrival at the new location