Kersten Brown, the CEO of Pleasanton Studios, is having a tough week - all three of her top management level employees have dropped in with problems. One executive is making questionable decisions, another is threatening to quit, and the third is reporting losses (again). Kersten is hoping to find simple answers to all her difficulties. She is asking you (her accountant) for some advice on how to proceed. Pleasanton Studios owns and operates three decentralized divisions: Entertainment, Streaming, and Parks. Pleasanton Studios has a decentralized organizational structure, where each division is run as an investment center. Division managers meet with the CEO at least once annually to review their performance, where each division manager's performance is measured by their division's return on investment (ROI). The division manager then receives a bonus equal to 10% of their base salary for every ROI percentage point above the cost of capital. The Entertainment division manager, John Freeman, was the first to knock on Kersten's door this morning. Entertainment, Pleasanton Studios' first endeavor, produces movies for the big screen. Entertainment has been in operation since 1965. Last month, John had mentioned a proposal to build a new animation studio. The build would cost $4,910,000 with an estimated life of 20 years and no salvage value and would allow Entertainment to start producing animated movies. Animated movies were projected to bring in an additional $1,210,000 in revenues each year, but would increase annual production costs by $574,000. John had dropped in to let Kersten know he had decided not to move forward with the animation studio. This surprised Kersten - her quick mental calculation indicated that the studio would have a payback period of 8 years, much shorter than the expected life of the studio. Not entirely sure that her quick assessment was valid, Kersten needed to check with her accountant on the matter. Next to Kersten's door was the manager of Streaming, which produces short-form (30 minute to one hour) episodes in addition to streaming the movies developed by Entertainment. Customers then buy subscriptions to the service. Run by division manager Reyna Imanah, Streaming was introduced in 2016 and has increased subscriptions by 20% every year since. Reyna's complaint was that, based on the current bonus payout schedule, John Freeman's bonus last year was significantly higher than hers. She points to the increasing subscription rates at Streaming, and says that her division is being punished for having opened so recently (her division's facilities are much more recent than those in Entertainment). She currently has an employment offer from another company at the same base pay rate, and stated that she will accept this offer unless she feels her performance is being appropriately acknowledged and compensated. Kersten needs to look at the relative performance across divisions to determine how to proceed with Reyna. Pleasanton Parks is a theme park based on the movies from Entertainment and the series from Streaming. For many years, it was a popular year-round destination, with characters, rides, and a hotel. 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 permanently close that division. Included in the 'Fixed COGS' for Parks is an annual $1,650,000 mortgage payment on the land and buildings for the park, which would still need to be paid (as a corporate level cost) if the park is closed and that segment is removed from the financial statements. Incidentally, you recently had a conversation with a Marriott Hotels executive, who would like to expand into the area. If you decided to close Parks, you are fairly certain that you could lease the hotel facilities to Marriott for $650,000 annually. A partial report of this year's financial results for Pleasanton Studios can be found in Table 1 below. The 'Selling and admin costs' listed in Table 1 are directly incurred by each division, and are determined at the beginning of each year (that is, they do not change with increased/decreased production). In addition to the divisional information above, there are $2,000,000 in corporate costs that are currently allocated evenly between the three divisions. These costs are primarily due to employee benefits costs, which are billed at the corporate level. If the Parks division is closed, the decreased employee base would reduce allocated corporate costs by $500,000. Pleasanton Studios has a cost of capital of 12 percent (and Kersten uses the cost of capital as their required rate of return) and are subject to 32% income taxes. Before she can make any decisions, Kersten needs to evaluate this year's performance results. She sets off to see you, the company's accountant, for answers.

Table 1: Pleasanton Studios current year data Experience Streaming Parks Revenues $54,583,520 $30,184,570 $7,564,270 Fixed COGS $3,356,850 $4,074,530 $3,159,430 Variable COGS $40,257,310 $22,020,695 $3,698,928 # of customers 15,264,200 1,420,060 30,240 # of employees 11,562 1,954 1,378 Average net operating assets $29,014,000 $19,252,000 $420,000 Selling and admin costs $3,259,520 $944,620 $231,900  

a. Evaluate this year's performance results for the three divisions. Your financial analysis should include a segmented income statement for Pleasanton Studios, as well as the current annual ROI, residual income and EVA for the three divisions. b. Evaluate Entertainment's decision not to invest in the new animation studio (i.e., was the decision appropriate and in the best interests of Pleasanton Studios), including the appropriate financial analyses to support your evaluation. c. Evaluate the validity of Reyna Imanah's complaint regarding her evaluated performance. Explain why it is (or is not valid), and what further information would be necessary. d. Provide a recommendation on whether to close the Parks division, including all necessary financial analyses.

Kersten Brown, the CEO of Pleasanton Studios, is having a tough week – all three of her top management level employees have dropped in with problems. One executive is making questionable decisions, another is threatening to quit, and the third is reporting losses (again). Kersten is hoping to find simple answers to all her difficulties. She is asking you (her accountant) for some advice on how to proceed.

Pleasanton Studios owns and operates three decentralized divisions: Entertainment, Streaming, and Parks. Pleasanton Studios has a decentralized organizational structure, where each division is run as an investment center. Division managers meet with the CEO at least once annually to review their performance, where each division manager’s performance is measured by their division’s return on investment (ROI). The division manager then receives a bonus equal to 10% of their base salary for every ROI percentage point above the cost of capital.

The Entertainment division manager, John Freeman, was the first to knock on Kersten’s door this morning. Entertainment, Pleasanton Studios’ first endeavor, produces movies for the big screen. Entertainment has been in operation since 1965. Last month, John had mentioned a proposal to build a new animation studio. The build would cost $4,910,000 with an estimated life of 20 years and no salvage value and would allow Entertainment to start producing animated movies. Animated movies were projected to bring in an additional $1,210,000 in revenues each year, but would increase annual production costs by $574,000. John had dropped in to let Kersten know he had decided not to move forward with the animation studio. This surprised Kersten – her quick mental calculation indicated that the studio would have a payback period of 8 years, much shorter than the expected life of the studio. Not entirely sure that her quick assessment was valid, Kersten needed to check with her accountant on the matter.

Next to Kersten’s door was the manager of Streaming, which produces short-form (30 minute to one hour) episodes in addition to streaming the movies developed by Entertainment. Customers then buy subscriptions to the service. Run by division manager Reyna Imanah, Streaming was introduced in 2016 and has increased subscriptions by 20% every year since. Reyna’s complaint was that, based on the current bonus payout schedule, John Freeman’s bonus last year was significantly higher than hers. She points to the increasing subscription rates at Streaming, and says that her division is being punished for having opened so recently (her division’s facilities are much more recent than those in Entertainment). She currently has an employment offer from another company at the same base pay rate, and stated that she will accept this offer unless she feels her performance is being appropriately acknowledged and compensated. Kersten needs to look at the relative performance across divisions to determine how to proceed with Reyna.

Pleasanton Parks is a theme park based on the movies from Entertainment and the series from Streaming. For many years, it was a popular year-round destination, with characters, rides, and a hotel. 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 permanently close that division. Included in the ‘Fixed COGS’ for Parks is an annual $1,650,000 mortgage payment on the land and buildings for the park, which would still need to be paid (as a corporate level cost) if the park is closed and that segment is removed from the financial statements. Incidentally, you recently had a conversation with a Marriott Hotels executive, who would like to expand into the area. If you decided to close Parks, you are fairly certain that you could lease the hotel facilities to Marriott for $650,000 annually.

A partial report of this year’s financial results for Pleasanton Studios can be found in Table 1 below. The ‘Selling and admin costs’ listed in Table 1 are directly incurred by each division, and are determined at the beginning of each year (that is, they do not change with increased/decreased production). In addition to the divisional information above, there are $2,000,000 in corporate costs that are currently allocated evenly between the three divisions. These costs are primarily due to employee benefits costs, which are billed at the corporate level. If the Parks division is closed, the decreased employee base would reduce allocated corporate costs by $500,000. Pleasanton Studios has a cost of capital of 12 percent (and Kersten uses the cost of capital as their required rate of return) and are subject to 32% income taxes.

Before she can make any decisions, Kersten needs to evaluate this year’s performance results. She sets off to see you, the company’s accountant, for answers.

Table 1: Pleasanton Studios current year data

Required:

a. Evaluate this year’s performance results for the three divisions. Your financial analysis should include a segmented income statement for Pleasanton Studios, as well as the current annual ROI, residual income and EVA for the three divisions.

THE PEACH COMPUTER COMPANY Donald Bright, supply manager at the Peach Computer Company, was preparing his notes for a meeting to be held that afternoon. The meeting concerned the construction of a new $6 million, 120,000-square-foot building to be located near Dayton, Ohio. The principle issue to be discussed, and hopefully resolved, was what method of specification the firm should use in the purchase of its new building. When the requirement for the building first arose, the plant engineer at Peach advocated the use of a design firm as the desired method of developing the specifications. Such firms were employed successfully by Peach on seven previous construction projects it had completed during the past five years. Under this approach, a design firm, traditionally referred to as an architect-engineer or simply A-E, is retained to develop the detailed plans and specifications for the new building. These specifications are identical in concept to the materials and method-of-manufacture specifications used in the manufacturing industry to purchase manufactured goods. After they are developed and approved, the construction plans and specifications in sequence become (1) the basis for solicitation of bid prices from qualified construction firms, (2) the cardinal part of the resulting construction contract, and (3) the standard against which inspections are performed. Don had conducted some preliminary discussions with members of the Dayton Institute for Supply Management regarding the cost for A-E services. He learned that the fees for local projects similar to his were averaging 8 percent of estimated construction cost. This percentage was in line with Peach’s experience on its own projects. One of the members of the Dayton chapter with whom Don talked suggested that he read an article in an issue of the California Management Review (CMR). The article, entitled “Inflation, Recession, and Your Building Dollar,” dealt with the purchase of building construction. Don learned that several alternative approaches to supplying building construction were available. One approach particularly appealed to him. It provided for the use of performance specifications. Such specifications, instead of describing the building item by item in terms of its physical properties, describe in words the building’s intended function, i.e., how large it must be; how well lighted, heated, and cooled it must be; its longevity; its operating costs; and so on. After the performance description is developed, it is used to solicit from qualified bidders a package proposal that includes (1) a design approach, (2) a firm agreed price, and (3) a guaranteed completion date. The CMR article documented that when properly used, performance specifications for buildings can result in a significant savings in both dollars and time. Additionally, the article data revealed that when this method is correctly used, a considerable savings in both the cost and the time required to complete the project is a reasonable expectation. Furthermore, the article indicated that the buyers of buildings purchased under this method have experienced approximately equal satisfaction with their buildings as those who used A-E’s. In preparation for the afternoon meeting, Don decided to develop lists of advantages and disadvantages for each of the two approaches he was considering. After an evaluation of both lists, Don expected to be able to make a formal recommendation as to which method he thought Peach should employ.

1. Should Don get any additional information? Explain.

2. Discuss the inherent advantages and disadvantages of using performance specifications.

3. Discuss the inherent advantages and disadvantages of the plans and specifications method of describing quality.

4. Assuming that Don’s investigation and analysis indicates that both methods are practical for use by Peach, discuss which approach Don should recommend.

5. Explain why one method will require more active involvement on Don’s part than the other approach.

An amusement park, whose customer set is made up of two markets, adults and children, has developed demand schedules as follows: Price ($) Quantity Adults Children 5 15 20 6 14 18 7 13 16 8 12 14 9 11 12 10 10 10 11 9 8 12 8 6 13 7 4 14 6 2 The marginal operating cost of each unit of quantity is $5. Because marginal cost is a constant, so is average variable cost. Ignore fixed costs. The owners of the amusement part want to maximize profits. Calculate the price, quantity, and profit if: The amusement park charges a different price in each market. The amusement park charges the same price in the two markets combined. Explain the difference in the profit realized under the two situations.

Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,600,000. In the first year of the contract Tullis incurs $1,600,000 of cost and the engineers determined that the remaining costs to complete are $4,800,000. Tullis billed $3,600,000 in year 1 and collected $3,500,000 by the end of the end of the year. How much gross profit should Tullis recognize in Year 1 assuming the use of the percentage-of-completion method?

a. $0
b. $1,050,000

c. $2,650,000

d. $4,250,000

In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows: 2018 2019 2020 Cost incurred during the year $ 2,044,000 $ 2,628,000 $ 2,890,800 Estimated costs to complete as of year-end 5,256,000 2,628,000 0 Billings during the year 2,170,000 2,502,000 5,328,000 Cash collections during the year 1,885,000 2,600,000 5,515,000 Westgate recognizes revenue over time according to percentage of completion. Required:

a) The City of Chicago sold bonds in the amount of $5,000,000 to finance the construction of a sports center. The bonds are serial bonds and were sold at par on July1, 2002 the first day of a fiscal year. Shortly thereafter a construction contract in the amount of $4,500,000 was assigned and the contractor commenced work. By year-end, the contractor had been paid in full for all billings to date amounting to $2,000,000. Required: Prepare in general journal form all entries that should have been made during the fiscal year ended June 30, 2003 to record the above information in the capital projects fund(including closing entries) b) Compute the legal debt margin for the City of Huston given the following information regarding its bonded debt 1) The legal debt limit is 10 percent of total assessed valuation 2) Bonds outstanding and bonds authorized are: Face Amounts Description Authorized Outstanding General obligation street construction 12,000,000 12,000,000 Special assessment sidewalk construction 2,000,000 2,000,000 General obligation park acquisition 2,000,000 0 Water Utility Fund revenue 5,000,000 5,000,000 Industrial development revenue 6,000,000 6,000,000 Note: The City has no liability for the revenue bonds or the industrial development bonds. 3) Total assessed valuation of property within the City of Huston is $200,000,000.

Fixed Asset Discussion:

1. Identify a type of company in your pathway that might purchase fixed assets (see suggestions below).
2. List 5 fixed assets that they might purchase to run their business.
3. Select one depreciable fixed asset. Based on research suggest what the cost, residual value and estimated life might be for that fixed asset.
4. Using your assumptions above, calculate:
   1. Straight-line depreciation per year.
   2. Declining Balance depreciation for each of the first two years
   3. Units of Production depreciation (make assumptions about the total expected use and the first two year’s use), for each of the first two years.
5. Suggest which depreciation method might be more appropriate and why.

Examples of sectors/industries in pathways could be:

• AHCD: Media, Dance, Theater, Film production, Graphics design or Architecture
• Business: Tourism/Leisure, Telecommunications, Retailers, Computers, Equipment, Food and Beverage Products, Real Estate, Technology Hardware, Toys, Commercial Services, Financial Services, any business is acceptable
• Education: Non-Profit Services, Public Agency, Child care, Charter schools, Universities
• Health Sciences: Health Care Services, Healthcare Products, Hospital, Household Products, Chemicals
• IMCT: Aviation, Construction, Construction Materials, Logistics, Automotive, Mining
• Public Safety:   Equipment providers for the industry, Public Agency, Non-Profit Services
• STEM: Engineering, Computers. Chemicals, Energy, Energy Utilities, Technology Hardware
• SGSHS: Healthcare Services, Non-Profit Services, Media, Public Agency

Fadwa is the general manager at the 125-room select-service. Fadwa has just taken a call from Lawrence's hotel. Because of an internal oversight, Lawrence's hotel is overbooked by 70 group rooms next Saturday. Lawrence would like to purchase that number of rooms from Fadwa at their previously agreed upon walk rate of $75 per night. Fadwa's normal ADR is $129.00 and her cost of cleaning a room is $17. Currently, Fadwa had 55 occupied rooms (arrivals and stayovers) on the books for that day. She forecast that she could sell, at her normal ADR, another 30 rooms by Saturday. Fadwa typically generates $8 in ancillary revenue from each of her occupied rooms. Before replying to Lawrence's request, she summarized her forecasted rooms sale-related information in a chart so she could better understand the impact of accepting or rejecting Lawrence's walked guests. FILL IN THE CHART AND ANSWER THESE QUESTIONS BELOW

a. What would be Fadwa’s ADR if she accepted all of Lawrence’s walked rooms?

Answer:

b. What would be Fadwa’s RevPOR with the walked rooms?

Answer:

c. What would be Fadwa’s RevPOR without the walked rooms?

Answer:

d. What would be the net total revenue (RevPOR – Rooms dept. cost POR) difference in her hotel's revenue if Fadwa agree to take the rooms?

Answer:

e. What would be the percentage difference in her hotel’s net total revenues if Fadwa agree to take the rooms?

Answer:

f. If you were Fadwa, would you accept the walked rooms from Lawrence’s hotel? Why or why not.

Answer:

A phone company is testing a device that would allow visitors to museums, movie goers and other attractions to get information at the touch of a digital code. For example, moviegoers can listen to an announcement recorded on a microchip that provides them a preview of the movies they want to watch. It is anticipated that the device would rent for $3.00 each. The installation cost for the complete system is expected to be approximately $400,000, but movie theater owners are unsure as to whether or not to take the risk. A financial analysis of the issue indicates that if more than 10% of the movie patrons use the device the movie theater will make a profit. To help make the decision, a random sample of 400 moviegoers is given details of the system’s capabilities and cost. If 48 people say they would rent the device, can the management of the movie theater conclude at the 5% significance level that the investment would result in a profit? (The responses to the survey are: Yes, I would rent the device; and No, I would not rent the device)

The research question is: Is the product profitable? The parameter is p (the proportion of movie goers who would rent the device). Conduct a One Sample Test for Independent Proportions and accept or reject the hypothesis (show your work). Write the steps for hypotheses testing:

1. Hypotheses
2. Test statistic
3. Set up the decision rule/rejection region (i.e. reject Ho if z…..) (Draw the curve)
4. Compute test statistic.
5. Write the conclusion
6. P Value ( Show Work )