Lavage Rapide is a Canadian company that owns and operates a large automatic car wash facility near Montreal. The following table provides data concerning the company’s costs:

For example, electricity costs are $1,300 per month plus $0.07 per car washed. The company expects to wash 8,500 cars in August and to collect an average of $6.40 per car washed.

The actual operating results for August appear below.

Required:

Prepare a flexible budget performance report that shows the company’s revenue and spending variances and activity variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Milano Pizza is a small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria’s owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made.

Data concerning the pizzeria’s costs appear below:

In November, the pizzeria budgeted for 2,190 pizzas at an average selling price of $20 per pizza and for 190 deliveries.

Data concerning the pizzeria’s operations in November appear below:

Required:

1. Complete the flexible budget performance report that shows both revenue and spending variances and activity variances for the pizzeria for November. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Your firm designs training materials for computer training classes, and you have just received a request to bid on a contract to produce a complete set of training manuals for an 8-session class. From previous experience, you know that your firm follows an 80% learning rate. For this contract, it appears that the effort will be substantial, running 300 hours for the first session. Your firm has an average cost of labor of $80/hour and the overhead is expected to run a fixed $1200 per session. The customer will pay you a flat fixed rate per session (Per Session Price.) If your profit markup is 10%, what will be the Total Price, the Per Session Price, and at what session will you break even?

Answer the following four questions:

1. What is the Total Price? This is what you would charge the customer so that you can have your profit markup of 10% over all of your costs. To calculate this, first figure out your cost per each session, add them up, and then add your profit.
2. What is the Per Session Price? This is the revenue that the customer pays you each time you complete a session. It is calculated by dividing the Total Price by the number of sessions.
3. What is the Break Even Point? At the beginning, your cost per session is more than your revenue per session. As each session is completed, however, your costs for the session declines so that eventually your cumulative revenue exceeds the cumulative cost. The break-even point is the session at which, for the first time, your revenue exceeds your cost.
4. Assume you win the contract and your customer likes the training so much, she orders a ninth course at the same price as the first eight. What will your profit be on the 9^th course?

Problem 5-49 Customer Profitability Analysis [LO 5-1, 5-6]

Ellie Mosk, CEO of X-Space Industries, decided to expand the company’s product offering beyond the core model rocket business. After investigation, she decided to set up a separate division to design and manufacture products for the drone market. Several companies were interested in having X-Space develop these drones, and financial results, to date, have been encouraging. Revenue was $4 million, gross margins have been running about 40%, and the customer sales and support costs were $1 million. However, there is a growing concern that some customers require a disproportionate share of the sales and support resources, and the true profitability of the customers is unknown. Data were collected to support an analysis of customer profitability:

Required:

1. Management felt the easiest way to allocate the sales and support costs was based on the total revenue. Using total revenue as the allocation base, determine the profitability of each of the five customers.

2. Management felt that because the data revealed some customers require a disproportionate share of sales and support resources, activity-based costing should be used to determine customer profitability. Use ABC to prepare a customer profitability analysis.

Problem 5-49 Customer Profitability Analysis [LO 5-1, 5-6]

Ellie Mosk, CEO of X-Space Industries, decided to expand the company’s product offering beyond the core model rocket business. After investigation, she decided to set up a separate division to design and manufacture products for the drone market. Several companies were interested in having X-Space develop these drones, and financial results, to date, have been encouraging. Revenue was $4 million, gross margins have been running about 40%, and the customer sales and support costs were $1 million. However, there is a growing concern that some customers require a disproportionate share of the sales and support resources, and the true profitability of the customers is unknown. Data were collected to support an analysis of customer profitability:

Required:

1. Management felt the easiest way to allocate the sales and support costs was based on the total revenue. Using total revenue as the allocation base, determine the profitability of each of the five customers.

2. Management felt that because the data revealed some customers require a disproportionate share of sales and support resources, activity-based costing should be used to determine customer profitability. Use ABC to prepare a customer profitability analysis.

Problem 5-49 Customer Profitability Analysis [LO 5-1, 5-6]

Ellie Mosk, CEO of X-Space Industries, decided to expand the company’s product offering beyond the core model rocket business. After investigation, she decided to set up a separate division to design and manufacture products for the drone market. Several companies were interested in having X-Space develop these drones, and financial results, to date, have been encouraging. Revenue was $4 million, gross margins have been running about 40%, and the customer sales and support costs were $1 million. However, there is a growing concern that some customers require a disproportionate share of the sales and support resources, and the true profitability of the customers is unknown. Data were collected to support an analysis of customer profitability:

Required:

1. Management felt the easiest way to allocate the sales and support costs was based on the total revenue. Using total revenue as the allocation base, determine the profitability of each of the five customers.

2. Management felt that because the data revealed some customers require a disproportionate share of sales and support resources, activity-based costing should be used to determine customer profitability. Use ABC to prepare a customer profitability analysis.

Business Description

After taking business classes, Jake, an avid dog-lover, decided to start selling unique pet supplies at trade shows. He has two products:  

Product 1:   "Launch-it"-   a tennis ball thrower that will sell for $10.

Product 2: "Treat-time"- an automatic treat dispenser that releases a treat when the dog places his paw on the pedal.   The treat dispenser will sell for $30.

Costs:    Jake has hired an employee to work the trade show booths.   The work contract is $1,000 per month plus a commission equal to 10% of revenue.    Jake will also spend $500 per month on trade-show entry fees. Jake is purchasing the products from a supplier in Mexico.    Launch-its cost $1 each;   Treat-times cost $7 each.     Shipping and handling on the Launch-its will cost $2 each; Shipping and handling on the Treat-times, which are heavier, will cost $8 each. The shipping and handling costs will be paid by Jake, not the customer.

Assume Jake expects to sell 200 Launch-its and 100 Treat-times during his first month of operations (June).

Jake's financial goal is to earn an operating income of $8,000 per month.    He believes volume may grow at a rate of 5% a month.

Directions

You have been hired by Jake to build a CVP model that will help him understand the impact of business conditions on his operating income. (See "Starting File" worksheet.) In your model, all of the original assumptions will be listed in one area of the spreadsheet (blue box).   All other calculations in the model will reference the assumptions (blue box) such that if any assumption changes, the effect will ripple through the entire model.    To accomplish this goal, you will use FORMULAs, rather than numbers, in every other cell in the worksheet. In other words, the only place you will type numbers is the blue assumptions box.

FORMATTING conventions to use throughout project:

- Round all UNITS to the nearest whole unit.   Use the "decrease decimals" button on your tool bar rather than the Rounding function.

- Show all MONETARY amounts as dollars and cents. Round to the nearest cent. ($x.xx). Use the "decrease decimals" button rather than the rounding function.

- Show all percentages as %, not as decimals.   (x%, not .xx)

- Right justify all cells   (numbers should be to the right side of the cell, not in the middle or left)

1) Complete the assumptions (blue box) based on the data about Jake's business. Identify and list all variable costs separately and all fixed costs separately before finding the total for each type of cost.

2) Complete the Product Analysis (yellow boxes) assuming Jake only sells either Product #1 (Launch-its) OR Product #2 (Treat -times).

Check figures:    B/E Product #1 = 250 units;   B/E Product #2= 125 units

3) Complete the pro forma CM Income Statement for the month of June (green box). HINT:   On product line income statements such as this, the fixed costs are only listed in the total column.   Make sure you also show the totals for all other line items. Finally, calculate the overall weight average contribution margin (WACM) % for the company.

Check figure: Operating income = $900   WACM% = 48%

4) Calculate the WACM per unit (in orange box).

Check figure:   WACM/unit = $8.00

5) Use the WACM/unit to calculate the TOTAL number of units needed to breakeven (TOTAL column in the first gray box).   THEN, calculate the number of EACH type of product needed to breakeven.   Finally, calculate the sales revenue associated with this volume for EACH product, and then the sales revenue to breakeven in total.

Check figures:    B/E Product #1 = 125;   B/E Product #2= 63

6) Use the WACM/unit to calculate the total number of units needed to achieve Jake's target profit (TOTAL column in the second gray box).   THEN, calculate the number of EACH type of product needed to achieve the target profit.   Finally, calculate sales revenue associated with this volume for EACH product, and then the sales revenue in total.

Check figures:    B/E Product #1 =792;   B/E Product #2= 396

7) Calculate the margin of safety (MOS) using June sales as the expected sales (purple box). Calculate the MOS in terms of sales revenue and as a percentage.   Also calculate the current operating leverage factor (round to the nearest 2 decimal places) and use it to determine the expected percentage change in operating income stemming from an expected change in sales volume.    

Check figures:    MOS%= 38%;   Operating leverage factor= 2.67

Question 1: Netflix would like to carry out market research to understand the online interactions among fans of its original programming such as ‘Orange is the New Black’ and ‘House of Cards’. Netflix hopes to use these customer insights to understand what aspects of these programmes make them so popular. What research approach would best help Netflix gather this type of information from viewers? Explain your choice. (10 marks – approximately 500 words / 1 page).

The information about Netflix is above

Netflix Case: Netflix Uses Technology to Change How We Watch Videos

When Netflix was founded in 1997 in the United States, the movie rental giant Blockbuster had thousands of stores from coast to coast, filled with video cassettes ready for immediate rental to customers (Pride et al., 2018). Netflix had a different vision from this well-established, well-financed competitor. Looking at the recent development of DVD technology, Netflix saw an opportunity to change the way consumers rent movies. The entrepreneurial company built its marketing strategy around the convenience and low cost of renting DVDs by mail, for one low monthly subscription fee.

Instead of going to a local store to pick out a movie, subscribers logged onto the Netflix website to browse the DVD offerings and click to rent. Within a day or two, the DVD would arrive in the customer’s mailbox, complete with a self-mailer to return the DVD. And, unlike any other movie rental service, Netflix customers were invited to rate each movie on the Netflix website, after which they’d see recommendations tailored to their individual interests (Pride et al., 2018).

Fast-forward to the 21^st century. Video cassettes are all but obsolete, and Blockbuster, once the dominant brand in movie rentals, has only one remaining shop in the US as consumer demand has shifted to digital distribution for entertainment (Porter, 2019). In Australia, both Blockbuster and Video Ezy still had a brand presence in 2018 (Pride et al., 2018). Since then, Blockbuster’s last Australian shop closed in March 2019 (Porter, 2019), and Video Ezy exists in the form of vending machines (kiosks) after its shops closed (Rosenberg, 2018).

Both brands have been prompted to reassess their distribution channels. You may notice more DVD rental kiosks such as “Video Ezy Express” popping up in convenient locations, including outside supermarkets and shopping complexes, in a bid to improve brand reach and accessibility. DVD rental kiosks, like online services, are accessible around the clock and reduce many store costs, including wages.

In contrast, by completely eliminating the need for brick-and-mortar stores or kiosks, Netflix has minimised its costs and extended its reach to any place that has postal service and Internet access (Pride et al., 2018). The company still rents DVDs by mail (Monahan & Griggs, 2019), but it has also taken advantage of changes in technology to add video streaming on demand.

Now, customers can stream movies and television programmes to computers, television sets, videogame consoles, DVD players, Smartphones, and other web-enabled devices. One advantage to the company is that streaming a movie costs Netflix less per customer than paying the postage to deliver and return a DVD to that customer.

Netflix’s Use of Technology: From Data-Tracking to Streaming

Netflix made technology a core competency from the very beginning. Because the business has always been web-based, it can electronically monitor its customers’ online activity and analyse everything that customers view or click on.

With this data, Netflix can fine-tune the website, determine which movies are most popular among which market segments, prepare for peak periods of online activity, and refine the recommendations it makes based on each individual’s viewing history and interests. The company also uses its technical know-how to be sure that the website looks good on any size screen, from a tiny Smartphone to a large-screen television.

A few years ago, planning for a significant rise in demand for streaming entertainment, Netflix decided against investing in expanded systems for this purpose. Instead, it arranged for Amazon Web Services to provide the networking power for streaming (Pride et al., 2018).

By 2018, on a typical night in the US, Netflix streaming occupied up to 20,000 servers in Amazon data centres (Pride et al., 2018). Demand was so strong by that time, in fact, that Netflix streaming accounted for about one-third of all internet traffic to North American homes during the evening (Pride et al., 2018). This percentage is only expected to increase. The Australian market, however, may pose technological hurdles, as the National Broadband Network is still being rolled out and is not available in all areas, meaning that accessibility may not be as straightforward as it is in America (Department of Infrastructure, Transport, Regional Development and Communications, n.d.).

Although Blockbuster and Video Ezy are no longer a competitive threat in their traditional form, Netflix does face competition from Amazon’s own video streaming service, Amazon Prime Video, which headed to Australia and New Zealand’s shores in 2017 (Pride et al., 2018).

Other direct competitors include well-established Hulu, YouTube, Nine Entertainment, and

Fairfax media’s joint-venture Stan, and Foxtel’s movie-streaming service Presto. It also competes with other entertainment providers, including cable, satellite, and broadcast television. Foxtel, for example, has dramatically reduced its basic cable packages in an effort to retain its share of the market in face of increasing competition from on-demand services (Pride et al., 2018).

Netflix Offers Exclusive Programming to Customers

To differentiate itself from its competitors, Netflix commissioned exclusive programming such as House of Cards, Arrested Development, and Orange is the New Black. The cost to produce such programs runs to hundreds of millions of dollars (Pride et al., 2018). Between May–December 2019, Netflix added 179 original programmes to its American streaming service, or an average of 30 new shows a month, or about one show per day (Fruhlinger, 2019). Netflix plans to continue pouring money into exclusive content because of the payoff in positioning, positive publicity, and customer retention.

The way that Netflix releases its exclusive programming reflects its in-depth knowledge of customer behaviour. The company found through its data analysis that customers often indulge in ‘binge watching’ for a series they like, viewing episodes one after another in a short time.

Based on this research, in 2013 Netflix launched all 13 episodes of the inaugural season of House of Cards at one time, an industry first (Pride et al., 2018). Executives gathered at headquarters to monitor the introduction, cheering as thousands of customers streamed episode after episode. By the end of the first weekend, many customers had watched the entire series and shared their excitement via social media, encouraging others to subscribe and watch. When Netflix won multiple Emmy Awards for House of Cards, it was another first—the first time any Internet company had been honoured for the quality of its original programming.

One key measure of Netflix’s growth is the strong increase in the number of monthly subscribers. In 2015, Netflix had about 70 million subscribers worldwide, of which 26 million were located outside the US (Pride et al., 2018). In 2019, Netflix had 151 million paid subscribers worldwide (158 million if free trials are included) (Kafka, 2019).

Despite the brand only launching in Australia in March 2015, it already has close to 2 million subscribers in 2018 (Pride, 2018). By July 2019, Netflix had more than 11.6 million subscribers in Australia, up 18% from the year prior (Gruenwedel, 2019) Its closest direct competitor, Stan, had 2.6 million subscribes in early 2019 (Knox, 2019).

Netflix will not say how many subscribers that it has in New Zealand, but a recent survey of 1,000 people, commissioned by the Office of Film and Literature Classification and carried out by UMR Research, found that 72% of respondents subscribed to Netflix. Of the same respondent sample, 77% said they watched television shows and movies using a paid online service (Kenny, 2019).

Keys to Netflix’s successful launch include offering free-trials and access to stripped-back free versions, as well as continued investment in original programming. It appears that streaming is the new broadcasting, and that ‘on-demand’ spells the demise of scheduled entertainment.

The following is a list of accounts, in alphabetical order, for Sandhill, Inc. at July 31, 2018:

Additional information:
All accounts have a normal balance. During the year, the company issued common shares for $ 11,000.

(a)

Prepare a trial balance.

List of Accounts

Accounts Payable

Accounts Receivable

Accumulated Depreciation - Buildings

Accumulated Depreciation - Equipment

Accumulated Depreciation - Vehicles

Advertising Expense

Bank Loan Payable

Buildings

Cash

Common Shares

Concession Revenue

Cost of Goods Sold

Current Portion of Mortgage Payable

Depreciation Expense

Dividends Declared

Equipment

Fees Earned

Held for Trading Investments

Income Tax Expense

Income Tax Payable

Income Tax Receivable

Insurance Expense

Insurance Revenue

Interest Expense

Interest Revenue

Inventory

Land

Long-Term Investments

Mortgage Payable

No Entry

Office Expense

Prepaid Insurance

Prepaid Rent

Property Tax Expense

Rent Expense

Rent Revenue

Repairs and Maintenance Expense

Retained Earnings

Salaries Expense

Salaries Payable

Sales

Service Revenue

Supplies

Supplies Expense

Unearned Revenue

Utilities Expense

Vehicles

ANSWER THE FOLLOWING QUESTIONS 1a - i......

1.) If a monopolist is producing at a level of output where marginal revenue is greater than marginal cost, the monopolist will:

a) raise the price of its product. b) decrease output. c) increase output. d) shutdown the business.

1.a). A monopolist maximizes profit at a point where:

a) the price elasticity of demand is inelastic. b) the price elasticity of demand is elastic. c) the price elasticity of demand is unit elastic. d) the marginal revenue is negative.

1b.) In the range where a monopolist’s demand curve is inelastic:

a) marginal revenue is zero. b) marginal revenue is negative. c) total revenue is rising. d) average revenue is rising.

1c.) The deadweight loss of monopoly is due to the fact that:

a) monopolists do not maximize profits. b) monopolists produce at the point where marginal cost intersects the demand curve. c) monopolists restrict output in order to raise price. d) monopolists do not produce at the minimum point of the marginal cost curve.

1d.). Which of the following is an essential condition for a firm to be a natural monopoly? a) The control of a key input b) A downward sloping long-run average cost curve c) The government granting the firm a monopoly d) Firms having different cost functions

1e.). When a monopolist engages in perfect price discrimination:

a) there is a higher deadweight loss compared to a single-price monopoly. b) there is a deadweight loss because the firm charges a price below marginal cost. c) there is a deadweight loss equal to the lost consumer surplus. d) there is no deadweight loss as the monopolist successfully captures the entire consumer surplus.

1f.). Which of the following is not a necessary condition for price discrimination? 1

a) The firm having some degree of monopoly power b) The monopolist producing where price is equal to marginal cost c) The ability to roughly approximate each buyer’s maximum willingness to pay for each unit of a product d) The ability to prevent arbitrage among different segments of customers

1g.). Under which of the following situations will a monopolist, practicing third-degree price discrimination, be unable to discriminate prices among its different market segments?

a) When the price elasticity of demand in all markets are the same b) When the marginal cost of production remains stable c) When the average cost of production is lower than the marginal cost of production d) When the marginal revenue from the different markets varies

1H. A firm practicing third-degree price discrimination maximizes its profits by:

a) setting the price in each market segment equal to the marginal cost of servicing that market segment. b) charging a higher price to the market segment with the majority of customers and a lower price to the market segment with relatively less number of customers. c) charging a higher price to the customers with a relatively high elasticity of demand and a lower price to those with a relatively low elasticity of demand. d) charging a higher price to the customers with a relatively low price elasticity of demand and a lower price to those with a relatively high price elasticity of demand.

1I.). Which of the following is true of block pricing?

a) The price per unit charged by the monopolist declines as more units of the quantity are purchased by a consumer. b) There is no deadweight loss under this form of price discrimination. c) It decreases the monopolist’s profit by transferring the additional producer surplus on the initial units consumed to the consumers. d) This form of price discrimination allows a monopolist to sell each unit of output for the maximum price a consumer will pay.

You will need the Village Officer's Handbook--Appendix A-1 as well as the financial statements for the year ended June 30, 2016 for the City of Detroit. Financial Statements can be found at www.detroitmi.gov    Type "CAFR" into the search box.

QUESTION 1

Using the government-wide financial statement, determine which statement is correct regarding the Recreation and Culture activity. What you expect should be based on the type of activity it is.

QUESTION 2

Using the government-wide financial statement, select the correct statement regarding the Sewer activity. What you expect should be based on the type of activity it is.

QUESTION 3

The City of Detroit reports the budgetary comparison statement as:

QUESTION 4

Using the original budget for the General Fund, what journal entry would have been made in the General Journal? (Ignore subsidiary accounts). Form your answer as follows (DR = Debit and CR = Credit):

DR-Account Title $000
CR-Account Title $000

Please group your debit accounts and your credit accounts

QUESTION 5

Examine the revenue variances for the General fund and select the correct statement.

QUESTION 6

Examine the expenditure variances for the General Fund and select the correct statement.

QUESTION 7

The "available appropriation" in the subsidiary ledger at the end of the year is the same amount as the variance in the budgetary comparison statement.

True

False

QUESTION 8

Suppose Detroit decides to add an occupancy tax to be collected by all local hotels. These revenues will be restricted by state law for the promotion of tourism. These tax revenues will be reported in the government-wide statement of activities as:

QUESTION 9

Which of the following inflows to a governmental fund would be classified as an Other Financing Source?

QUESTION 10

Use Appendix A-1 of the Village Officer's Handbook (found in Module 2) to answer the following question.
Which of the following account numbers would most likely be used to report the receipt of swimming pool fees if a special revenue fund is used.