Ava Miller has just completed the second year of operating her veterinary clinic. You have been retained by Ava for tax assistance and advice. At a recent meeting, you gathered information on her practice, which is presented below.

For the year ended December 31, 2020, the clinic showed a profit of $123,700, as follows:

Included in the above is depreciation/amortization expense of $23,000 on fixed assets and amortization of development costs of $4,400. Additional information for 2020 is outlined below.

1.        On February 28, Ava purchased a competitor’s business and merged it with her own. The following assets were acquired:

2.        During the year, Ava designed and patented a new surgical instrument. On July 1, a legal fee of $4,000 was paid for the patent (life of 20 years) registration; this amount is included in administration expenses. In October, $16,000 was spent on consultants to research metal alloys, and this cost is being amortized as development costs in the financial statement.

3.        Professional services revenue includes the value of unbilled services compiled from a work-in-progress file. At December 31, unbilled services amounted to $16,000, compared with $2,100 at the same time last year. In 2019, Ava had made an election under section 34 of the Income Tax Act to exclude work in progress from income.

4.        Some of the items included under administrative and other expenses are as follows:

5.        The income statement includes a cost of $3,150 for attending three conventions during the year. Convention #1 ($750) was in July. Conventions #2 ($1,350) and #3 ($1,050) were both in December. Each convention includes a cost of ($100) for meals. For each of the December conventions, the airfare of ($200) was included in accounts payable at the end of the year.

6.        Vehicle costs include operating costs of $2,400 for the automobile (including $400 for car parking). The automobile was driven 24,000 km. Of this, 12,000 km was for customer travel, 2,000 km was for travel between her home and the clinic, and 10,000 km was for personal travel.

7. Ava expects that a number of the new manufactured surgical instruments will be returned for modification, which she will do at no extra cost to the customer. The income statement includes a $2,000 deduction based on her estimate of the returns. As of December 31, $800 of costs were incurred for returned items.

8. Ava moved from rented premises to new rented premises on February 28, with 20 months remaining on the old lease. The landlord accepted a payment of $8,000 in exchange for cancelling the lease. The accounting records have amortized this cost over the remainder of the lease term and accordingly have deducted $4,000 as rent expense.

9. Capital cost allowance (CCA) for tax purposes has been correctly calculated as $15,000.

Required: Determine Ava’s net income from business for tax purposes for 2020 taxation year.

Hi, can you answer this question in more detail?

Subject: Business Policy and Strategy

The G2000 Group was founded by Michael Tien in 1980 in Hong Kong. The label G2000, first introduced in 1985, was positioned as a specialty clothing chain distributing fashionable men’s and women’s career wear. Today, the G2000 Group is a multi-brand specialty retailer offering an assortment of men’s and women’s apparel and accessories, operating under different labels: G2000 MAN, G2000 WOMAN, G2000 studio, BLAACK and At Twenty.

(G)

As for the situation analysis of G2000 company, it involves the following four topics, shows your theoretical understanding, and adopts RBV-VRIN method to evaluate internal resources for the local market of Hong Kong.

( Words: 700 - Need to be original, Don't direct copy )

• Value: Resources that can bring value can be a source of competitive advantage. Keep in mind that not all resources are equally easy to obtain.

• Rareness: Resources that are available to all competitors rarely provide any significant competitive advantage.

• Imitability: An ideal resource cannot be obtained by competing businesses.

• Non-substitutable: An ideal resource cannot be substituted by any other resource.

.

Exercise 11-13 Effects of Changes in Sales, Expenses, and Assets on ROI [LO11-1]

[The following information applies to the questions displayed below.]

CommercialServices.com Corporation provides business-to-business services on the Internet. Data concerning the most recent year appear below:

1. Compute the company's return on investment (ROI). (Do not round intermediate calculations. Round your answer to 2 decimal places.)

2. The entrepreneur who founded the company is convinced that sales will increase next year by 60% and that net operating income will increase by 100%, with no increase in average operating assets. What would be the company’s ROI? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

3. The Chief Financial Officer of the company believes a more realistic scenario would be a $1,150,000 increase in sales, requiring a $230,000 increase in average operating assets, with a resulting $105,750 increase in net operating income. What would be the company’s ROI in this scenario? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Hi, can you answer this question in more detail?

Subject: Business Policy and Strategy

The G2000 Group was founded by Michael Tien in 1980 in Hong Kong. The label G2000, first introduced in 1985, was positioned as a specialty clothing chain distributing fashionable men’s and women’s career wear. Today, the G2000 Group is a multi-brand specialty retailer offering an assortment of men’s and women’s apparel and accessories, operating under different labels: G2000 MAN, G2000 WOMAN, G2000 studio, BLAACK and At Twenty.

(C)

As for the situation analysis of G2000 company, it involves the following four topics, shows your theoretical understanding, and adopts RBV-VRIN method to evaluate internal resources for the local market of Hong Kong.

( Words: 700 - Need to be original, Don't direct copy )

• Value: Resources that can bring value can be a source of competitive advantage. Keep in mind that not all resources are equally easy to obtain.

• Rareness: Resources that are available to all competitors rarely provide any significant competitive advantage.

• Imitability: An ideal resource cannot be obtained by competing businesses.

• Non-substitutable: An ideal resource cannot be substituted by any other resource.

INTRODUCTIONThe vice president at your company, Columbia Holdings, has given you a new assignment: “Recently I asked the folks at Patterson Manufacturing to develop a strategy for improving their profitability. They have responded with a proposal. I want you to evaluate the proposal: Is it viable? Is it sustainable? Visit their operations and bring back a recommendation.”As you travel to the site you review a brief history of the firm. Patterson Manufacturing was founded in a small northeastern city more than a century ago. Wesley Patterson started the firm alongside a fast-moving stream that provided mechanical power to drive cutting tools, grinders, lathes, and polishers. These tools were used to produce precision parts other manufacturers needed. The firm quickly established a reputation for producing high-quality products to exacting tolerances. The firm prospered.Wesley studied the industries he served to develop new products that could fill his customers’ emerging needs. He often met with customers to design unique products for them. He referred to his approach as providing “customer-driven creative solutions.” He also kept abreast of new manufacturing materials and technology to ensure his products were of the highest quality.The firm grew steadily and, by 1925, was (and still is) the community’s largest employer. Wesley donated the land that is now the city’s central park. He also paid for constructing the first municipal buildings. More recently, the company was the primary donor for the construction of the municipal library and the local hospital. And the taxes paid by the firm and its employees are responsible for an excellent array of community services, including the Patterson Sports Complex and Patterson Community Center. The Great Depression in the 1930s brought hard times to the company, yet none of its employees were discharged. Instead, the firm and its employees cooperated to spread the available work among its employees by reducing each individual’s working hours (and wages). During that time, the firm also suspended paying dividends to its owners. After the company returned to prosperity in the 1940s, it continued to emphasize customer-driven creative solutions, and its loyal workforce enthusiastically overcame product design challenges. Wesley passed leadership of his business to his son, who later passed it down to Wesley’s grandson, and then to Wesley’s great granddaughter, Jessica Patterson. But five years ago, when Jessica wanted to retire, there was no heir willing to take over the business. Consequently, the plant was sold to your employer, Columbia Holdings.BACKGROUNDColumbia invests in family-owned businesses with a strong presence in niche markets. Columbia retains existing management and local business practices but provides centralized services, such as finance, accounting, insurance, IMA EDUCATIONAL CASE JOURNAL VOL. 6, NO. 4, ART. 1, DECEMBER 20131ISSN 1940-204XPatterson ManufacturingShane MoriarityUniversity of Oklahoma and Unitec New ZealandAndrew Slessor Unitec New Zealand

and corporate-level management. Patterson has remained profitable since the acquisition, but its return on investment has been declining. Your first stop at the Patterson complex is a meeting with the controller. He provides some additional background: “Jessica, like her predecessors, spent most of her time with customers developing new products to meet customer needs. She didn’t concern herself with costs. Customers were willing to pay for products that solved problems. Upon Jessica’s retirement, Columbia appointed Paul, our former production manager, to CEO. Paul has done wonders in rationalizing and standardizing our product lines. He substantially reduced manufacturing costs, which led to record profits in the two years following the sale of the company. Those early results have apparently set high expectations for our continuing performance. Our proposal will help move us toward meeting those expectations,” he said.“Our proposal is to stop manufacturing our largest-selling product, the Gudgeon EH40, and instead acquire it from an overseas supplier,” continued the controller. “This product currently represents 30% of our total sales revenue and production volume. But sales have been declining because competitors are offering a similar product at lower prices. We think that by reducing our price by 5% we can increase our unit sales volume by 15%. The increased volume coupled with a lower product cost from the offshore supplier should nearly double our firm-wide profit.”The controller also provided some supporting documents. Exhibit 1 summarizes operations for the five years since Patterson Manufacturing was sold to Columbia Holdings. Year 1 represents the first full year after Jessica retired, and Year 5 is the year that just past. Exhibits 2, 3, and 4 provide an income statement for Year 5, the current employee staffing levels by job title, and a detailed price proposal from the overseas supplier.The controller continued: “The analysis is pretty straightforward. Sales of the Gudgeon EH40 were $27 million last year. The direct material costs came to $14.3 million, while overhead costs of $4.2 million were allocated to the product. But only $2.9 million of the overhead will be avoided if we stop manufacturing the Gudgeon EH40. The remaining overhead costs are nearly all fixed and not subject to reduction in the near future. Our direct selling costs consist mostly of an 8% commission paid to sales representatives. In addition, there’s a $2 million advertising allowance devoted to promoting the Gudgeon EH40 in trade magazines.”He also said, “By outsourcing the Gudgeon EH40, we can release three administrative managers, eight administrative support staff, 128 general production personnel, and 10 supervisors.The firm will incur a one-time charge of $1 million for severance pay and pension contributions for dismissed employees. We’ll also need to spend $200,000 for the construction of receiving facilities for the outsourced product.”The controller continued: “The supplier’s cost quotation (Exhibit 4) needs to be adjusted for the expected 15% increase in volume. The cost for materials and labor will increase proportionately, but the overhead and ‘other’ costs are unlikely to be affected. The supplier’s mark-up will be 10% of the new total cost. In addition to the product cost, Patterson will incur transportation costs to get the product from the manufacturer to our warehouse. The transportation costs are variable and would have been $0.6 million for the volume of product in Year 5.”THE TASKAfter his brief overview, the controller hands you the exhibits and says, “You should go through the numbers yourself to ensure that my projection for the increase in profit is correct.” As you make your way to an empty office to review the numbers, the marketing manager approaches you. She pleads, “Don’t let them do this. The proposed action will deal a devastating financial blow to our community. Wesley Patterson would have never approved such a move. He loved this town.

Exhibit 1:
Patterson Manufacturing Five-Year Summary of Operations

Total Revenues

Net Income

Domestic Sales

International Sales

Sales of Established Products*

Sales of New Products*

Research and Development

Return on Assets

Number of Employees

Year 5

$90.2

$3.1

$74.7

$15.5

$73.9

$16.3

$0.9

2.0%

480

Year 4

$94.9

$3.8

$76.9

$18.0

$75.1

$19.8

$1.1

2.3%

485

Year 3

$99.1

$4.4

$79.3

$19.8

$74.4

$24.7

$1.5

2.7%

502

Year 2

$106.2

$7.3

$85.0

$21.2

$76.3

$29.9

$1.2

4.1%

492

Year 1

$111.4

$7.5

$88.1

$23.3

$76.6

$34.8

$1.3

4.2%

510

Note: Dollar figures are in millions.
*Established products are those that have been marketed for five years or more. New products have been marketed for less than five years.

Exhibit 2:
Summary Income Statement for Patterson Manufacturing

Sales

Cost of Goods Sold (COGS)

Gross Margin

Administrative Costs

Selling Costs

Operating Income

Year 5

$90.2

74.3

15.9

1.6

11.2

$ 3.1

Note: Dollar figures are in millions. Interest expense and income taxes are only shown on Columbia’s consolidated financial statements.

Exhibit 3:
Distribution of Current Patterson Employees by Job Title

Job Title

Administrative Manager

Administrative Staff

Production Supervisor

General Production Personnel

Number of Employees

10

24

29

417

Average Salary Per Employee

$45,000

32,000

50,000

37,000

Exhibit 4:
Off-Shore Supplier’s Price Proposal for the Volume of Product in Year 5

Material Costs $12.7

Labor Costs 1.8

Overhead Costs 2.7

Other 1.5

Total 18.7

Profit Mark-Up (10%) 1.9

Total Price $20.6

Note: Dollar figures are in millions. The total price is quoted for supplying the quantity of product Patterson sold in Year 5. The quoted price is FOB the supplier’s manufacturing plant.

Questions:

1. Using the controller’s projections, prepare an analysis of the expected effect of outsourcing the product on Patterson’s profitability.

2. Would it be a viable alternative to produce the product locally and lower the price to achieve the increase in sales volume?

3. Does the firm have an obligation to maintain employment levels in the town?

4. What risks are associated with the proposal?

5. Make a recommendation to your vice president on whether the proposal should be accepted. Provide your reasoning and any suggestions for additional or alternative actions that Patterson should take.

After examining these data for all the jurisdictions, someone notes that certain areas have an unusually high “percent of 18-64 yr-olds with no high school diploma.” Based on this finding, this individual concludes that the high percentages are due to the rising population of immigrants in those areas. Further, the individual argues that any estimates of the associated “percent of low-income working families” in those areas should be recalculated after removing this sub-population from the data set, as they are causing the area to “look bad”. In addition to thinking critically, use the key rules about linear regression and extrapolation to write a statistically appropriate and socially responsible response to the individual’s conclusion and argument.

1. After examining these data for all the jurisdictions, someone notes that certain areas have an unusually high “percent of 18-64 yr-olds with no high school diploma.” Based on this finding, this individual concludes that the high percentages are due to the rising population of immigrants in those areas. Further, the individual argues that any estimates of the associated “percent of low-income working families” in those areas should be recalculated after removing this sub-population from the data set, as they are causing the area to “look bad”. In addition to thinking critically, use the key rules about linear regression and extrapolation to write a statistically appropriate and socially responsible response to the individual’s conclusion and argument.

Gleason & Co. is a mid-sized construction company located in London, Ontario. Four weeks ago, the company was awarded a $2,000,000 federal government contract to renovate a secondary school. Gleason & Co. currently employs 195 employees already working to maximum capacity, so Management has decided to create a department that will be solely responsible for the federal government contract. This will mean a company expansion with 30 new employees joining the organization. You have been given the task of leading the hiring team for the new division.   

There have been many changes in the field of HR since the company last expanded, and Management has expressed concerns that some of the people assigned to your team are not as knowledgeable about Recruitment and Selection as they should be. Management has requested that you begin by educating your team members in the most up-to-date Recruitment and Selection methods.

1. You have decided to use a Situational Interview (SI) format in interviewing the job applicants.

a) Explain the nature and importance of a SI to your team.

b) One of the company’s core competencies is “Teamwork”. Develop a SI question (including a dilemma) that could be used in an interview to test for this competency.

c) Develop a scoring guide that could be used to score the above SI question.

2. Traditionally, Gleason & Co. used an unstructured interview approach, combined with pure judgmental decision making. You want your team to use structured interviews. Develop a short (max. one page) communication addressed to the managers and explain to them the differences, advantages, and disadvantages of their past approach and the structured approach. Focus on a few (3-4) most important components of structured interviews and explain in detail how they contribute to the employment interview structure.