Heartland Watches Case

Imagine that you have just started working at Heartland Watches, a manufacturer of women's wristwatches, Following is the income statement of Heartland Watches for the last fiscal year.

Heartland Watches had manufactured 2 million watches, which had been sold to various department stores. At the start of 2017, Jodie Velasquez became the new president. She knew very little about accounting and manufacturing. Jodie has several questions, including inquiries about pricing of special orders.

A: To prepare better answers, you decide to convert the traditional income statement shown into a Contribution Format Income Statement. Total variable manufacturing cost was $18 million. Total variable selling and administrative expenses were $9 million. Prepare the revised Contribution Format Income Statement.

B: Complete the following table for Jodie, including your calculations:

C: Jodie says, "Near the end of 2016, I brought in a special order from Target for 100,000 watches at $16 each. I said I'd accept a flat $20,000 sales commission instead of the usual 6% of selling price, but my sister refused the order. She usually upheld a relatively rigid pricing policy, saying that it was bad business to accept orders that did not at least generate full manufacturing cost plus 80% of full manufacturing cost. That policy bothered me. We had idle capacity. The way I figured, our manufacturing costs would go up by 100,000 x $11 = $1,100,000, but our selling and administrative expenses would go up by only $20,000. That would mean additional operating income of 100,000 x ($16-$11) minus $20,000, or $500,000 minus $20,000, $480,000. That's too much money to give up just to maintain a general pricing policy. Was my analysis of the impact on operating income correct? If not, please show me the correct additional operating income."

Prepare a memo for Jodie summarizing your response. Answers must include supporting calculations.

D: After receiving the explanations offered in B and C, Jodie said, "Forget the Target order. I had an even bigger order from Lands' End. It was for 500,000 units and would have filled the plant completely. I told my sister I'd settle for no commission. There would have been no selling and administrative costs whatsoever because Lands' End would pay for the shipping and would not get any advertising allowances.

Lands' End offered $8.70 per unit. Our fixed manufacturing costs would have been spread over 2.5 million instead of 2 million units, Wouldn't it have been advantageous to accept the order? Our old fixed manufacturing costs were $2.00 per unit. The added volume would reduce the cost more than our loss on our variable costs per unit. Am I correct? What would have been the impact on total operating income if we had accepted the order?"

Prepare a memo for Jodie summarizing your response. Answers must include supporting calculations.

Red Carpet LLC is a national hospitality and entertainment company with headquarters in Philadelphia, PA with national operations in the US. Historically, the company has had 3 divisions: hotels, food service, and cruise lines. However, it recently completed the acquisition of Sparkstar theaters, a movie theater company, that it is slated to become its 4th division. Red Carpet now owns 200 hotels in 48 states, 4 brands of restaurants with 1776 locations, 4 Buoy Bay branded cruise ships, and 300 Sparkstar theaters.

Its matrix organizational structure consists of a central HR, accounting, business development, sales, marketing, and research and development departments located at the headquarters in Philadelphia that serve each division. Each division is located in a different part of the US and lead by a VP that reports to the President and CEO. The company is privately owned by a consortium of investors and investor groups.

Red Carpet has 16,000 employees, 1000 of which work at its corporate headquarters. The organizational culture of the headquarters is informal and organic and there are few policies and processes that guide employee behavior. The company, as a whole, does not value HR so employees struggle with many employee relations and employment law concerns. The company outsources all of its training to one of the investor group companies, however this training is commonly not customized to the needs of Red Carpet.

As a whole, Red Carpet struggles with its business to business partners and suppliers because of its reputation for being nonnegotiable. Red Carpet would rather disrupt the quality and availability of its only products and services rather than partner for the supply chain resources that it needs. Likewise, Red Carpet does not hold many of the General Managers in its hotels, restaurants, and its cruise ships accountable for performance, opting instead for a weaker political strategy of blaming and gotcha games.

Being aware of these challenges, Red Carpet acquired Sparkstar for their strong industry reputation and financial performance in the hopes that merging the structure and culture of Sparkstar into Red Carpet would change the organization for the better. Historically, Red Carpet has been a highly successful company, however in recent years, its mismanagement has created noticeable effectives in product and service quality and its bottom line.

Divisions

Hotels: Red Carpet branded hotels are mid-price semi-luxury hotels known for high quality. Each customer is given a red velvet cupcake upon checking in. Red Carpet relies on its General Managers to micromanage the hotel. Despite its corporate parent owning a restaurant division, no Red Carpet hotels have restaurants. The Red Carpet division headquarters are in Sedona AZ. Many of the hotels are in need of refurbishment.

Food Service: Chicken Heaven is a fast-food chain with a long tradition of quality, large customer base, and 1000 locations. It is a solid overall performer for Red Carpet with high employee satisfaction. Burger Blast is another fast-food chain recently launched to cater to upscale customers who seek customized, gourmet-style burgers. It has 200 locations, however General Managers are struggling with budget and supplies causing a poor customer experience and high employee turnover. Food Park is a buffet-style restaurant with 500 locations that has been recently struggling because of high competition and poor marketing. Delicacy is a high-end restaurant with an urban theme. It has 76 locations, is the oldest of Red Carpet's food service operations, and provides a unique dining experience for customers. However, General Managers have a high turnover at Delicacy because of the grueling schedule. The food service division is located in Burke, ID.

Cruise Ships: Buoy Bay cruise ships offer low-cost, short-term cruises from Port Canaveral, FL only to the US Virgin Islands. Buoy Bay offers customers average quality staterooms and food from Chicken Heaven, Burger Blast, and Food Park. However, it does not offer a non-buffet formal dining option such as Delicacy. Although they are known for their over-the-top entertainment, employee turnover is very high relying primary on seasonal employees who are poorly trained. Buoy Bay has had much controversy. Just 5 years ago, the Buoy Bay cruise ship, Garland of the Sails, hit a reef, partially sank, and had to be salvaged in a 1.5 billion dollar operation. This resulted in a Federal investigation that is still pending. The Buoy Bay division is located in Lapsowanne, OR.

Movie Theaters: Sparkstar theaters were recently purchased from the Vegamega group for 2.3 billion dollars. Sparkstar is the highest rated movie theater chain the US. It has high customer and employee satisfaction, an efficient organizational structure, and solid financial results. Sparkstar's culture is one of high HR involvement including a strong training and development department, Sparkstar Institute. Sparkstar has a customer rewards program that provides a free movie rental of the film that the customer saw in the theater which has been very popular and has increased its strong customer base. Sparkstar has its divisional headquarters in Pasadena, CA.

The Issues

With the purchase of Sparkstar theaters, Red Carpet is hoping to redefine its operations in the next 5 years. It sees opportunities to integrate its divisions, products, and services to better serve its customers and employees. Here is a summary of some of the issues that Red Carpet must address in its strategic plan:

Internal politics and communication
Improved HR and training
Employee relations issues
Federal investigations
Product and service quality
Marketing support
Performance issues
Redefining the organizational structure
Improving its organizational culture
Integrating products and services
Resource and supply chain issues

Your Role

Leroy Banks, the Director of Change management at Red Carpet is seeking an Organization Development Consultant to address Red Carpet's need for change. You've just received a consulting contract from him to help prepare a plan to assist Red Carpet. You're excited about the opportunity and are motivated to work on this project. You know that your insight will assist Red Carpet with managing organizational change.

Leroy Banks is the Director of Change Management for Red Carpet, a national hospitality and entertainment company. He has contracted you to be an OD Consultant because Red Carpet has recently acquired a movie theater company and needs to create a new division. Leroy realized that this acquisition has provided an opportunity to restructure some other parts of the Red Carpet as well so it can streamline its operations. Leroy has asked you to begin by assessing Red Carpet’s organizational environment.

Review the Red Carpet scenario for this course and with your classmates; discuss the following questions that will help you become familiar with Red Carpet:

Identify and describe 3 examples of external forces affecting Red Carpet.
Identify and describe 3 examples of internal forces affecting Red Carpet
What challenges have these forces created at Red Carpet?

Red Carpet LLC is a national hospitality and entertainment company with headquarters in Philadelphia, PA with national operations in the US. Historically, the company has had 3 divisions: hotels, food service, and cruise lines. However, it recently completed the acquisition of Sparkstar theaters, a movie theater company, that it is slated to become its 4th division. Red Carpet now owns 200 hotels in 48 states, 4 brands of restaurants with 1776 locations, 4 Buoy Bay branded cruise ships, and 300 Sparkstar theaters.

Its matrix organizational structure consists of a central HR, accounting, business development, sales, marketing, and research and development departments located at the headquarters in Philadelphia that serve each division. Each division is located in a different part of the US and lead by a VP that reports to the President and CEO. The company is privately owned by a consortium of investors and investor groups.

Red Carpet has 16,000 employees, 1000 of which work at its corporate headquarters. The organizational culture of the headquarters is informal and organic and there are few policies and processes that guide employee behavior. The company, as a whole, does not value HR so employees struggle with many employee relations and employment law concerns. The company outsources all of its training to one of the investor group companies, however this training is commonly not customized to the needs of Red Carpet.

As a whole, Red Carpet struggles with its business to business partners and suppliers because of its reputation for being nonnegotiable. Red Carpet would rather disrupt the quality and availability of its only products and services rather than partner for the supply chain resources that it needs. Likewise, Red Carpet does not hold many of the General Managers in its hotels, restaurants, and its cruise ships accountable for performance, opting instead for a weaker political strategy of blaming and gotcha games.

Being aware of these challenges, Red Carpet acquired Sparkstar for their strong industry reputation and financial performance in the hopes that merging the structure and culture of Sparkstar into Red Carpet would change the organization for the better. Historically, Red Carpet has been a highly successful company, however in recent years, its mismanagement has created noticeable effectives in product and service quality and its bottom line.

Divisions

Hotels: Red Carpet branded hotels are mid-price semi-luxury hotels known for high quality. Each customer is given a red velvet cupcake upon checking in. Red Carpet relies on its General Managers to micromanage the hotel. Despite its corporate parent owning a restaurant division, no Red Carpet hotels have restaurants. The Red Carpet division headquarters are in Sedona AZ. Many of the hotels are in need of refurbishment.

Food Service: Chicken Heaven is a fast-food chain with a long tradition of quality, large customer base, and 1000 locations. It is a solid overall performer for Red Carpet with high employee satisfaction. Burger Blast is another fast-food chain recently launched to cater to upscale customers who seek customized, gourmet-style burgers. It has 200 locations, however General Managers are struggling with budget and supplies causing a poor customer experience and high employee turnover. Food Park is a buffet-style restaurant with 500 locations that has been recently struggling because of high competition and poor marketing. Delicacy is a high-end restaurant with an urban theme. It has 76 locations, is the oldest of Red Carpet's food service operations, and provides a unique dining experience for customers. However, General Managers have a high turnover at Delicacy because of the grueling schedule. The food service division is located in Burke, ID.

Cruise Ships: Buoy Bay cruise ships offer low-cost, short-term cruises from Port Canaveral, FL only to the US Virgin Islands. Buoy Bay offers customers average quality staterooms and food from Chicken Heaven, Burger Blast, and Food Park. However, it does not offer a non-buffet formal dining option such as Delicacy. Although they are known for their over-the-top entertainment, employee turnover is very high relying primary on seasonal employees who are poorly trained. Buoy Bay has had much controversy. Just 5 years ago, the Buoy Bay cruise ship, Garland of the Sails, hit a reef, partially sank, and had to be salvaged in a 1.5 billion dollar operation. This resulted in a Federal investigation that is still pending. The Buoy Bay division is located in Lapsowanne, OR.

Movie Theaters: Sparkstar theaters were recently purchased from the Vegamega group for 2.3 billion dollars. Sparkstar is the highest rated movie theater chain the US. It has high customer and employee satisfaction, an efficient organizational structure, and solid financial results. Sparkstar's culture is one of high HR involvement including a strong training and development department, Sparkstar Institute. Sparkstar has a customer rewards program that provides a free movie rental of the film that the customer saw in the theater which has been very popular and has increased its strong customer base. Sparkstar has its divisional headquarters in Pasadena, CA.

The Issues

With the purchase of Sparkstar theaters, Red Carpet is hoping to redefine its operations in the next 5 years. It sees opportunities to integrate its divisions, products, and services to better serve its customers and employees. Here is a summary of some of the issues that Red Carpet must address in its strategic plan:

Internal politics and communication
Improved HR and training
Employee relations issues
Federal investigations
Product and service quality
Marketing support
Performance issues
Redefining the organizational structure
Improving its organizational culture
Integrating products and services
Resource and supply chain issues

Your Role

Leroy Banks, the Director of Change management at Red Carpet is seeking an Organization Development Consultant to address Red Carpet's need for change. You've just received a consulting contract from him to help prepare a plan to assist Red Carpet. You're excited about the opportunity and are motivated to work on this project. You know that your insight will assist Red Carpet with managing organizational change.

Primary Task Response: Within the Discussion Board area, write 300-400 words that respond to the following questions with your thoughts, ideas, and comments. This will be the foundation for future discussions by your classmates. Be substantive and clear, and use examples to reinforce your ideas.

Additional Information:

The VP of HR reviewed the executive summary and decided that your recommendation was a strong course of action for the change process. In her discussions with Leroy, she mentioned that it would be good to have you participate in a focus group to discuss your experiences with the change process. She was interested in discovering some best practices for change and felt that your experiences would be very valuable to Red Carpet’s approach to change. To guide the discussion, she recommended addressing a few points that should be covered in the focus group. Leroy will gather the results of the focus group and share it with the VP of HR.

Review the Red Carpet scenario for this course and with your classmates; discuss the following questions that will provide insight into your own change experiences:

Describe a successful change initiative from your own experiences and why it worked well.
Describe an unsuccessful change initiative from your own experiences and why it did not achieve its intended objectives.
From your own experiences, summarize the key success factors for change at Red Carpet that you would recommend to Leroy.

The town of Malvern engages in the following transactions during its fiscal year ending September 30, 2021. All dollar amounts are in thousands. Prepare summary journal entries in its governmental funds. Base entries on generally accepted accounting principles now in effect.

(1)   At the beginning of the fiscal year 2021, the town levied property taxes of $180,000. It estimated that $6,000 will be uncollectible.

(2)   During fiscal year 2021, the town collected $150,000 prior to September 30, 2021.

(3)   The town collected $4,000 each month in October and November 2021, prior to preparing its 2021 financial statements. It expected to receive $4,000 each month for the next four months.

(4)   During the remainder of fiscal year 2022, the town collected $16,000 in tax relating to 2021, $140,000 related to 2022, and $10,000 applicable to 2023.

(5)   On November 20, 2021, it received $42,000 from the state for sales taxes collected on its behalf. The payment was for sales made in September that merchants were required to remit to the state by October 15.

(6)   In April, the town was awarded a state training grant of $500 for the period June 1, 2021, through May 31, 2022. In fiscal 2021, the town received the entire $500 but spent only $400.

(7)   The town requires each vendor who sells at its farmers' market to obtain an annual permit. The funds generated by the sale of these permits are used to maintain the market. The permits, which cover the period from June 1 through May 31, are not refundable. During fiscal year 2021, the town issued $66 worth in permits. It expects to collect an additional $12 within 60 days of the close of the fiscal year.

(8)   On May 1, 2021, a developer (in exchange for exemptions to zoning restrictions) donated several acres of land that the town intended to convert to a park. The land had cost the developer $100,000. At the time of the contribution, its fair market value was $280,000.

(9)   Several years earlier the town received a donation of a parcel of land, upon which it expected to build. During fiscal 2021, it opted to sell the land for $185. When acquired by the town, the land had a market value of $119.

At the beginning of the fiscal year 2021, The town of Marlvern acquired six police cars at a total cost of $200,000. The vehicles are expected to have a useful life of four years. Prepare the journal entries that the town would make in its governmental funds in the fiscal year based on the following scenarios:

(10)It paid for the cars in cash at the time of acquisition.

(11)It issued $200,000 in installment notes to the car dealer, agreeing to repay them in four annual payments of $63,095 at the end of each fiscal year (effective interest rate is 10%), starting in the year of acquisition.

In respect of each benefit you are required to:

• specify the category and the applicable division of the Fringe Benefits Tax Assessment Act 1986 (FBTAA);
• provide section references of the FBTAA for each part of your calculation; and
• indicate whether the benefit is a Type 1 or Type 2 benefit and state the reason.

Reasons for any exclusions must also be provided.

Your working papers must be typed using Excel or Word. The FBT return may be handwritten. An Excel worksheet has been provided to help you to set out your assignment.

World’s Best Gifts Pty Ltd (WBG) is a company resident in Australia. Its business is the sale of unusual and original giftware. In addition to providing giftware to boutique gift stores in Perth it also has salespeople who drive to rural areas to sell its giftware to shops in country areas. Its turnover is above $10 million.

It provides the following to its staff in the FBT year ended 31^st March 2020.

Parking was provided on-site to 12 staff. There were three commercial parking stations within one kilometre. One charges $15 per day but by the end of the year had increased this to $18 per day, one charges $18 per day, and one charges $10 per day. Staff paid $5 per week towards their on-site parking.

Taxi fares for the head of the IT division. She had never learned to drive. WBG paid $10,000 in taxi fares during the year. 85% of the trips were to and from work, however, she used the remaining vouchers to travel privately after hours.

An end-of-financial year party was held at a 5-star hotel. All 50 staff attended and 40 of them brought a partner. The party cost $280 per head. The business used the actual method to calculate the entertainment FB.

Notes:

The company does not qualify as a SBE.

The company has paid GST where it is liable to do so and all amounts shown are GST-inclusive.

One of Vivienne’s major clients in a regional area renowned for its beautiful resort provides her with a weekend stay which included accommodation and food, airline tickets and tickets to a concert with an international act. The cost of this package was $8,500 and Vivienne and her daughter attended. This was offered to her as she had developed a rapport with her client and sourced interesting giftware to be sold in the resort. It was always very expensive and very exclusive giftware. The client was very appreciative of the special service provided by Vivienne. WBG was aware that Vivienne and her daughter would attend this function and that it was being provided free of charge.

REQUIRED:

Complete working papers showing how you have calculated the taxable value of each benefit provided. Include in your working papers references to the FBT legislation for each benefit provided and provide reasons and explanations for any items which you exclude from the calculations. Calculate the FBT payable by World’s Best Gifts Pty Ltd.

The following information relates to Dane City during its fiscal year ended December 31, 20X2:

1. On October 31, 20X2, to finance the construction of a city hall annex, Dane issued 8 percent, 9-year general obligation bonds at their face value of $617,000. Construction expenditures during the period equaled $365,300.
2. Dane reported $110,300 from hotel room taxes restricted for tourist promotion in a special revenue fund. The fund paid $82,000 for general promotions and $23,000 for a motor vehicle.
3. Dane transferred 20X2 general fund revenues of $105,500 to a debt service fund and used them to repay $97,000 of 9 percent, 14-year term bonds and to pay $8,500 of interest. The bonds were used to acquire a citizens’ center.
4. At December 31, 20X2, as a consequence of past services, city firefighters had accumulated entitlements for compensated absences of $83,000. General fund resources available at December 31, 20X2, are expected to be used to settle $18,000 of this amount, and $65,000 is expected to be paid out of future general fund resources.
5. At December 31, 20X2, Dane was responsible for $84,000 of outstanding general fund encumbrances, including the $8,900 for supplies in the following table.
6. Dane uses the purchases method to account for supplies. The following information relates to supplies:

Required:
For items 1 through 10, determine the amounts based solely on the preceding information.

1. What is the amount of 20X2 general fund transfers out?

general fund transfers out

2. How much should be reported in 20X2 as general fund liabilities from entitlements for compensated absences?

general fund liabilities

3. What is the 20X2 assigned amount of the general fund balance?

general fund balance

4. What is the 20X2 capital projects fund balance?

capital projects fund balance

5. What is the 20X2 fund balance on the special revenue fund for tourist promotion?

special revenue fund

6. What is the amount of 20X2 debt service fund expenditures?

debt service fund expenditures

7. What amount should be included in the governmentwide financial statements for the cost of long-term assets acquired in 20X2?

cost of long-term assets

8. What amount stemming from the 20X2 transactions and events decreased the long-term debt liabilities reported in the governmentwide financial statements?

amount of decrease

9. Using the purchases method, what is the amount of 20X2 supplies expenditures?

supplies expenditures

10. What was the total amount of 20X2 supplies encumbrances?

supplies encumbrances

Ohme Framing's cost formula for its supplies cost is $1,620 per month plus $13 per frame. For the month of April, the company planned for activity of 882 frames, but the actual level of activity was 878 frames. The actual supplies cost for the month was $13,500. The supplies cost in the flexible budget for April would be closest to:

Using High-Low to Calculate Predicted Total Variable Cost and Total Cost for Budgeted Output

Speedy Pete’s is a small start-up company that delivers high-end coffee drinks to large metropolitan office buildings via a cutting-edge motorized coffee cart to compete with other premium coffee shops. Data for the past 8 months were collected as follows:

Assume that this information was used to construct the following formula for monthly delivery cost.

Required:

Assume that 3,000 deliveries are budgeted for the following month of January. Use the total delivery cost formula for the following calculations:

1. Calculate total variable delivery cost for January.
$

2. Calculate total delivery cost for January.
$

Feedback

1. Total Variable Delivery Cost = Variable Rate × Number of Deliveries

2. Total Delivery Cost = Fixed Cost + (Variable Rate × Number of Deliveries)