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ACTIVITY BASED COSTING AND ANALYSIS

Because overhead cannot be applied to the units of production in the same manner that direct labor and direct materials can, we assign overhead costs by using one of three allocation methods. The three different methods of assigning overhead costs are a single plantwide overhead rate, departmental overhead rates, and activity-based costing (ABC) rates. A plantwide overhead rate is the easiest and cheapest method to implement because it uses just one single rate to apply overhead to production. The other two methods, however, use multiple rates and are therefore more difficult to implement. While a single plantwide overhead rate is the simplest allocation system, it can distort the cost of a particular product. In fact, if there is more than one type of unit being produced, it will almost certainly distort the overhead cost per unit at least to some extent. In the plantwide overhead rate system, the total budgeted overhead costs are all merged into a single overhead cost pool. It is then divided by the selected allocation base – a volume-related measure such as direct labor hours or machine hours – to become a single overhead rate. This rate is applied to all products based off of this chosen allocation base. The problem with this method is that it assumes all of the factory overhead costs correspond exactly with the single overhead rate. When different products are produced, the overhead used to produce each product will appear the same under the plantwide allocation method, which distorts the true costs of each product. This is because some products require expensive machinery and/or more labor to produce, while others may require cheaper machinery or less labor to produce, for example. Therefore, the more diverse a company’s products are, the greater the distortion will be.

Review The Case of Women Directors found on pages 91 - 96 in the textbook Boards, Governance and Value Creation. Review the case using the Graduate Case Study Format to structure a comprehensive analysis. The case is below.

The case of women directors

This in-depth summarizing case concerns the Norwegian law designed to increase the number of women on corporate boards. Norway has received attention in the international corporate governance debate because of the introduction in 2006 of a law requiring at least 40 per cent of the board members in corporations to be women.

Background

Norway has been at the forefront of moves to include employees in the governance of corporations. Laws regulating co-determination have been enacted as a result of wide-ranging discussions that took place in the 1960s. One of the debates centered on the question of what corporations are and what they are for. The other area of discussion concerned the workers’ role in business development.42 The outcome of the debate was that employees received the legal right to be represented on corporate boards at the beginning of the 1970s. The Company Act of 1976 was a result of joint Nordic efforts and cooperation.

In 1988 the Nordic Council of Ministers issued a statement to the effect that Nordic cooperation with respect to company law should continue. As the need for a new Company Act became apparent at the beginning of the 1990s, there was also a desire to make adjustments and to harmonize this Act with company laws and regulations in the European Union. At that time Denmark was a member of the EU but the other Nordic countries were not; as a result it was difficult to achieve the same kind of inter-Nordic harmonization and cooperation as there had been in 1976, as Denmark had also to obey EU law.

There were several features in the development of Norwegian society that made it urgent to have a new company law. One core aspect was the adjustments to EU regulations. This adjustment led, as expected, to a separation between big ‘public’ companies and small ‘private’ firms. Another aspect was the development of economic crime and the misuse of the corporate form. This was significantly more extensive at the beginning of the 1990s than it had been in the 1970s: the extent of bankruptcies, including ‘black’ bankruptcies, had increased considerably.

Proposals for new company laws were given to the Ministry of Police and Justice in March 1996, and the laws were ratified in June 1997, coming into force in January 1999. There were two laws: one dealt with private companies, with the suffix AS, and the other with public companies, ASA.43 The major advance in these laws compared to earlier laws was that they spelt out the responsibilities of the board. This led to renewed discussions about liability insurance for board members, and concerns that in the future it would be difficult to get qualified board members.

The laws also had other concrete stipulations, including requirements for CEO working descriptions, board instructions, voting rules and financial reporting to the board. The requirement for board instructions was only for companies with employee representatives on the boards. The intention of the board instruction stipulation was to ensure that employee-elected board members had real – rather than only nominal – influence on board decision-making.

Women on corporate boards

One aspect of the laws that created considerable debate was the proposal to have a quota of women on corporate boards. The subject of having quotas of women on boards was originally an equal opportunity issue, and rules concerning gender representation on boards were introduced in 1981 in the Act about Equal Opportunity. Becoming effective in 1988, paragraph 21 of the Act of Equal Opportunity had the following wording: ‘When a public body appoints a committee, board or council, etc. with four members or more, then each gender must be represented with at least 40 per cent of the members. Both genders must be represented in committees with two or three members. These rules are also valid for subsidiary members.’

The requirement concerning gender representation was motivated by social justice and a societal need. It was also argued that the particular interests of women would be better taken care of by women than by men, and that women had different background experiences from men. The objective was to accelerate this development by a quota system. This regulation had major effects. Between 1979 and 1987 the ratio of women board members in public boards and councils increased from 22 per cent to 40 per cent; since then this figure has been constant.

In 1992 there were 764 board member positions in the companies listed on the Oslo Stock Exchange. Only twenty-six of these positions, or 3.4 per cent, were held by women. In some industries there were no women at all as board members. In 1996 the ratio of women board members increased to 7.5 percent, but the increase was mainly due to the acceptance of new types of firms on the Oslo Stock Exchange: savings banks were now allowed to enter. Around this time, however, attention became focused on this issue once more, input to the discussion coming from the NHO (the Confederation of Norwegian Enterprise), the government’s Equality Centre, various feminist groups and the debates in other countries, in particular Sweden. The motivation for increasing the number of women directors changed from an equality and societal issue to a firm profitability issue, as newspapers started to report research findings about positive relationships between the ratio of women on boards and board performance.

Programmes to increase the number of women directors started to mushroom. Various programmes designed to train women as board members were introduced, mentorship programmes and women’s net- works were established, and databanks, registers or archives of women board candidates were launched.

Since the mid-1990s the political situation in Norway has been quite volatile, with frequent changes of government between a social democratic Labour administration and one headed by a Christian Democratic or Christian People’s Party Prime Minister, Kjell Magne Bondevik. In 1999 the Equality Department in the Ministry of Children and Families in Bondevik’s first Cabinet submitted for hearing a proposed reform to have at least 25 per cent female board membership in all companies – private and public alike. The proposal involved a change in the Equality Act between the genders, and it led to a strong reaction from men as well as from women. In 2000 the ratio of female board members fell to 6.4 per cent in the companies listed on the Oslo Stock Exchange. In 2002 the ratio of women board members in all public companies (ASA) was also reported to be 6.4 per cent.

This proposal, which had originated with the first Bondevik Cabinet, was acted on by the first administration headed by Jens Stoltenberg (Norwegian Labour Party). The changes in the Act of Equality were implemented without the requirements for board representation, but a new proposal for quotas for women on corporate boards in public companies was submitted in 2001. In the hearing, it was suggested that the ratio of women to men could be as high as 40 per cent in public companies (ASA companies). The proposal received only mixed support, however, with the NHO and the financial community the most negative in their reaction.

In 2002 the Minister of Industry in the second Bondevik administration presented a law proposal, derived from the two previous hearings, to the effect that each gender should have at least 40 per cent representation in all public companies. There were no exceptions to this rule for board members elected by employees; the gender representation rule was to apply to the whole board. The law proposal was ratified by the Norwegian Parliament in 2003. However, the implementation rules for the Act dictated that the law did not need to be enforced if the mandatory 40 per cent representation for each gender had been achieved on a voluntary basis before 1 July 2005. As this was not achieved, the law requiring 40 per cent of corporate board members to be women was put into effect in January 2006 – by which time the actual figure had increased to around 13 per cent. However, the representation of women on boards in corporations with more than 5000 employees had risen to more than 20 per cent by then. All companies were given two additional years’ grace before any sanctions would be imposed.

The Norwegian debate about women directors was characterized by many simplistic and partially wrong arguments. Nevertheless, the discussion and the law proposal have probably had a greater impact on the development of good board practice than was suggested in the public discussions themselves. In the Norwegian corporate community, probably no single event has contributed as much to a thorough rethinking of the contribution of boards, board tasks and board composition as the debate regarding women directors – probably more so even than the waves of shareholder activism and the evolution of codes of best practice. The contribution from these discussions has been that board member selection has, by and large, moved from being an informal and often unconscious search through professional and social networks to a professional and rational search process containing specifications of competence and qualification requirements of board members.

Summary

This chapter has looked at board members’ characteristics and compensation and board composition, which constitute the core concepts of the chapter. I relate characteristics to each individual board member, whereas compensation refers to the individual board member’s incentive structure and composition is a description of the board members as a group. It is important to identify the three concepts and to distinguish between them. However, characteristics, compensation and composition should not be viewed separately from each other when exploring boards and value creation, as the three attributes interact. Both competence and motivation are needed at the individual level, and the composition of the board should reflect the need to balance the various task expectations.

Board member characteristics is a broad term. A sub-group is competence. Seven types of board member competence criteria were presented based on arguments from theory and board task expectations:

Firm-specific knowledge may, for example, be about the main activities of the firm, the firm’s critical technology and core competence, the weak points in the firm and in its products and services, the development of the firm’s customers, markets, products and services, the bargaining power of suppliers and customers, threats from new firms or new products or services in the industry, etc.

General and function-oriented competence may, for example, be in finance, accounting, law, marketing, human resources, organizational behavior and design, strategy or just general management experience.

Process-oriented competence may include knowledge about how to run a board.

Relational competence includes the abilities the board members have to build relationships with internal and external actors.

Competence is related to the personalities and personal characteristics of the directors.

Negotiation skills.

Ownership.

Characteristics are also related to who the board members are, where they live, their age, etc.

We have used the term ‘compensation’ to describe the board members’ incentives and motivation. Included are internal as well as external incentives, and the incentives go beyond independence and share- holding. Motivation arising from liability, reputation and personal and professional standards were also introduced. Composition is about the size and configuration of the board with respect to the board members’ competence, characteristics and compensation. Board size, out- sider ratio and diversity were the main types presented. The discussion and arguments about compensation and composition were also based on competing theoretical perspectives and board task expectations.

Memo Assignment #4

Instructions: This will be done in a professional memo format with complete sentences that explain your process and conclude in a recommendation. I would expect the memo to be no less than one full page and no more than four pages. The goal is two-fold: the professional recommendations AND the appropriate presentation.

Heavenly Scents was founded by Riley Williams when she bought Bund Farm in 2015. Heavenly Scents has two departments, a harvesting department and a processing department. Currently, all of the harvesting department’s output goes to the processing department for extraction of the oils, and the oils are then sold to Frutarom (a division of IFF, a major flavor and fragrance supplier).  The processing division averages a yield of 500 milliliter (ml) of oils for each 1000 pounds (lb) of source materials (flowers and other plant materials). Cost and market data for the two divisions are as follows:

As the new accountant, you have been tasked with determining several items and with making some suggestions:

1. What is the operating income for the 2020 growing season from the estimated harvest of 480,000 pounds of source materials and processing it for final sale to Frutarom?
2. Heavenly Scents rewards its division managers with a bonus equal to 6% of their division’s operating income. Compute the bonus earned by each division manager for the 2020 growing season for each of two transfer pricing policies, a) 225% of full cost and b) market cost.
3. Which transfer-pricing method will each division manager prefer? Give some suggestions on how Heavenly Scents could resolve or reduce transfer pricing and bonus compensation conflicts?

You need not show every detail of your calculations, keep this at a fairly high level, but still give the requested details. Remember the harvest weight is an estimate, so don’t give figures to the penny because that makes them seem more accurate that they really are - implausibly exact figures give the appearance of certainty.

Is Walgreens’ rapid growth strategy realistic? Why or why not?

How will changes in U.S. health care policy affect Walgreens? Explain.

Case 2: Walgreens

Walgreens was founded in 1901 and incorporated in 1909 in Chicago. Like other drugstores in the early 20th century, Walgreens emphasized a soda fountain and a lunch counter. By 1929, the firm had amassed 394 stores and $47 million in revenues. By the 1950s, Walgreens had begun a shift to self-service stores, but rapid growth did not occur until the late 1970s and early 1980s. Walgreens passed the 1,000-store milestone in 1984 and continued to grow steadily.

Today, Walgreens is the leading drugstore chain in the United States, operating almost 8,000 stores throughout the United States, Guam, and Puerto Rico. The firm also operates two mail service facilities and 13 distribution centers throughout the country.

Prescriptions account for about 65% of company sales, with the rest coming from OTC medications, cosmetics, toiletries, photo processing, and grocery items. Approximately 90% of prescriptions are paid by insurance companies or other third parties. Most stores offer drive-thru pharmacies and almost all offer in-store photo processing. Walgreens’ closest rival is CVS, although competition from pharmacies in grocery stores and discount retailers such as Wal-Mart has intensified.

More consumers are using health insurance to pay for prescription drugs. Retailers receive the same payment from insurers for a given drug and consumers pay the same co-pay regardless of pharmacy. As a result, convenience appears to have replaced price as the most important factor in the pharmacy side of the business. In this regard, “convenience” includes such factors as the acceptance of a given insurance plan, store hours, waiting periods, options for telephone and Internet refills, and the availability of grocery or other items that a consumer might wish to purchase while picking up a prescription.

Walgreens has responded to this emphasis on convenience by developing highly visible and accessible freestanding stores in high-traffic locations. Many of the stores are open 24 hours a day. As such, Walgreens continues to emphasize building new stores rather than acquiring them from smaller rivals.

Walgreens has benefited from constant increases in U.S. expenditures on prescription drugs, a trend that is projected to continue well into the future. The effects of the Patient Protection and Affordable Care Act of 2010 (and any subsequent revisions) on Walgreens remain unclear.

Electrolux

AB Electrolux, popularly known as Electrolux, is a global

leader in home and professional appliances, including

refrigerators, cookers, dishwashers, washing machines,

vacuum cleaners, air conditioners, and small domestic

appliances. It sells more than 50 million products in

150 countries. Headquartered in Stockholm, Sweden,

Electrolux was founded in 1919, as a result of a merger

between AB Lux, and Svenska Electron AB. In 2013,

Electrolux had revenues of approximately $14.5 billion

and employed 61,000 people worldwide.

The Electrolux group consists of six business divisions,

including four major appliances divisions, a small

appliances division, and a professional products division.

The core markets for Electrolux are Western Europe,

North America, and Australia, New Zealand and Japan

accounting for 65 percent of group sales. These markets

are characterized by low population growth and

high replacement product sales. The growth markets for

Electrolux are Africa, Middle East and Eastern Europe,

Latin America, and Southeast Asia and China contributing

35 percent to its sales. Given the rising living standards

in the growth markets, Electrolux aims to increase

its share of sales in these markets to 50 percent by introducing

innovative product offerings in the next two years.

In 2013, Electrolux was among the top five global

players in the household appliances industry, along

with Whirlpool, the Haier Group, Bosch-Siemens, and

LG Electronics. These companies contributed to nearly

50 percent of the global appliances sales. The major

drivers of this industry are increased per capita income,

changing lifestyles, consumer spending, housing activities,

and urbanization. Economic growth in emerging

markets is expected to boost the industry. The

main competitive advantages of Electrolux are global brand portfolio through horizontal integration. In the last

40 years, the group has had a series of acquisitions

around the world that strengthened its global position

through effective targeting and brand positioning

in domestic and regional markets. Examples of such

acquisitions

include Zanussi in Europe; AEG in Germany;

Frigidaire, Kelvinator, and White Westinghouse in North

America; Refripar in Brazil; and the Olympic Group in

Middle East and North Africa.

In September 2014, Electrolux unveiled its agreement

to acquire the appliance business of General Electric, GE

Appliances, for a cash consideration of $3.3 billion. GE

Appliances is one of the leading manufacturers of kitchen

and laundry products in North America, and makes more

than 90 percent of its sales in this region and runs its own

distribution and logistics network. The acquisition also

included a 48.4 percent shareholding in the Mexican appliance

company Mabe that develops and manufactures a

portion of the GE Appliances product range as part of a joint

venture with GE. According to Keith McLaughlin, President

and CEO of Electrolux, the acquisition was expected

presence, consumer insight, design, professional legacy,

Scandinavian heritage, wide product range, people and

culture, and sustainability leadership.

The vision of the Electrolux Group is to become the

best appliance company in the world as measured by

its customers, employees, and shareholders. It bases its

strategy on four pillars: innovative products, operational

excellence, profitable growth, and dedicated employees.

Its brand portfolio is strategically planned to serve luxury,

premium, and mass markets. Alongside the Electrolux

brand, the group has seven other strategic brands,

namely Grand Cuisine, AEG, Zanussi, Eureka, Frigidaire,

Molteni, and Westinghouse.

The “innovation triangle” at Electrolux encourages

close cooperation between its marketing, R&D, and design

functions to ensure faster reach to the market based

on solid consumer insights. This enables Electrolux to

use “same product architecture, differentiated design” to

develop global modularized platforms. These platforms

facilitate planning across divisions by making it easier to

spread a successful launch from one market to another

with adaptations to local preferences, and deliver greater

customer value.

By maintaining strategic emphasis on increasing operational

efficiency, Electrolux has restructured its production

across divisions globally. Electrolux has shifted nearly

65 percent of its manufacturing from mainly Western

Europe and North America to low-cost regions.

Pursuing its strategy of profitable growth, Electrolux

continuously innovates to enhance its current products

and ranges to penetrate existing markets. In 2013, it

launched many innovative products in North America and

Japan. Expanding to growth markets, Electrolux tapped

the potential of the Chinese market by launching a full

range of kitchen and laundry appliances of more than 60

products designed exclusively for China.

An important aspect of Electrolux’s strategy is

to grow through mergers and acquisitions, and build to give the company more financial horsepower on its

balance sheet to do even more business around the world.

With a growing portfolio of smartly positioned brands,

global reach, innovations based on consumer insight,

operational excellence and manufacturing efficiency, and

increased financial power, Electrolux is all set to establish

greater dominance in the global home appliances industry.

Questions

1. Evaluate Electrolux’s strategy in light of its vision and

the global trends in the household appliance industry.

2. What benefits will Electrolux receive from the acquisition

of GE Appliances? How does it fit in with the

strategic direction of the group? What other strategic

options can Electrolux pursue for future growth to

achieve greater global dominance?

Shrieves Casting Company is considering adding a new line to its product mix, and the capital

budgeting analysis is being conducted by Sidney Johnson, a recent business school graduate.

The production line would be set up in unused space in Shrieves's main plant. The machinery's

invoice price would be approximately $200,000, another $10,000 in shipping charges would be

required, and it would cost an additional $30,000 to install the equipment. The machinery has

an economic life of 4 years and would be in Class 8 with a CCA rate of 20%. The machinery is

expected to have a salvage value of $25,000 after 4 years of use.

     The new line would generate incremental sales of 1,250 units per year for 4 years

at an incremental cost of $100 per unit in the first year, excluding depreciation. Each

unit can be sold for $200 in the first year. The sales price and cost are both expected

to increase by 3% per year due to inflation. Furthermore, to handle the new line, the

firm's net operating working capital would have to increase by an amount equal to 12%

of sales revenues. The firm's tax rate is 28%, and its overall weighted average cost of

capital is 10%.

A) 1. Construct annual incremental project operating cash flows.

2. Estimate the required net operating working capital for each year and the cash flow due to investments in net operating working capital.

3. Calculate the present value of the CCA tax shield.

B)1. What is the after-tax salvage cash flows?

2. What is the projects NPV? Should the project be undertaken?

C) 1. What is sensitivity analysis

2. Perform a sensitivity analysis on the unit sales, salvage volume, and cost of capital for the project. Assume that each of these variables can vary from its base-case, or expected, value by +/- 10% and +/- 20%. Include a sensitivity diagram, and discuss the results.

3. What is the primary weakness of sensitivity analysis? What is its primary usefulness?

D)Assume that Sidney Johnson is confident of her estimates of all the variables that affect the project’s cash flows except unit sales and sales price. If product acceptance is poor, unit sales will be only 900 units a year and the unit price will be only $160; a strong consumer response will produce sales of 1,600 units and a unit price of $240. Johnson believes that there is a 25% chance of poor acceptance, a 25% chance of excellent acceptance, and a 50% chance of average acceptance (the best case).

1.What is scenario analysis?

2.What is the worst-case NPV? The best case NPV?

3.Use the worse-, base-, and best case NPVs and probabilities of occurrence to find the projects expect NPV, standard deviation, and coefficient of variation.

E)1.   Assume that Shrieves’s average project has a coefficient of variation in the range of 0.7 to 0.9. Would the new line be classified as high risk, average risk, or low risk? What type of risk is being measured here?

2.   Shrieves typically adds or subtracts 3 percentage points to the overall cost of capital to adjust for risk. Should the new line be accepted?

3.   Are there any subjective risk factors that should be considered before the final decision is made?

Selling Web Site Services

Judy Reiser and Elyse Larsen are college friends who followed the dot.com boom together into a Web site services company that hired them right after they graduated in 1995. In 1998, the company imploded — it ran out of cash, failed to meet the needs of their customers, and lost key employees faster than they could be replaced. By 1999, the company closed and Judy and Elyse were thinking about graduate school, in part because job opportunities in technology industries were so few.

Three months after they lost their jobs, Judy and Elyse were having dinner at an inexpensive local restaurant. They shared news about former colleagues, other dot. com businesses that had closed, and talked about graduate school options. Elyse mentioned that she had run into one of her former clients, the owner of a custom- made furniture business, who complained that he was having trouble finding someone to host and update his Web site. He had asked Elyse if she was doing any work independently. Judy had a similar experience when her aunt, the manager of a medical practice, asked if Judy knew any people who could create a Web site. Judy knew of two people who could, but she didn’t admire their work enough to recommend them to her aunt.

At this point, Elyse had an epiphany: Their old company had failed because it spent too much money and was badly managed, not because the demand for Web site services was small. In fact, demand was growing faster than ever, as virtually every business realized it needed a Web site. Judy agreed and within 15 minutes, the two friends had consented to start their own company. They even had a name for it: Finesse Systems. The two friends knew the technology, where to rent inexpensive offices with high-speed connections, and who to hire as demand for their services grew. The only thing they didn’t know how to do was sign up clients.

The next week, Judy and Elyse met with several people who worked in sales and sales management to learn more about the selling process. After these meetings, they didn’t have the answers but they did have some specific questions.

Case Questions:

• Which one of them should focus her efforts on sales?
• How could they create a list of potential customers?
• How should they communicate with these potential customers?
• What kind of client tracking system did they need?
• When they could finally afford to hire salespeople, what qualifications should they have?
• What kind of sales compensation system would work best for them and their business?
• When should they start reaching out to potential customers?

Margo Switches Coasts

For 17 years Margo Williams owned a jewelry store called Margo’s Diamond Mine near the naval base in San Diego. The large majority of her customers were sailors and their families and her most successful items were wedding rings, inexpensive necklaces, and low-priced brand-name watches. Because her customers were often stretching their finances to make what they felt was a major purchase, Margo’s store provided lay-away plans that allowed her clients to pay for items over time.

Margo’s mother, who lived in Ft. Lauderdale, recently became ill, so Margo decided it was time to close the store in San Diego and relocate both her home and business to Florida. She found a vacant store at a reasonable price in a small upscale strip mall in which the other businesses included an expensive dress shop, a gourmet food store, and a craft outlet. The surrounding area consisted mostly of high-end condominium developments which catered to retirees and people who spent about half the year in Florida.

Margo knows the jewelry business, including how to value items she takes on trade-ins, which suppliers are best to work with, and how to design and manage a store. Although she doesn’t know her new Florida market very well, some issues are clear:

• The new market is older, wealthier, and includes many retired people.
• People appear to wear much more expensive items.
• The existing competition consists of two well-known chain jewelry stores that aim their products at middle-income markets.

• Advertising and promotion tend to be concentrated in newspapers and pennysavers.

Margo was not sure she wanted to use the Margo’s Diamond Mine name in this new market and she really did not know how to go about designing a marketing and promotion plan for the Florida market. To get started, Margo focused on two issues. First, she wanted a preliminary plan that would address—as best she could—the new marketing challenge she faces. Second, she wanted to research background information so she could refine her preliminary marketing plan.

Case exercise:

You are Margo. What are the new marketing challenges you face? Based on the material covered in this chapter, use the 4 Ps of marketing to create a preliminary marketing plan.

Reba Dixon is a fifth-grade school teacher who earned a salary of $38,000 in 2020. She is 45 years old and has been divorced for four years. She receives $1,200 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,000 of rental payments from tenants and she incurred $19,500 of expenses associated with the rental. Reba and her daughter Heather (20 years old at the end of the year) moved to Georgia in January of this year. Reba provides more than one-half of Heather’s support. They had been living in Colorado for the past 15 years, but ever since her divorce, Reba has been wanting to move back to Georgia to be closer to her family. Luckily, last December, a teaching position opened up and Reba and Heather decided to make the move. Reba paid a moving company $2,110 to move their personal belongings, and she and Heather spent two days driving the 1,480 miles to Georgia. Reba rented a home in Georgia. Heather decided to continue living at home with her mom, but she started attending school full time in January and throughout the rest of the year at a nearby university. She was awarded a $3,150 partial tuition scholarship this year, and Reba helped out by paying the remaining $500 tuition cost. If possible, Reba thought it would be best to claim the education credit for these expenses. Reba wasn't sure if she would have enough items to help her benefit from itemizing on her tax return. However, she kept track of several expenses this year that she thought might qualify if she was able to itemize. Reba paid $6,100 in state income taxes and $13,150 in charitable contributions during the year. She also paid the following medical-related expenses for herself and Heather: Insurance premiums $ 8,350 Medical care expenses $ 1,100 Prescription medicine $ 400 Nonprescription medicine $ 100 New contact lenses for Heather $ 200 Shortly after the move, Reba got distracted while driving and she ran into a street sign. The accident caused $950 in damage to the car and gave her whiplash. Because the repairs were less than her insurance deductible, she paid the entire cost of the repairs. Reba wasn’t able to work for two months after the accident. Fortunately, she received $2,000 from her disability insurance. Her employer, the Central Georgia School District, paid 60 percent of the premiums on the policy as a nontaxable fringe benefit and Reba paid the remaining 40 percent portion. A few years ago, Reba acquired several investments with her portion of the divorce settlement. This year she reported the following income from her investments: $2,200 of interest income from corporate bonds and $1,600 interest income from City of Denver municipal bonds. Overall, Reba’s stock portfolio appreciated by $12,600, but she did not sell any of her stocks. Heather reported $6,300 of interest income from corporate bonds she received as gifts from her father over the last several years. This was Heather’s only source of income for the year. Reba had $10,500 of federal income taxes withheld by her employer. Heather made $1,050 of estimated tax payments during the year. Reba did not make any estimated payments. Reba had qualifying insurance for purposes of the Affordable Care Act (ACA). a. Determine Reba’s federal income taxes due or taxes payable for the current year. Use Tax Rate Schedule for reference. (Do not round intermediate values. Leave no answer blank. Enter zero if applicable.)

Spencer is a 15-year old boy from an upper middle class family living in an affluent neighborhood in New York City. Spencer lives at home with his parent. Spencer has a history of depression, anxiety, and substance abuse. His first hospitalization occurred a year ago when he was 14 due to his threats to hurt himself while at school. Spencer has a history of abusing multiple substances, including marijuana and prescription pills. He describes his substance use as a way in which he can “numb” himself from his depression. Spencer has reported having a tumultuous relationship with his father whom he reports is verbally abusive (i.e. telling Spencer that he will never amount to anything). Spencer often avoids his father at home and most of their contact is reported as “screaming matches” Alternatively, Spencer is very close to his mother and has been open with her in voicing his feelings of depression and hopelessness. Spencer is also very open with his mother in reporting to her any times in which he has engaged with substance use, although he does not report any intention or desire to stop using. Spencer’s parents do not agree on how to approach Spencer’s escalating substance use and increased depression. His parents also report that it has become increasingly more challenging to monitor Spencer’s substance abuse when he is interacting with peers who also engage in substance use. Spencer’s father believes in “tough love” and sending Spencer off to military school or some other institution where Spencer will be “properly disciplined. “ Spencer’s father also reports that his wife is “too soft” and is in denial as to the extent to which Spencer is abusing drugs. In particular, Spencer’s father reports that his wife should limit Spencer’s interactions with peers, whom are also suspected to use substances and she should also not “give in” when Spencer refuses to attend school, particularly in cases when he is hung over from excessive drug use. Spencer’s mom in turn does not believe that she is being too soft on her son, but rather she feels helpless in what can be done to stop his drug use, as he is refusing to stop. She also believes that Spencer needs to be treated for his depression, as she attributes his drug use to his feelings of hopelessness. Therefore, she does not agree with her husband that Spencer is simply “acting out” and needs harsh discipline; however she is not certain how she may be able to get her husband to become more empathetic towards their son’s emotional challenges and be more engaged in finding therapeutic treatment that does not require sending Spencer out of the home.

1. What is the organizational structure of this family? Do you notice any examples of triangulation and cross-generational alliances? And how might alliances within the family’s structure contribute to maintaining the problem?

2. What is the hierarchy in the family structure? As therapist, who do you identify may have the most power and control in the family? Who may have the least? Is there an incongruent hierarchy within this family? Briefly describe

3. Briefly describe an alternative structure that you may present to this family ?

4. Describe some structural therapy techniques that you may use with this family in session in order to facilitate reorganization of the family structure. In your description, provide examples of how these techniques may be applied to this particular family’s presenting issue.

5. As a family therapist working with a family in which one or more members may not be motivated for therapy, what are some strategic therapy techniques that you might employ to help this family solve their problems? Briefly give an example of one or two strategic therapy techniques .