HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 20 properties with an average of 200 rooms in each property. In year 1, the occupancy rate (the number of rooms filled divided by the number of rooms available) was 70 percent, based on a 365-day year. The average room rate was $192 for a night. The basic unit of operation is the “night,” which is one room occupied for one night.

The operating income for year 1 is as follows:

In year 1, the average fixed labor cost was $406,000 per property. The remaining labor cost was variable with respect to the number of nights. Food and beverage cost and miscellaneous cost are all variable with respect to the number of nights. Utilities and depreciation are fixed for each property. The remaining costs (management, marketing, and other costs) are fixed for the firm.

At the beginning of year 2, HomeSuites will open five new properties with no change in the average number of rooms per property. The occupancy rate is expected to remain at 70 percent. Management has made the following additional assumptions for year 2:

• The average room rate will increase by 5 percent.
• Food and beverage revenues per night are expected to decline by 20 percent with no change in the cost.
• The labor cost (both the fixed per property and variable portion) is not expected to change.
• The miscellaneous cost for the room is expected to increase by 25 percent, with no change in the miscellaneous revenues per room.
• Utilities and depreciation costs (per property) are forecast to remain unchanged.
• Management costs will increase by 8 percent, and marketing costs will increase by 10 percent.
• Other costs are not expected to change.

The managers of HomeSuites are considering different pricing strategies for year 2. Under the first strategy (“High Price”), they will work to maintain an average price of $222 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 60.0 percent with this strategy. Under the alternative strategy (“High Occupancy”), they will work to increase the occupancy rate by lowering the average price. They estimate that with an average nightly rate of $182, they can achieve an occupancy rate of 80 percent. The current estimated profit is $118,854,770.

Required:

a. Prepare a budgeted income statement for year 2 if the “High Price” strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.)

The managers of HomeSuites are considering different pricing strategies for year 2. Under the first strategy (“High Price”), they will work to maintain an average price of $222 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 60.0 percent with this strategy. Under the alternative strategy (“High Occupancy”), they will work to increase the occupancy rate by lowering the average price. They estimate that with an average nightly rate of $182, they can achieve an occupancy rate of 80 percent. The current estimated profit is $118,854,770.

Required:

a. Prepare a budgeted income statement for year 2 if the “High Price” strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.)

The managers of HomeSuites are considering different pricing strategies for year 2. Under the first strategy (“High Price”), they will work to maintain an average price of $222 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 60.0 percent with this strategy. Under the alternative strategy (“High Occupancy”), they will work to increase the occupancy rate by lowering the average price. They estimate that with an average nightly rate of $182, they can achieve an occupancy rate of 80 percent. The current estimated profit is $118,854,770.

Required:

a. Prepare a budgeted income statement for year 2 if the “High Price” strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.)

b. Prepare a budgeted income statement for year 2 if the “High Occupancy” strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.)

c. Which is the correct pricing strategy for year 2.

Problem 2 (LO3, LO4)

Product and Customer Profitability Analysis

PWC Systems, Inc., makes jet skis and other personal watercraft for sale through specialty sporting goods stores. The company has a standard jet ski model, but also makes custom-designed models. Management has designed an activity-based costing system with the following activity cost pools activity rates:

Activity Cost Pool                                      Activity Rates

Supporting manufacturing                          $22 per direct labour-hour

Order processing                                         $212 per order

Custom design processing                         $243 per custom design

Customer service                                         $307 per customer   

Management would like an analysis of the profitability of a particular customer, Wave Rider, which has ordered the following products over the last 12 months:

Standard                   Customer

Model                        Design

Number of jet skis                                                 16                                 3

Number of orders                                                    2                                 3

Number of custom designs                                   0                                 3

Direct labour-hours per jet ski                          24.5                           28.0

Selling price per jet ski                                $10,600                     $13,200

Direct materials cost per jet ski                   $7,950                       $9,240

The company's direct labour rate is $24 per hour.

Required:

Using the company's activity-based costing system, compute the customer margin of Wave Rider.

Problem 3 (LO2, LO3)

Activity-Based Costing and Bidding on Jobs

Vance Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. The company's estimator has been involved in a long-simmering dispute with the on-site work supervisors. The on-site supervisors claim that the estimator does not adequately distinguish between routine work such as removal of asbestos insulation around heating pipes in older homes and non-routine work such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that non-routine work is far more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: "My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square metres by $4,000 per thousand square metres to determine the bid price. Since our average cost is only $3,000 per thousand square metres, that leaves enough cushion to take care of the additional costs of non-routine work that shows up. Besides, it is difficult to know what is routine or not routine until you actually start tearing things apart."

To shed light on this controversy, the company initiated an activity-based costing study of all of its costs. Data from the activity-based costing system follow:

Activity Cost Pool                          Activity Measure                            Total Activity

Removing asbestos                         Thousands of square metres         500,000 m2

Estimating and job setup                Number of jobs                                 200 jobs*

Working on non-routine jobs          Number of non-routine jobs           25 non-routine jobs

Other (costs of idle capacity and

organization-sustaining costs)       Not applicable; these costs are

not allocated to jobs

*The total number of jobs includes non-routine jobs as well as routine jobs. Non-routine jobs as well as routine jobs require estimating and setup work.

Wages and salaries                                     $200,000

Disposal fees                                                 600,000

Equipment depreciation                                 80,000

On-site supplies                                               60,000

Office expenses                                            190,000

Licensing and insurance                              370,000

Total cost                                                   $1,500,000

Distribution of Resource Consumption

across Activity Cost Pools

Estimating   Working on

Removing     and Job         Non-routine

Asbestos      Setup             Jobs               OtherTotal

Wages and salaries             40%                10%                35%                15%    100%

Disposal fees                        70%                 0%                30%                 0%    100%

Equipment depreciation      50%                 0%                40%                10%    100%

On-site supplies                   55%                15%                20%                10%    100%

Office  expenses                   10%                40%                30%                20%    100%

Licensing and insurance     50%                 0%                40%                10%    100%

Required:

1. Perform the first-stage allocation of costs to the activity cost pools.

2. Compute the activity rates for the activity cost pools.

3. Using the activity rates you have computed, determine the total cost and the average cost per thousand square metres of each of the following jobs according to the activity-based costing system.
   1. A routine 2,000-square-metre asbestos removal job.
   2. A routine 4,000-square-metre asbestos removal job.
   3. A non-routine 2,000-square-metre asbestos removal job.

4. Given the results you obtained in (3) above, do you agree with the estimator that the company's present policy for bidding on jobs is adequate?

The table below lists the prices and quantities consumed of three different goods from 2014−2016.

a. For 2014, 2015, and 2016, determine the amount that a typical consumer pays each year to purchase the quantities listed in the table above.

Instructions: Round your answers to the nearest whole number.

Instructions: Round your answers to two decimal places.

b. The percentage change in the amount the consumer paid is  % from 2014 to 2015 and  % from 2015 to 2016.

c. It is problematic to use your answers to part b as a measure of inflation because  (Click to select)  only income is changing  both price and consumption are changing  only consumption is changing  only price is changing  .

Instructions: Round your answers to two decimal places.

d. Suppose we take 2014 as the base year, which implies that the market basket is fixed at 2014 consumption levels. Using 2014 consumption levels, the rate of inflation is % from 2014 to 2015 and  % from 2015 to 2016. (Hint: First calculate the cost of the 2014 market basket using each year's prices and then find the percentage change in the cost of the basket.)

Instructions: Round your answers to two decimal places.

e. Repeat the exercise from part d, now assuming that the base year is 2015. Using 2015 consumption levels, the rate of inflation is  % from 2014 to 2015 and  % from 2015 to 2016. (Hint: First calculate the cost of the 2015 market basket using each year's prices and then find the percentage change in the cost of the basket.)

f. Your answers from parts d and e were different because  (Click to select)  the base years have the same consumption quantities  income has changed  the base years put different weights on the goods  prices have changed

1.The share price of Goliath bank at the beginning of 2016 was $80. In the middle of 2016 Goliath paid a dividend (income) on each share of $5 and at the end of 2016 the share price was $90. What was the gross return on a Goliath share in 2016?

(a) 1.10

(b) 1.125

(c) 1.1875

(d) 0.944

(e) 0.0625

2.Consider a bond with a term of two years, a principal or face value of $2,000 and that pays an end-year

coupon of $50.

If the market interest rate on similar bonds is 2%, what is the (approximate) initial price of the bond?

(a) $2,019

(b) $2,000

(c) $2,100

(d) $2,060

(e) $2,050

3.Consider a bond with a term of two years, a principal or face value of $2,000 and that pays an end-year coupon of $50.

Suppose that at the end of the first year after the first coupon payment of $50 has been paid, the market interest rate falls to 1%. The market price of the bond at the beginning of the second year would be (approximately):

(a) $2,000

(b) $2,019

(c) $2,010

(d) $2,030

(e) $2,050

5.Other things equal, a rise in market interest rates will result in current bondholders experiencing;

(a) capital gains due to a rise in bond prices.

(b) capital gains due to a fall in bond prices.

(c) capital losses due to a fall in bond prices.

(d) capital losses due to a rise in bond prices.

(e) none of the above

6.The unit of account function of money refers to which of the following?

(a) Its role as a financial asset.

(b) Its use in purchasing financial assets.

(c) Its use in purchasing goods and services.

(d) Its use in measuring prices of goods, services and assets.

(e) Both (b) and (c)

7.Which of the following is the main property of a fiat currency?

(a) Its value depends on the price of gold.

(b) It can be exchanged at an economy's central bank for gold.

(c) It has no actual physical form.

(d) It has no fundamental value other than as a medium of exchange.

(e) Both (c) and (d)

Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $23.95 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customers—particularly those located on remote ranches that require considerable travel time. The owner’s daughter, home for the summer from college, has suggested investigating this question using activity-based costing. After some discussion, she designed a simple system consisting of four activity cost pools. The activity cost pools and their activity measures appear below:

The total cost of operating the company for the year is $358,000 which includes the following costs:

Resource consumption is distributed across the activities as follows:

Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.

Required:

1. Prepare the first-stage allocation of costs to the activity cost pools.

2. Compute the activity rates for the activity cost pools.

3. The company recently completed a 600 square foot carpet-cleaning job at the Flying N Ranch—a 54-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system.

4. The revenue from the Flying N Ranch was $143.70 (600 square feet @ $23.95 per hundred square feet). Calculate the customer margin earned on this job.

Prepare the first-stage allocation of costs to the activity cost pools.

Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.)

The company recently completed a 600 square foot carpet-cleaning job at the Flying N Ranch—a 54-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system. (Round your intermediate calculations and final answer to 2 decimal places.)

The revenue from the Flying N Ranch was $143.70 (6 hundred square feet @ $23.95 per hundred square feet). Calculate the customer margin earned on this job. (Negative customer margins should be indicated with a minus sign. Round your intermediate calculations and final answers to 2 decimal places.)

Discussion Board Forum 1/Project 2 Instructions

Standard Deviation and Outliers

Thread:

For this assignment, you will use the Project 2 Excel Spreadsheet to answer the questions below. In each question, use the spreadsheet to create the graphs as described and then answer the question.

Put all of your answers into a thread posted in Discussion Board Forum 1/Project 2.

This course utilizes the Post-First feature in all Discussion Board Forums. This means you will only be able to read and interact with your classmates’ threads after you have submitted your thread in response to the provided prompt. For additional information on Post-First, click here for a tutorial. This is intentional. You must use your own work for answers to Questions 1–5. If something happens that leads you to want to make a second post for any of your answers to Questions 1–5, you must get permission from your instructor.

1. A. Create a set of 5 points that are very close together and record the standard deviation. Next, add a sixth point that is far away from the original 5 and record the new standard deviation.

What is the impact of the new point on the standard deviation? Do not just give a numerical value for the change. Explain in sentence form what happened to the standard deviation. (4 points)

B. Create a data set with 8 points in it that has a mean of approximately 10 and a standard deviation of approximately 1. Use the second chart to create a second data set with 8 points that has a mean of approximately 10 and a standard deviation of approximately 4. What did you do differently to create the data set with the larger standard deviation? (4 points)

2. Go back to the spreadsheet and clear the data values from Question 1 from the data column and then put values matching the following data set into the data column for the first graph. (8 points)

50, 50, 50, 50, 50.

Notice that the standard deviation is 0. Explain why the standard deviation for this one is zero. Do not show the calculation. Explain in words why the standard deviation is zero when all of the points are the same. If you don’t know why, try doing the calculation by hand to see what is happening. If that does not make it clear, try doing a little research on standard deviation and see what it is measuring and then look again at the data set for this question.

3. Go back to the spreadsheet one last time and put each of the following three data sets into one of the graphs. Record what the standard deviation is for each data set and answer the questions below.

                  Data set 1:       0, 0, 0, 100, 100, 100

                  Data set 2:       0, 20, 40, 60, 80, 100

                  Data set 3:       0, 40, 45, 55, 60, 100

Note that all three data sets have a median of 50. Notice how spread out the points are in each data set and compare this to the standard deviations for the data sets. Describe the relationship you see between the amount of spread and the size of the standard deviation and explain why this connection exists. Do not give your calculations in your answer—explain in sentence form. (8 points)

For the last 2 questions, use the Project 1 Data Set.

4. Explain what an outlier is. Then, if there are any outliers in the Project 1 Data Set, what are they? If there are no outliers, say no outliers. (4 points)
5. Which 4 states have temperatures that look to be the most questionable or the most unrealistic to you? Explain why you selected these 4 states. For each state, give both the name and the temperature. (4 points)

Discussion Board Forum 1/Project 2 Instructions

Standard Deviation and Outliers

Thread:

For this assignment, you will use the Project 2 Excel Spreadsheet to answer the questions below. In each question, use the spreadsheet to create the graphs as described and then answer the question.

Put all of your answers into a thread posted in Discussion Board Forum 1/Project 2.

This course utilizes the Post-First feature in all Discussion Board Forums. This means you will only be able to read and interact with your classmates’ threads after you have submitted your thread in response to the provided prompt. For additional information on Post-First, click here for a tutorial. This is intentional. You must use your own work for answers to Questions 1–5. If something happens that leads you to want to make a second post for any of your answers to Questions 1–5, you must get permission from your instructor.

1. A. Create a set of 5 points that are very close together and record the standard deviation. Next, add a sixth point that is far away from the original 5 and record the new standard deviation.

What is the impact of the new point on the standard deviation? Do not just give a numerical value for the change. Explain in sentence form what happened to the standard deviation.

B. Create a data set with 8 points in it that has a mean of approximately 10 and a standard deviation of approximately 1. Use the second chart to create a second data set with 8 points that has a mean of approximately 10 and a standard deviation of approximately 4. What did you do differently to create the data set with the larger standard deviation?

2. Go back to the spreadsheet and clear the data values from Question 1 from the data column and then put values matching the following data set into the data column for the first graph.

50, 50, 50, 50, 50.

Notice that the standard deviation is 0. Explain why the standard deviation for this one is zero. Do not show the calculation. Explain in words why the standard deviation is zero when all of the points are the same. If you don’t know why, try doing the calculation by hand to see what is happening. If that does not make it clear, try doing a little research on standard deviation and see what it is measuring and then look again at the data set for this question.

3. Go back to the spreadsheet one last time and put each of the following three data sets into one of the graphs. Record what the standard deviation is for each data set and answer the questions below.

Data set 1:       0, 0, 0, 100, 100, 100

Data set 2:       0, 20, 40, 60, 80, 100

Data set 3:       0, 40, 45, 55, 60, 100

Note that all three data sets have a median of 50. Notice how spread out the points are in each data set and compare this to the standard deviations for the data sets. Describe the relationship you see between the amount of spread and the size of the standard deviation and explain why this connection exists. Do not give your calculations in your answer—explain in sentence form.

For the last 2 questions, use the Project 1 Data Set.

4. Explain what an outlier is. Then, if there are any outliers in the Project 1 Data Set, what are they? If there are no outliers, say no outliers.
5. Which 4 states have temperatures that look to be the most questionable or the most unrealistic to you? Explain why you selected these 4 states. For each state, give both the name and the temperature.

1. You are a fifth-grade teacher and have just given your students a spelling test. Their scores on the test are as follows: 100, 98,25,30, 100, 100, 20, 100, 100, 99, 97, 96, 20. Calculate the mean for these scores. Do you think it reflects the scores adequately? Explain your answer.

2. Calculate means, medians, and modes for the following 2 sets of scores: Set 1: 100, 20, 100, 98, 100, 99, 100, 100 Set 2: 100, 100, 20 Based on your calculations, what TWO important observations can you make about the effect of extreme scores on the mean?

3. What is a frequency distribution?

4. What are the measures of central tendency? Explain.

5. Describe what a negatively skewed distribution (or frequency polygon) looks like and why it does not look like a normal distribution.

You are the marketing manager for a sail manufacturing company that produces two sizes of sails: small and large. You are asked to help price the products so that the company is able to make a profit AND the customer is happy.

Based on last year's sales, you expect to sell 15,000 small sails and 6,500 large sails in the upcoming year. The accounting department reports a total fixed cost for producing the small and large sails of $750,000 and $800,000 respectively. The variable cost per small sail is $800 while the variable cost per large sail is $1,200.

Your pricing objective surrounds maximizing profit. Because of this, you have a target return on investment of 30% profit for each sail. Consider the following formulas as you proceed forward on this exercise:

Markup on cost percentage = (Markup ÷ Cost) x 100
Average cost of a single unit = All costs ÷ Total number of units
Target return price per unit = [(Fixed Costs + Target Return) ÷ Units] + variable cost per unit

Complete the spreadsheet below and use it to answer the questions that follow.

This activity is important because marketing managers benefit from understanding how optimal price is calculated in order to set an exact price for an offering.

The goal of this activity is to demonstrate an understanding of the role of price and apply different pricing tactics and strategies to a pricing model.

You purchased a bond on 12/5/2019 for $108 that makes semi-annual payments of $5. The bond matures on 1/31/2029 and makes its final coupon payment on this date. Par value is 100.

#16) What was the yield to maturity of this bond on the date it was purchased?

#17) What was the bond's duration on the date it was purchased?

#18) How much accrued interest did you pay on the bond? Use (Actual/Actual) to determine the fraction of the coupon paid.

#19) Write a user defined function in VBA called 'TR' that computes the 'Treynor ratio' for a stock. The Treynor ratio can be computed by dividing a stock's alpha by its beta (e.g., Alpha/Beta). Your function will have two inputs, an array of returns for the stock and an array of returns for the S&P 500. Use your function to compute the Treynor ratio for GOOGL (use the prices for GOOGL in tab #1 - #8). Report this value in the Answers Tab using your function.

#20) Write a user defined function in VBA called 'Recommendation' that returns whether the stock you are analyzing is a buy (1), hold (0) or sell (-1). You will have two parameter inputs: 1) a projected price for the stock (as determined by the analyst) and 2) the current market price. If the stock's projected price is more than $10 per share greater than the current market price the function will return a 1 indicating 'buy'. If the stock's projected price is more than $10 below (absolute value) the current market price then the function will return a -1 indicating 'sell'. Otherwise, if the projected price is within $10 of the current market price then the function will return a 0 indicating 'hold'. If Microsoft is currently selling for $183 per share, use the function to compute recommendations for the following projected prices: A) $170, B) $180, and C) $195. Report these output values in the Answers Tab using your function.