Based on CASE 26.2 Dollars and Cents versus a Sense of Ethics   

Grizzly Community Hospital in central Wyoming provides health care services to families living within a 200-mile radius. The hospital is extremely well equipped for a relatively small, community facility. However, it does not have renal dialysis equipment for kidney patients. Those patients requiring dialysis must travel as far as 300 miles to receive care.

Several of the staff physicians have proposed that the hospital invest in a renal dialysis center. The minimum cost required for this expansion is $4.5 million. The physicians estimate that the center will generate revenue of $1.15 million per year for approximately 20 years. Incremental costs, including the salaries of professional staff and depreciation, will average $850,000 annually. Grizzly is exempt from paying any income taxes. The only difference between annual net income and net cash flows is caused by depreciation expense. The center is not expected to have any salvage value at the end of 20 years.

The administrators of the hospital strongly oppose the proposal for several reasons: (1) They do not believe that it would generate the hospital’s minimum required return of 12 percent on capital investments; (2) they do not believe that kidney patients would use the facility even if they could avoid traveling several hundred miles to receive treatment elsewhere; (3) they do not feel that the hospital has enough depth in its professional staff to operate a dialysis center; and (4) they are certain that $4.5 million could be put to better use, such as expanding the hospital’s emergency services to include air transport by helicopter.

The issue has resulted in several heated debates between the physicians and the hospital administrators. One physician has even threatened to move out of the area if the dialysis center is not built. Another physician was quoted as saying, “All the administrators are concerned about is the almighty dollar. We are a hospital, not a profit-hungry corporation. It is our ethical responsibility to serve the health care needs of central Wyoming’s citizens.”

Instructions

1. Financial factors and measures. To be completed in Excel with formula driven answers so that all answers can be traced for correctness. Compute Payback Period, ROI and NPV - Show all calculations for the supporting calculations.
2. Nonfinancial factors such as (1) ethical responsibility, (2) quality of care issues, (3) opportunity costs associated with alternative uses of $4.5 million, (4) physician morale, and (5) whether a community hospital should be run like a business.
3. Measures that could be taken to check for overly optimistic or pessimistic estimates.

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 $22.20 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 $352,000 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 400 square foot carpet-cleaning job at the Flying N Ranch—a 59-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 $88.80 (400 square feet @ $22.20 per hundred square feet). Calculate the customer margin earned on this job.

East Coast Railroad Company transports commodities among three routes (city-pairs): Atlanta/Baltimore, Baltimore/Pittsburgh, and Pittsburgh/Atlanta. Significant costs, their cost behavior, and activity rates for April are as follows:

Operating statistics from the management information system reveal the following for April:

Instructions

1. Prepare a contribution margin by route report for East Coast Railroad Company for the month of April. Compute the contribution margin ratio in whole percents, rounded to one decimal place.

2. Discuss the route performance of the railroad using the above report.

Note: add citations when necessary.

East Coast Railroad Company transports commodities among three routes (city-pairs): Atlanta/Baltimore, Baltimore/Pittsburgh, and Pittsburgh/Atlanta. Significant costs, their cost behavior, and activity rates for April are as follows:

Operating statistics from the management information system reveal the following for April:

Instructions

1. Prepare a contribution margin by route report for East Coast Railroad Company for the month of April. Compute the contribution margin ratio in whole percents, rounded to one decimal place.

2. Discuss the route performance of the railroad using the above report.

Shelly Beaman (social security number 412-34-5670) is single and resides at 540 Front Street, Ashland, NC 27898. Shelly’s W-2 wages $ 55,800 Federal withholding 10,044 Social security wages 55,800 Social security withholding 3,460 Medicare withholding 809 State withholding 3,348 1099-INT New Bank 532 1099-DIV XYZ, Inc. Ordinary dividends 258 Qualified dividends 258 Shelly had the following itemized deductions: State income tax withholding (from W-2) $ 3,348 State income tax paid with 2015 return 600 Real estate tax 4,200 Mortgage interest 11,800 Charitable contributions 2,500 Shelly also started her own home design consulting business in March 2016 (Business code, 238990, Cash basis). The results of her business operations for 2016 follow: Gross receipts from clients $ 154,000 Vehicle mileage 21,000 business miles (2,100 per month) 32,000 total miles during the year 2009 Chevy Suburban Placed in service 03/01/16 Postage (750 ) Office supplies (1,500 ) State license fees (155 ) Supplies (5,300 ) Professional fees (2,500 ) Design software (1,000 ) Professional education programs (registration) (550 ) Travel to education program Airplane (350 ) Lodging $119/night × 3 nights Meals per diem $46 per day x 3 days Business Assets Date Purchased Cost Laptop 6/08/16 $ 2,500 Computer 3/05/16 5,700 Printer 3/01/16 1,800 Copier 6/02/16 1,700 Furniture 4/01/16 5,000 Building 3/01/16 175,000 Phone (600 ) Internet service (450 ) Rent (8,300 ) Insurance (1,700 ) Shelly made a $27,000 estimated tax payment on September 15, 2016. Prepare Shelly’s Form 1040 for 2016 including all of the supplementary schedules. Schedule A, Schedule B, Schedule C, Form 4562, and Schedule SE are required. Section 179 is elected on all eligible assets in 2016. She wants to contribute to the presidential election campaign and does not want anyone to be a third-party designee. Shelly had qualifying health care coverage at all times during the tax year. For any missing information, make reasonable assumptions. (List the names of the taxpayers and any income they receive in the order in which they appear in the problem. Input all the values as positive numbers unless otherwise stated in the forms. Round your intermediate computations to nearest whole dollar value.)

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 $22.35 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 $346,000 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 57-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 $134.10 (600 square feet @ $22.35 per hundred square feet). Calculate the customer margin earned on this job.

1. A producer in Philadelphia uses zone pricing. The producer is selling widgets for $150/ton in the Eastern Zone, which includes Richmond and Baltimore. The actual freight cost from its plant to Baltimore is $70/ton and from its plant to Richmond is $80/ton. In this situation,

Multiple Choice

• one ton of widgets costs a Baltimore buyer the same as a Richmond buyer.

• both buyers would pay $300 for one ton of widgets.

• one ton of widgets delivered to Richmond would cost the buyer $230.

• one ton of widgets delivered to Baltimore would cost the buyer $220.

• None of these answers is correct.

2. A main purpose of unfair trade practice legislation is to

Multiple Choice

• prevent manufacturers from taking high markups.

• eliminate price competition on manufacturers' brands.

• require some minimum percentage markup on cost.

• permit different types of retail outlets to charge different retail prices.

• guarantee retailers some profit.

3. When looking for an Uber car during rush hour, a customer notices that the same ride that she took earlier in the afternoon is three times more expensive. What explains this?

Multiple Choice

• Uber's surge pricing model adjusts prices to better match supply and demand for its services.

• Uber uses predictive analytics to run real-time pricing experiments.

• Uber uses a pricing model that is based on a customer's ability or desire to pay for its services.

• Uber has a one-price policy, but rides in the afternoon and rides in the evening are not considered to be under the "same conditions."

• Uber needs to pay its drivers more in the evening due to overtime laws.

4. A discount of 2/10, net 30 means the buyer can take a 2 percent discount off the face value of the invoice if the invoice is paid within 10 days.

True or False

5. American Airlines maintains a frequent flier loyalty program that allows members to accumulate 25,000 miles and then redeem these miles for a free round-trip ticket. This is a(n)

Multiple Choice

• introductory price deal.

• F.O.B. discount.

• cash discount.

• cumulative quantity discount.

• bundle price discount.

6. A large producer who offers no discounts and the same prices to all customers in the United States

Multiple Choice

• does not have pricing objectives.

• ignores the benefits of administered pricing.

• probably ignores nonprice competition too.

• may be "playing it safe" because of concern about the Robinson-Patman Act.

• is probably violating the antidumping laws.

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 $23.35 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 $348,000 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 400 square foot carpet-cleaning job at the Flying N Ranch—a 53-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 $93.40 (400 square feet @ $23.35 per hundred square feet). Calculate the customer margin earned on this job.

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 $23.10 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 $359,000 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 200 square foot carpet-cleaning job at the Flying N Ranch—a 59-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 $46.20 (200 square feet @ $23.10 per hundred square feet). Calculate the customer margin earned on this job.

(7-20)

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 $23.15 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 $352,000 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 800 square foot carpet-cleaning job at the Flying N Ranch—a 55-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 $185.20 (800 square feet @ $23.15 per hundred square feet). Calculate the customer margin earned on this job.

Use the CardioGoodFitness data.

The company sells three different lines of treadmills. The TM195 is an entry-level treadmill designed for those who want minimal programs and the desire for simplicity to initiate their walk or hike.

The TM498 is a middle-line model for those who are in a transitional stage from walkers to running or midlevel runners. It has two programs and a 15% elevation upgrade from the TM195.

The TM798 is the top-of-the-line treadmill which is structurally larger and heavier and has more features than the other models. It is designed for those who are power walkers or runner.

• Go to the data sets in textbook. Use Cardio Good Fitness. • Click on STAT.
• T Stats → One Sample → With Data
• Select the appropriate column variable

• Select Product under Group by
• Under Perform, select Confidence interval for μ and set the level at 0.95. • Click Compute!
• The confidence interval is given by the L. Limit and U. Limit.

For marketing purposes, we want to estimate the mean age, income, and mileage for each model treadmill.

Calculate the 95% confidence interval for each variable grouped by the Treadmill model. Copy your results below.

Group by: Product
μ : Mean of Age

95% confidence interval results:

Group by: Product
μ : Mean of Income

95% confidence interval results:

Group by: Product
μ : Mean of Miles

95% confidence interval results:

Use these results to answer the following questions:

1. The TM195 sells for $1500, the TM498 sells for $1750, and the TM798 sells for $2500. Based off your results, are these prices reasonable? Explain.

2. Do we need to market the different models to different age groups? Explain.

3. Does there seem to be any differences in the amount of average miles for each model of treadmill? Explain.