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 $22.50 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, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below:

The total cost of operating the company for the year is $353,000, which includes the following costs:

Resource consumption is distributed across the activities as follows:

Distribution of Resource Consumption Across Activities

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. (Round your answers to 2 decimal places.)

3. The company recently completed a 6 hundred square foot carpet-cleaning job at the Flying N ranch—a 51.00-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 and final answers to 2 decimal places.)

4. The revenue from the Flying N ranch was $135.00 (6 hundred square feet at $22.50 per hundred square feet). Prepare a report showing the margin from this job. (Round your intermediate calculations and final answers to 2 decimal places.)

Complete the partial balance sheet on the bottom. Show all formulas and work. All information is provided but may not neccessarily be needed.

You have been asked to make some recommendations to a company regarding financing for an upcoming major expansion. The company has been very successful but they will need a major inflow of cash to purchase the fixed assets they need for the expansion and hire additional employees. They believe they will need at least $1,500,000 and have asked for your recommendations as to how they should obtain the necessary funds. They have also asked for depreciation schedules for the new assets they plan to purchase. Assume the split between Current Assets and Long Term Assets is 20% current and 80% long term.

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 $23.25 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 $349,000 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 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 $186.00 (800 square feet @ $23.25 per hundred square feet). Calculate the customer margin earned on this job.

Wilson Puckett, president of Wabash Waste Management, had a stack of proposals on his desk from several truck companies. Two of the companies, Roper and Rollins, offered trucks on a lease basis, while three dealers wanted Wabash to buy their trucks. In the past Wabash always purchased their trucks. Which proposal would be best, he wondered as he picked up the proposals for the third or fourth time.

Wabash Waste Management is an industrial waste recycling company. It picks up grease and oil from several manufacturing facilities in the region, cleans the waste and oil, and then sells it to a company that packages the material for resale. Wabash also picks up frying grease from restaurants for recycling. The company is about to enter a new regional market, and needed four new trucks to pick up the used grease and oil.

The trucks were tank trucks with a pump that pumped the grease or oil from a holding tank at the restaurant or manufacturing plant. Darnell Gates, fleet manager, wanted Puckett to choose the Hauler 2000, a tank truck with a McLaren pump capable of pumping 50 gallons in about five minutes. It has a capacity of 5,000 gallons. The truck is rated at 10 miles per gallon of gasoline and has one of the better maintenance records of all the trucks. The Hauler 2000 is one of the trucks for sale, but could be leased through Wabash’s bank.

On the other hand, Betty Roberts, vice-president of finance, has been pushing the Roper offering, a Fleetwood truck that pumps fifty gallons in ten minutes. The Fleetwood holds 4,800 gallons of grease or oil, and the truck gets twelve miles to the gallon. The lease option on the Fleetwood is the most attractive of all the proposals according to Roberts. In addition, by leasing through Roper, the company does not use any of its line of credit from the bank, keeping that free for some other needed purchases. The company has operated close to the edge and needs to fill some excess capacity in order to make enough profit.

Gates told Puckett that the Fleetwood is too slow and would lead to at least three fewer pickups per day by each truck. Three drivers have also told Puckett that the Fleetwood is a deathtrap with a bad safety record. These drivers told Puckett that the current fleet will need at least two trucks replaced in the next year. The maintenance manager, however, thinks the company could get by with replacing only one truck and he also likes working on the Fleetwood better than the Hauler 2000.

1. How did problem recognition occur in this case?

2. Discuss risk (what each person is most concerned with) from the perspective of each member of the buying center. Discuss how the tank truck firms could reduce risk (address the concerns) for each member.   

3. Assume this buying center is an accurate portrayal of the average buying center for tank trucks? How would this information influence the emphasis of your sales presentations to each individual?

Joe operates a business that locates and purchases specialized assets for clients, among other activities. Joe uses the accrual method of accounting but he doesn’t keep any significant inventories of the specialized assets that he sells. Joe reported the following financial information for his business activities during year 0.

Determine the effect of each of the following transactions on the taxable business income. (Select "No Effect" from the dropdown if no change in the taxable business income.)

Required:

Joe has signed a contract to sell gadgets to the city. The contract provides that sales of gadgets are dependent upon a test sample of gadgets operating successfully. In December, Joe delivers $13,350 worth of gadgets to the city that will be tested in March. Joe purchased the gadgets especially for this contract and paid $9,450.

Joe paid $275 for entertaining a visiting out-of-town client. The client didn’t discuss business with Joe during this visit, but Joe wants to maintain good relations to encourage additional business next year.

On November 1, Joe paid $590 for premiums providing for $59,000 of “key man” insurance on the life of Joe’s accountant over the next 12 months.

At the end of year 0, Joe’s business reports $11,850 of accounts receivable. Based upon past experience, Joe believes that at least $2,570 of his new receivables will be uncollectible.

In December of year 0, Joe rented equipment to complete a large job. Joe paid $5,850 in December because the rental agency required a minimum rental of three months ($1,950 per month). Joe completed the job before year-end, but he returned the equipment at the end of the lease.

Joe hired a new sales representative as an employee and sent her to Dallas for a week to contact prospective out-of-state clients. Joe ended up reimbursing his employee $490 for airfare, $540 for lodging, $440 for meals, and $340 for entertainment (Joe provided adequate documentation to substantiate the business purpose for the meals and entertainment). Joe requires the employee to account for all expenditures in order to be reimbursed.

Joe uses his BMW (a personal auto) to travel to and from his residence to his factory. However, he switches to a business vehicle if he needs to travel after he reaches the factory. Last month, the business vehicle broke down and he was forced to use the BMW both to travel to and from the factory and to visit work sites. He drove 215 miles visiting work sites and 84 miles driving to and from the factory from his home. Joe uses the standard mileage rate to determine his auto-related business expenses. (Round your answer to whole number. Use standard mileage rate.)

Joe paid a visit to his parents in Dallas over the Christmas holidays. While he was in the city, Joe spent $145 to attend a half-day business symposium. Joe paid $390 for airfare, $126 for meals during the symposium, and $77 on cab fare to the symposium.

Using the Vehicle Ratings Excel file, create formulas using nested IF, AND, and OR functions to implement the three rating schemes described on the spreadsheet.

(1) C&A's potato chip filling process has a lower specification limit of 9.5 oz and an upper specification limit of 10.5 oz. The standard deviation is 0.3 oz. and the mean is 10 oz. What is the process capability index (Cp) for the chip filling process?

(a) 0.56
(b) 1.11
(c) 0.33
(d) 3.33

(2) Which of the following represents customer requirement from a process?

(a) Sample size in control charts
(b) USL and LSL
(c) Process standard deviation
(d) UCL and LCL

(3) The mean of a process is 50, and the standard deviation is 2. The company uses statistical control process (SPC) to monitor the process. It uses sample size on 4, and 3 sigma (z=3) control limits. What are the Upper Control Limit (UCL) and Lower Control Limit (LCL)?

(a) LCL=48 and UCL=52
(b) LCL=44 and UCL=56
(c) LCL=47 and UCL=53
(d) LCL=49 and UCL=51

(4) If a company narrows the control limits for a process without making any other changes, which of the following will happen?

(a) The process will generate more products not acceptable by customers
(b) The process will not be stopped even when assignable cause is present
(c) The capability index for the process will reduce to a lower value
(d) The process will be stopped more often suspecting assignable cause

Meega Airlines decided to offer direct service from Akron to Clearwater Beach, Florida. Management must decide between full-price service using a company’s new fleet of jet aircraft and a discount-service using smaller capacity commuter planes. Management developed estimates of the contribution to profit for each type of service based upon two possible levels of demand for service on Clearwater Beach: high, moderate, and low. The following table shows the estimated quarterly profits (in thousands of dollars):

The prior distribution for the demand is P(High) = 0.3, P(Medium) = 0.5, and P (Low) = 0.2, respectively.

(a) Calculate the expected value of each decision alternative and recommend the best strategy based on the expected value.

(b) Meega Airlines considers market research before making a decision. Market research produces the following posterior distribution of the states of nature. Calculate the expected value of each decision under each market research outcome.

(c) Create a decision tree with the expected value of each decision as a payoff, including branches for each market research outcome and a branch for no market research.

Suppose you are the manager of a mutual fund and hold a RM10 million stock portfolio. The
required market risk premium is 6.5% and the risk fee rate is 3%. Stock A & B are 20% each
of its total portfolio, Stock C and D are 25% and 18% and the remainder goes to Stock E.
Beta for Stock A, B, C, D and E are 0.75, 1.30, 1.6, 0.5 and 1.2. The return for stock A and B
are 25% and 18% while Stock C and D are 12% and 30%. Return for Stock E less 10% than
Stock A.
Randomly you pick two stocks, Stock A & C to look either both of these are positively or
negatively correlated. Before make any decisions either to remain holding in the portfolio or
to sell in the market. You are prefer to maintain those stocks that able to give higher return
and try to minimise the risk.

Required:
a. Compute the expected return of your portfolio.

b. Compute the portfolio beta.


c. Compute the expected return and standard deviation for Stock A & Stock C.


d. Compute the covariance and correlation of Stock A & C.


e. What you find out about your portfolio and from (d). Any suggestion(s)?