Jordan is a construction contract company involved in building commercial properties. Its current policy for determining the percentage of completion of its contracts is based on the proportion of cost incurred to date compared to the total expected cost of the contract.
One of Jordan’s contracts has an agreed price of $250 million and estimated total costs of $200 million.
The cumulative progress of this contract is:
Year ended: 30 September 2011 30 September 2012
$million $million
Costs incurred 80 145
Work certified and billed 75 160
Billings received 70 150
Based on the above, Jordan prepared and published its financial statements for the year ended 30 September 2011. Relevant extracts are:
Statement of Profit and Loss
$million
Revenue (balance) 100
Cost of sales (80)
––––
Profit (50 x 80/200) 20
––––
Statement of financial position
$million
Current assets
Amounts due from customers
Contract costs to date 80
Profit recognised 20
––––
100
Progress billings (75)
––––
25
––––
Contract receivables (75 – 70) 5
Jordan has received some adverse publicity in the financial press for taking its profit too early in the contract process, leading to disappointing profits in the later stages of contracts. Most of Jordan’s competitors take profit based on the percentage of completion as determined by the work certified compared to the contract price.
Required:
In: Accounting
A 600-room hotel can rent every one of its rooms at $90 per room. For each $1 increase in rent,
3 fewer rooms are rented. Each rented room costs the hotel $10 to service per day. How much should the hotel charge for each room to maximize its daily profit? What is the maximum daily profit?
In: Math
Aberforth Dumbledore Corporation began construction of a tavern on March 31, 2021. The project was completed on April 30, 2022. No new loans were required to fund construction. Aberforth Dumbledore had the following debts that were outstanding throughout the construction period: $4,700,000, 6% note $21,180,000, 9% bonds Construction expenditures incurred were as follows: March 31, 2021 $ 4,630,000 June 30, 2021 6,630,000 November 30, 2021 1,926,000 February 28, 2022 3,630,000 What is Aberforth Dumbledore Corporation's weighted average cost of debt?
In: Accounting
In: Statistics and Probability
Science has been recognized as a critical input in good decision making for park managers. How does the use of science benefit park management decisions?
In: Operations Management
Case 1 (Make Vs. Buy)
After recovering from a previous disaster in 2015, Jurassic World Luxury Resort reopened in early 2017, and business is better than ever. Jurassic World’s bioengineering team, led by Dr. Henry Wu, has designed two brand new dinosaurs named the Pepsisaurus and the Tostidodon (sponsored by PepsiCo). Having learned from past mistakes, Jurassic World’s operations manager, Claire Dearing, has insisted on making two state-of-the-art enclosures to ensure that the Pepsisaurus and Tostidodon do not escape their enclosures and wreak havoc on the theme park. Claire is not sure whether Jurassic World should manufacture the enclosures, or pay Hammond Corp $16,650,000 per enclosure to manufacture them for Jurassic World.
Claire has accumulated the following cost information related to the manufacture of the enclosures:
|
Per Enclosure |
|
|
Direct materials |
$15,000,000 |
|
Direct labor |
225,000 |
|
Variable manufacturing overhead |
100,000 |
|
Fixed manufacturing overhead, traceable |
1,250,000 |
|
Fixed manufacturing overhead, allocated |
450,000 |
90% of the traceable fixed manufacturing overhead would be avoided if Jurassic World did not manufacture the enclosures. If Jurassic World did not manufacture the enclosures, it could instead use resources to open a new roller coaster ride that would generate $600,000 of margin.
1. Determine the total relevant costs of Jurassic World manufacturing the two enclosures itself. (1 point for the correct answer in the shaded box)
|
Cost Label |
Relevant Cost Per Enclosure |
Total Relevant Cost (for 2 total enclosures) |
|
Total Relevant Costs for manufacturing 2 enclosures= |
||
2. Determine the total relevant costs of Jurassic World paying Hammond Corp to manufacture the enclosures. (1 point for the correct answer in the shaded box)
|
Total Relevant Cost (for 2 total enclosures) = |
3. Should Jurassic World manufacture the enclosures itself (MAKE) or pay Hammond Corp to manufacture them (BUY)? Circle One. (1 point for the correct answer)
MAKE BUY
Case 2 (Special Order)
While Jurassic World is filled to capacity with tourists most of the year, the theme park experiences a lower number of customers during September and October. This is due to the fact that September and October are “rainy season” in Jurassic World’s location—the island of Isla Nublar, off the coast of Costa Rica.
To celebrate their sponsorship of the Pepsisaurus and the Tostidodon, PepsiCo is interested in holding a 3-day, 2-night corporate retreat for 5,000 of its employees at Jurassic world during September. PepsiCo has told Claire that they would pay Jurassic World $200 per employee. This would provide each employee with three days of park admission, three days of meal and drink vouchers, and two nights of lodging. Additionally, PepsiCo wants Jurassic World to treat its employees to behind-the-scenes tours of the park, which would cost a total of $50,000 to plan and facilitate. Due to the timing of the retreat, Jurassic World has ample capacity to host PepsiCo’s employees.
Claire knows that Jurassic World normally charges $850 per person for a 3-day, 2-night admission, lodging, and meal/drink vacation package. The per person cost for this package is 670, as shown below:
|
Per Person |
|
|
Food and drink |
$95 |
|
Direct labor |
30 |
|
Overhead |
545 |
Most of the overhead is the fixed cost of running the theme park, and goes towards marketing, administration, dinosaur bioengineering, customer service, grounds keeping and maintenance, dinosaur food, raptor training, and disaster control. However, $35 is variable with respect to the number of customers in the theme park.
4. Determine the incremental revenue to Jurassic World if Claire accepts PepsiCo’s request. (1 point for the correct answer in the shaded box)
|
Total incremental revenue= |
5. Determine the incremental cost to Jurassic World if Claire accepts PepsiCo’s request. (1 point for the correct answer in the shaded box)
|
Cost Label |
Cost Per Employee |
Total Cost |
|
Total incremental cost = |
||
6. Should Claire accept PepsiCo’s offer? Circle One. (1 point for the correct answer)
YES NO
In: Accounting
Assume Nortel Networks contracted to provide a customer with
Internet infrastructure for $2,100,000. The project began in 2021
and was completed in 2022. Data relating to the contract are
summarized below:
| 2021 | 2022 | |||||
| Costs incurred during the year | $ | 308,000 | $ | 1,615,000 | ||
| Estimated costs to complete as of 12/31 | 1,232,000 | 0 | ||||
| Billings during the year | 390,000 | 1,640,000 | ||||
| Cash collections during the year | 270,000 | 1,760,000 | ||||
Required:
1. Compute the amount of revenue and gross profit or loss to be
recognized in 2021 and 2022 assuming Nortel recognizes revenue over
time according to percentage of completion.
2. Compute the amount of revenue and gross profit or loss to be
recognized in 2021 and 2022 assuming this project does not qualify
for revenue recognition over time.
3. Prepare a partial balance sheet to show how the information
related to this contract would be presented at the end of 2021
assuming Nortel recognizes revenue over time according to
percentage of completion.
4. Prepare a partial balance sheet to show how the information
related to this contract would be presented at the end of 2021
assuming this project does not qualify for revenue recognition over
time.
Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming Nortel recognizes revenue over time according to percentage of completion. (Loss amounts should be indicated with a minus sign. Use percentages as calculated and rounded in the table below to arrive at your final answer.)
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming this project does not qualify for revenue recognition over time. (Loss amounts should be indicated with a minus sign.)
|
Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2021 assuming Nortel recognizes revenue over time according to percentage of completion.
|
|||||||||||||||||||||||
Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2021 assuming this project does not qualify for revenue recognition over time.
|
|||||||||||||||||||||
In: Accounting
You are the revenue manager of a 200-room hotel in Memphis. The management controllable costs (variable room costs) incurred when selling 1 room are $50. You are interested in evaluating hotel performance for two scenarios: fixed pricing and differential pricing.
Scenario one is that you used a fixed pricing strategy: at a selling pricing $200 per night your hotel would sell 150 rooms on a given day.
Scenario two is that you implement a three-price strategy: low rate $150 per night, regular rate $200 per night, and high rate $250 per night. Your hotel would sell 100 low-priced rooms, 60 regular-priced rooms, and 20 high-priced rooms per day.
2. Discuss which scenario generates more revenue for your hotel and why?
In: Finance
In: Operations Management
(a) Based on the information given, is the sample proportion p̂ of residents who have visited the park in the last month approximately normally distributed? Check the appropriate conditions to justify your answer
(b) What is the sample proportion p̂ for Leslies sample of 150 residents? Round your answer to two decimal places?
(c) What is the probability that more than 98 individuals in the random sample of 150 residents have visited the park in the last month?
In: Statistics and Probability