ADMS 3900 Study Guide - Final Guide: Scenario Analysis, Market Capitalization, Shortage

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silverbeaver759

6 Dec 2013

School

York University

Department

Administrative Studies

Course

ADMS 3900

Professor

Randy Hoffman

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Document Summary

The decision to be a 4 star resort was a good decision because we believed we would be the only resort willing to take this risk to be this star. It was important to the management team to build all the facilities. We felt that being a 4 star luxury resort would attract more customers. More importantly, the purpose was to eliminate additional construction expenses in future years. Therefore, constructing the facilities after year 1 would create additional expenses of 50%. Maple pines allocated ,000 to both maintenance and the marketing department. It was critical to allocate funds to marketing in order to promote the resort. The maintenance of the hotel was important for us to be recognized as a clean hotel and to increase the quality of service and facilities. The variable cost of restaurant and bar were 54% and 50%, respectively. The sales of restaurant and bar totaled ,285,980. 08 and 360,750. 97.

Related Questions

Post-Audit and Reevaluation of Investment Proposal: IRR

Throughout his four years in college, Ronald King worked at the local Beef Burger Restaurant in

College City. Although the working conditions were good and the pay was not bad, Ron believed he

could do a much better job of managing the restaurant than the current owner-manager. In particular,

Ron believed that the proper use of marketing campaigns and sales incentives, such as selling a second

burger for a 25 percent discount, could increase annual sales by 40 percent.

Just before graduation in 2016, Ron inherited $500,000 from his great uncle. He seriously con-

sidered buying the restaurant. It seemed like a good idea because he liked the town and its college

atmosphere, knew the business, and always wanted to work for himself. He also knew that the cur-

rent owner wanted to sell the restaurant and retire to Florida. As part of a small business management

course, Ron developed the following income statement for the restaurantâs 2015 operations:

BEEF BURGER RESTAURANT: COLLEGE CITY

Income Statement

For Year Ended December 31, 2015

Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $450,000

Expenses

Cost of food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $150,000

Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000

Employee expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000

Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,000

Property taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000

Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000

Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000

436,000

Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,000

Ron believed that the cost of food and supplies were all variable, the employee expenses and utilities

were one-half variable and one-half fixed in 2015, and all other expenses were fixed. If Ron purchased

the restaurant and followed through on his plans, he believed there would be a 40 percent increase

in unit sales volume and all variable costs. Of the fixed costs, only advertising would increase by

$12,000. The use of discounts and special promotions would, however, limit the increase in sales

revenue to only 30 percent even though sales volume increased 40 percent.

Required

a. Determine

1. The current annual net cash inflow.

2. The predicted annual net cash inflow if Ron executes his plans and his assumptions are correct.

b. Ron believes his plan would produce equal net cash inflows during each of the next 15 years, the

period remaining on a long-term lease for the land on which the restaurant is built. At the end of

that time, the restaurant would have to be demolished at a predicted net cost of $80,000. Assum-

ing Ron would otherwise invest the money in stock expected to yield 12 percent, determine the

maximum amount he should pay for the restaurant.

c. Assume that Ron accepts an offer from the current owner to buy the restaurant for $350,000.

Unfortunately, although the expected increase in sales volume does occur, customers make much

more extensive use of the promotions than Ron had anticipated. As a result, total sales revenues are

8 percent below projections. Furthermore, to improve employee attitudes, Ron gave a 10 percent

raise immediately after purchasing the restaurant. Reevaluate the initial decision using the actual

sales revenue and the increase in labor costs, assuming conditions will remain unchanged over the

remaining life of the project. Was the investment decision a wise one? (Round calculations to the

nearest dollar.)

d. Ron can sell the restaurant to a large franchise operator for $250,000. Alternatively, he believes

that additional annual marketing expenditures and changes in promotions costing $20,000 per

year could bring the sales revenues up to their original projections, with no other changes in costs.

Should Ron sell the restaurant or keep it and make the additional expenditures? (Round calcula-

tions to the nearest dollar.) (Hint: Ron has just bought the restaurant.)

ceruleantermite111

Corporate Saint #1

AARON FUERSTEIN

For many years, Mr. Feuerststeinâs family has owned a clothing manufacturing business

in Methuen, Massachusetts. In 1995, the factory building burned down. He immediately

commenced to rebuild the factory and, in the interim, fully paid the workerâs salaries and

benefits, increasing the amount of his debt in order to do so.

Unfortunately not all fairy tales have a happy ending. Although the final script has

yet to be written on Mr. Feuersteinâs business, he did have to file bankruptcy. The

costs in rebuilding the factory and not being aggressive in marketing his products caused

him to get into financial trouble. He stated that he did not attribute his financial

problems to his employees. His company is now out of bankruptcy, but it is owned

by the creditors. Mr. Feuerstein is trying to raise capital in order to buy back the

company and he is optimistic about his chances of succeeding.

Compare Mr. Feuersteinâs attitude to the attitude of executives at Enron, Tyco,

Worldcom, Global Crossing and Adelphia Communications. While in real terms the

minimum wage has declined, the pay of corporate executives increased 571% between

1990 and 2000 (five times the rate at which corporate profits increasedâa fact that

should outrage shareholders). Had the minimum wage increased at a similar rate it would

now be over $25 per hour. Aaron Feuerstein is the antithesis of the CEOs who in the

name of the bottom line throw 40,000 workers out on the streetâand then take an

increase in their already obscene salaries. As of the mid 1990âs, American executives

were paid at a rate that is 140 times that of the average worker.

Corporate Saint #2

OJAI VALLEY INN & SPA

âFROM BELLHOPS TO BUILDERSâ

In May, 2003, a major 16-month renovation forced this luxury resort to shut-down two-

thirds of its rooms. This would have resulted in layoffs for half of its 600 employees.

Instead, the management decided to retrain willing workers as carpenters, painters,

electricians, tile setters and drywall installers, saving about 150 jobs. The training

program was performed mainly in-house, and all the trainees were state certified in safety

procedures. The hotel spent about $1-million in the retraining.

Some of the employees have been with the hotel 40 years; the average tenure is eight

years, which is unusually high for the hospitality industry. The resort felt that preserving

that experience and loyalty was important. They feel that there are lots of fine hotels

around, but guests come to them because of the employees. âEmployees are the most

important part of a hotel, because this really is a people businessâ.

Every employee was given a chance to take part. No one who wanted to learn the new

skills was turned away. âThis helps build on that mutual benefit contractâ¦ and

was a solution to keep their best workers on the payroll without being a total financial

drain on the hotelâ said Alec Levenson, labor economist and a professor at USCâs Center

for Effective Organizations. Ojai is a small community with a population of 8,000 and the

hotel is the biggest employer and it would be hard for them to find other employment

locally.

The retrained workers are being used only for renovation work, such as plastering,

painting and tearing out old sinks. A contractor with his own crew is handling the new

construction. However, that doesnât mean that the retrained workers feel like a lower

class of laborers. The esprit de corps is so high that they have designed T-shirts

proclaiming âBuilding a Better Shang-ri La.â

The Los Angeles Time, December 22, 2003

Corporate Saint #3

TIMBERLAND

Jonathan Swartz, C.E.O. of Timberland, believes that in order to equip people to make a

difference in the world, we must insist that doing well and doing good are one and the

same. He serves on President Bushâs taskforce on national service and has instituted a

program called the Path of Service at his company. Timberland employees are given 40

hours of paid leave each year to perform community serviceâpaint a house, tutor a

student, comfort the elderly. Since Mr. Swartzâs family controls the majority of his

companyâs stock (he represents its third generation to head the firm), it is easier for him

to be innovative than it may be for C.E.O.s that have to answer to boards of directors.

The Path of Service program came about because of Mr. Swartzâs personal experience.

In 1989 he provided 50 pairs of boots to a group called City Year, an urban Peace

Corps type of organization, located in Boston. The group invited him to a day of

community service and he was hooked. In addition, Mr. Swartz is also committed to the

concept of tithing and estimates that 10% of his income goes to charity.

Today, Timberland estimated that 5,200 employees have invested more than 170,000

hours in community service in 13 countries. In addition, the company works with

business partners and vendors to arrange regional service events.

Fortune Magazine consistently rates Timberland as one of the best companies in the

country to work for.

Corporate Saint #4

GREYSTON BAKERY

Greyston Bakery is a minority-owned bakery in Yonkers, New York, that has become a

leader in community development and a role model for other socially conscious

businesses.

The bakery actively recruits and hires employees who have had difficulties finding in the

employment in the past. Ex-convicts and drug addicts make up a substantial part of the

employee census.

The bakery is expanding but has committed to remain within southwest Yonkers, the

community where it was created and has grown, and where there is a high concentration

of hard-to-employ individuals.

The profits of the bakery support the Greyston Foundation which includes housing, child

care, health care, a computer learning center, and more.

The bakery empowers its employees by compensating them fairly for their efforts. While

for some employees this salary may not constitute the âliving wageâ, the bakery

encourages and supports employees who seek outside vocational training, academic

advancement, and professional non-bakery-related enrichment.

Corporate Saint #5

BEN & JERRYâS ICE CREAM

We all know about the fantastic ice cream products sold by Ben & Jerryâs. However,

there is another part of their success story. The two native New Yorkerâs, who moved up

to Vermont and started the company, had another mission besides the goals of making the

best ice cream and also creating a profitable company.

Their mission, which they continuously worked towards achieving, included operating

the company in a manner that actively recognizes the central role that business plays in

society by initiating innovative methods to improve the quality of life both nationally and

internationally. They realized that the gap between the rich and the poor is wider than at

anytime since the 1920âs. Another part of their mission was to provide economic

opportunities for those who have been denied them.

As the manufacturing of products creates waste, they worked towards minimizing their

negative effect on the environment. Since the growing of food is overly reliant on the use

of toxic chemicals and other methods that are unsustainable, they support sustainable and

safe methods of food production that reduce environmental degradation, maintain the

productivity of the land over time, and support the economic viability of farms and rural

communities.

Question:What do you think of the idea of Corporate Saints? Is being a Corporate Saint realistic? Is the organization that you are/were apart of operating like a Corporate Saint? Please mention any other organizations that you believe are Corporate Saints.

redgiraffe649

Integrative Exercise
Cost Behavior and Cost-Volume-Profit Analysis for Many GlacierHotel

Using the High-Low Method to Estimate Variable and FixedCosts

Located on Swiftcurrent Lake in Glacier National Park, ManyGlacier Hotel was built in 1915 by the Great Northern Railway. Inan effort to supplement its lodging revenue, the hotel decided in20X1 to begin manufacturing and selling small wooden canoesdecorated with symbols hand painted by Native Americans living nearthe park. Due to the great success of the canoes, the hotel beganmanufacturing and selling paddles as well in 20X3. Many hotelguests purchase a canoe and paddles for use in self-guided tours ofSwiftcurrent Lake. Because production of the two products began indifferent years, the canoes and paddles are produced in separateproduction facilities and employ different laborers. Each canoesells for $500, and each paddle sells for $50. A 20X3 firedestroyed the hotelâs accounting records. However, a new system putinto place before the 20X4 season provides the following aggregateddata for the hotelâs canoe and paddle manufacturing and marketingactivities:

Manufacturing Data:
Year	Number of Canoes Manufactured		Total Canoe Manufacturing Costs		Year	Number of Paddles Manufactured		Total Paddle Manufacturing Costs
20X9		250		$103,000	20X9		900		$38,500
20X8		275		128,000	20X8		1,200		49,000
20X7		240		108,000	20X7		1,000		44,000
20X6		310		114,000	20X6		1,100		45,500
20X5		350		141,500	20X5		1,400		52,000
20X4		400		140,000	20X4		1,700		66,500

Marketing Data:
Year	Number of Canoes Sold		Total Canoe Marketing Costs		Year	Number of Paddles Sold		Total Paddle Marketing Costs
20X9		250		$45,000	20X9		900		$7,500
20X8		275		43,000	20X8		1,200		9,000
20X7		240		44,000	20X7		1,000		8,000
20X6		310		51,000	20X6		1,100		8,500
20X5		350		62,000	20X5		1,400		10,000
20X4		400		60,000	20X4		1,700		11,500

Required:

1. High-Low Cost Estimation Method

a. Use the high-low method to estimate the per-unit variablecosts and total fixed costs for the canoe productline.

Variable cost per unit	$
Total fixed cost	$

b. Use the high-low method to estimate the per-unit variablecosts and total fixed costs for the paddle productline.

Variable cost per unit	$
Total fixed cost	$

2. Cost-Volume-Profit Analysis, Single-ProductSetting
Use CVP analysis to calculate the break-even point in units for

a. The canoe product line only (i.e.,single-product setting)

BE units

canoes

b. The paddle product line only (i.e.,single-product setting)

BE units

paddles

3. Cost-Volume-Profit Analysis,Multiple-Product Setting

The hotel's accounting system data show an average sales mix ofapproximately 300 canoes and 1,200 paddles each season.Significantly more paddles are sold relative to canoes because someinexperienced canoe guests accidentally break one or more paddles,while other guests purchase additional paddles as presents forfriends and relatives. In addition, for this multiple-product CVPanalysis, assume the existence of an additional $30,000 of commonfixed costs for a customer service hotline used for both canoe andpaddle customers. Use CVP analysis to calculate the break-evenpoint in units for both the canoe and paddle product lines combined(i.e., the multiple-product setting).

Canoe BE units	canoes
Paddle BE units	paddles

4. Cost Classification

a. Classify the manufacturing costs, marketing costs, andcustomer service hotline costs either as production costs or periodcosts.

All manufacturing costs are costs. All marketing costs andcustomer hotline costs are costs

b. For the period costs, further classify them into eitherselling expenses or general and administrative expenses.

Marketing costs are selling oriented; therefore, the marketingperiod costs would be further classified as . Customer hotlinecosts relate to the customer service section of the value chain andwould be further classified as .

5. Sensitivity Cost-Volume-Profit Analysis andProduction Versus Period Costs, Multiple- Product Setting

If both the variable and fixed production costs (refer to youranswer to Requirement 1) associated with the canoe product lineincreased by 5% (beyond the estimate from the high-low analysis),how many canoes and paddles would need to be sold in order to earna target income of $96,000? Assume the same sales mix andadditional fixed costs as in Requirement 3.

Canoe target income units	canoes
Paddle target income units	paddles

6. Margin of Safety

Calculate the hotelâs margin of safety (both in units and insales dollars) for Many Glacier Hotel, assuming the same facts asin Requirement 3, and assuming that it sells 700 canoes and 2,500paddles next year.
total MOS units above total BE units

$ MOS in sales dollars

greenweasel262

ADMS 3900 Study Guide - Final Guide: Scenario Analysis, Market Capitalization, Shortage

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