Accounting

Make sure you answer the questions clearly, use necessary citations and references, and abide by the APA formatting rules.

  1. The controller of a small private college is complaining about the amount of work she must do at the beginning of each month. The president of the university requires the controller to submit a monthly report by the fifth day of the following month. The monthly report contains pages of financial data from operations. The controller was heard saying, “Why does the president need all this information? He probably doesn’t read half of the report. He’s an English professor and probably doesn’t know the difference between a cost and a revenue.”

    Required:

    What is the probable role of the monthly report?
    b. What is the controller’s responsibility with respect to a president who doesn’t know much accounting?

 

  1. After the Iraqi invasion of Kuwait in August 1990, the world price of crude oil doubled to more than $30 per barrel in anticipation of reduced supply. Immediately, the oil companies raised the retail price on refined oil products even though these products were produced from oil purchased at the earlier, lower prices. The media charged the oil companies with profiteering and price gouging, and politicians promised immediate investigations.

    Required:

    Critically evaluate the charge that the oil companies profited from the Iraqi invasion. What advice would you offer the oil companies?

 

  1. Don Phelps recently started a dry cleaning business. He would like to expand the business and have a coin-operated laundry also. The expansion of the building and the washing and drying machines will cost $100,000. The bank will lend the business $100,000 at 12 percent interest rate. Don could get a 10 percent interest rate loan if he uses his personal house as collateral. The lower interest rate reflects the increased security of the loan to the bank, because the bank could take Don’s home if he doesn’t pay back the loan. Don currently can put money in the bank and receive 6 percent interest.

 

Required: Provide arguments for using 12 percent, 10 percent, and 6 percent as the opportunity cost of capital for evaluating the investment.

 

  1. Jen and Barry opened an ice cream shop in Eugene. It was a big success, so they decide to open ice cream shops in many cities including Portland. They hire Dante to manage the shop in Portland. Jen and Barry are considering two different sets of performance measures for Dante. The first set would grade Dante based on the cleanliness of the restaurant and customer service. The second set would use accounting numbers including the profit of the shop in Portland.

 

What are the advantages and disadvantages of each set of performance measures?

 

  1. PepsiCo, a major soft drink company, had a restaurant division consisting of Kentucky Fried Chicken, Taco Bell, and Pizza Hut. The only cola beverage these restaurants served was Pepsi. Assume that the major reason PepsiCo owned fast food restaurants is an attempt to increase its share of the cola market. Under this assumption, some Pizza Hut patrons who order a cola at the restaurant and are told they are drinking a Pepsi will switch and become Pepsi drinkers instead of Coke drinkers on other purchase occasions. However, studies have shown that some customers refuse to eat at restaurants unless they can get a Coke.
    PepsiCo sells Pepsi Cola to non-PepsiCo restaurants at $0.53 per gallon. This is the market price of Pepsi-Cola. Pepsi-Cola’s variable manufacturing cost is $0.09 per gallon and its total (fixed and variable) manufacturing cost is $0.22 per gallon. PepsiCo produces Pepsi-Cola in numerous plants located around the world. Plant capacity can be added in small increments (e.g., a half-million gallons per year). The cost of additional capacity is approximately equal to the fixed costs per gallon of $0.13.

    Required:

    What transfer price should be set for Pepsi transferred from the soft drink division of PepsiCo to a PepsiCo restaurant such as Taco Bell? Justify your answer.

 

  1. The Maple Way Golf Course is a private club that is owned by the members. It has the following managers and organizational structure:
Eric Olson: General manager responsible for all the operations of the golf course and other facilities (swimming pool, restaurant, golf shop).
Jennifer Jones: Manager of the golf course and responsible for its maintenance.
Edwin Moses: Manager of the restaurant.
Mabel Smith: Head golf professional and responsible for golf lessons, the golf shop, and reserving times for starting golfers on the course.
Wanda Itami: Manager of the swimming pool and family recreational activities.
Jake Reece: Manager of golf carts rented to golfers.

Required:

Describe each of the managers in terms of being responsible for a cost, profit, or investment center and possible performance measures for each manager.

 
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