Fairfield Homes is developing two parcels near Pigeon Fork, Tennessee

Fairfield Homes is developing two parcels near Pigeon Fork, Tennessee. In order to test different advertising approaches, it uses different media to reach potential buyers. The mean annual family income for 12 people making inquiries at the first development is $145,000, with a standard deviation of $38,000. A corresponding sample of 27 people at the second development had a mean of $182,000, with a standard deviation of $32,000. Assume the population standard deviations are the same.

1) State the decision rule for .02 significance level: H0: μ1 = μ2; H1 : μ1 ≠ μ2. (Negative values should be indicated by a minus sign. Round your answers to 3 decimal places.)
Reject H0 if t is not between ? and ?.

(2) Compute the value of the test statistic. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)
Value of the test statistic= ?

(3) At the .02 significance level, can Fairfield conclude that the population means are different?
REJECT OR DO NOT REJECT H0. Fairfield CAN OR CANNOT conclude that the population means are different.

Here’s the SOLUTION

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Lester Hollar is vice president for human resources for a large

Lester Hollar is vice president for human resources for a large manufacturing company. In recent years, he has noticed an increase in absenteeism that he thinks is related to the general health of the employees. Four years ago, in an attempt to improve the situation, he began a fitness program in which employees exercise during their lunch hour. To evaluate the program, he selected a random sample of eight participants and found the number of days each was absent in the six months before the exercise program began and in the last six months. Below are the results.

Employee Before After

1 6 5

2 5 4

3 7 2

4 6 3

5 4 2

6 5 6

7 7 2

8 6 7

At the 0.005 significance level, can he conclude that the number of absences has declined? Hint: For the calculations, assume the “Before” data as the first sample.

a) Reject H0 if t > ? . (Round your answer to 3 decimal places.)

b) The test statistic is ?. (Round your answer to 3 decimal places.)

c) The p-value is which of the following?

Between 0.0005 and 0.001

Between 0.025 and 0.05

Between 0.005 and 0.05

d) Dision: REJECT ORec DO NOT REJECT H0.

Here’s the SOLUTION

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RDG 028 Final Exam

RDG 028 Final Exam

Our first year in New York we rented a small apartment with a Catholic school nearby, taught by the Sisters of Charity, hefty women in long black gowns and bonnets that made them look peculiar, like dolls in mourning. 2 I liked them a lot, especially my grandmotherly fourth-grade teacher, Sister Zoe. 3 I had a lovely name, she said, and she had me teach the whole class how to pronounce it. 4 Yo-lan-da. 5 As the only immigrant in my class, I was put in a special seat in the first row by the window, apart from the other children so that Sister Zoe could tutor me without disturbing them. 6 Slowly, she enunciated the new words I was to repeat: Laundromat, corn flakes, subway, snow.
7 Soon I picked up enough English to understand a threat of war was in the air. 8 Sister Zoe explained to a wide-eyed classroom what was happening in Cuba. 9 Russian missiles were being assembled, trained supposedly on New York City. 10 President Kennedy, looking worried too, was on television at home, explaining we might have to go to war against the Communists. 11 At school, we had air-raid drills: an ominous bell would go off and we’d file into the hall, fall to the floor, cover our heads with our coats, and imagine our hair falling out, the bones in our arms going soft. 12 At home, Mami and my sisters and I said a rosary for world peace. 13 I heard new vocabulary:  nuclear bomb, radioactive fallout, bomb shelter. 14 Sister Zoe explained how it would happen. 15 She drew a picture of a mushroom on the blackboard and dotted a flurry of chalk-marks for the dusty fallout that would kill us all.
16 The months grew cold, November, December. 17 It was dark when I got up in the morning, frosty when I followed my breath to school. 18 One morning as I sat at my desk daydreaming out the window, I saw dots in the air like the ones Sister Zoe had drawn—random at first, then lots and lots. 19 I shrieked, “Bomb! Bomb! 20 Sister Zoe jerked around, her full black skirt ballooning as she hurried to my side. 21 A few girls began to cry.
22 But then Sister Zoe’s shocked look faded. 23 “Why, Yolanda dear, that’s snow!” 24 She laughed. 25 “Snow.”
26 “Snow,” I repeated. 27 I looked out the window warily. 28 All my life I had heard about the white crystals that fell out of American skies in the winter. 29 From my desk I watched the fine powder dust the sidewalk and parked cars below. 30 Each flake was different, Sister Zoe had said, like a person, irreplaceable and beautiful.

1. In sentence 6, enunciated means:
a. knew
b. shouted
c. pronounced
d. listened to

2. The author was seated apart from the other children:
a. to punish her for not speaking English.
b. because she had trouble hearing the teacher otherwise.
c. so the teacher could give her special help.
d. because she was afraid of the other children.

3. During the air raid drill, the children:
a. crouched under their desks.
b. ran to their homes.
c. said a rosary for world peace.
d. went into the hall and covered themselves with their coats.

4. When Yolanda mistook snow for radioactive fallout, Sister Zoe:
a. laughed and reassured her.
b. scolded her for frightening the others.
c. burst into tears.
d. announced an air-raid drill.

5. The main pattern of organization used in this passage is:
a. time order
b. definition and example
c. comparison and contrast
d. cause and effect

6. We can infer from this passage that:
a. Sister Zoe resented having to deal with an immigrant student.
b. The author’s fellow students made fun of her inability to speak English.
c. The Cuban government supported President Kennedy.
d. Before moving to New York City, the author had never seen snow.

7. It is reasonable to conclude that sister Zoe:
a. Spoke Yolanda’s native language
b. Was a kind and caring teacher
c. Had not been a nun for very long
d. Was an immigrant herself.

8. Which of the following is the best title for the selection?
a. Sister Zoe and My First Snowfall
b. The Sisters of Charity
c. Air-Raid Drills
d. The Cuban Missile Crisis

1South Pole explorer Ernest Shackleton never reached his goal of crossing Antarctica, but the circumstances that prevented him from reaching that goal pushed him to achieve an even more amazing feat. 2In January 1915 Shackleton’s ship Endurance became trapped  in ice off Antarctica. 3He and his crew of twenty-seven lived on the ship trapped in the ice floes for nine months, until they had to abandon ship when the ice crushed the boat. 4The day the boat sank, Shackleton wrote his new goal: “The task is to reach land with all members of the Expedition.” 5The group camped on the ice floes for six months, until the ice broke up and they took small lifeboats to nearby uninhabited Elephant Island. 6During their time on the boat, ice, and island, Shackleton’s group endured temperatures as low as twenty degrees below zero and had no daylight from May to July. 7They had to hunt scarce seals and penguins for food, and were hunted themselves by killer whales and sea leopards, which would rise through the ice in search of prey. 8Throughout this time, Shackleton demonstrated his leadership by rationing food, rotating use of the warmer sleeping bags, and keeping a calm, positive attitude that helped morale. 9He also showed great courage as he and five of his men crossed eight hundred miles of dangerous ocean to the nearest inhabited island to seek help. 10Despite no maps and terrible weather, Shackleton’s small boat reached the island where Shackleton and an even smaller group crossed unexplored, jagged mountains to reach a whaling station. 11He organized a rescue party to retrieve the rest of his crew, and despite the perils of living in south polar waters for almost two years, all twenty-seven men came back from the expedition. 12Shackleton never crossed the South Pole, but he completed the task of bringing back all of his crew alive.

9. Shackleton and his men had to abandon the Endurance when:
a. killer whales attacked the ship.
b. the ship ran aground on Elephant Island.
c. they ran out of food and had to leave to hunt for more.
d. ice crushed the ship.

10. The “more amazing feat” referred to in sentence 1 is Shackleton’s:
a. to withstand severe cold.
b. managing to get all crew members back alive.
c. crossing gagged, unexplored mountains.
d. crossing eight hundred miles of ocean.

11. The main pattern of organization used in the passage is one of:
a. list of terms
b. definition and example
c. time order
d. cause and effect

12. The author’s main purpose in this passage is to:
a. Inform readers about the facts of the Shackleton expedition.
b. Persuade readers that Shackleton was responsible for the failure of the expedition.
c. Entertain readers with anecdotes about the hardships of the Shackleton expedition.

13. The author’s tone is:
a. detached.
b. admiring.
c. doubtful.
d. sentimental.

14. The author implies that:
a. Shackleton’s men were generally cowardly and poor sailors.
b. Shackleton carelessly began the voyage without adequate preparation.
c. He considers Shackleton’s voyage a failure because it did not reach the South Pole.
d. Shackleton’s men would likely have perished if not for his courage.

15. The main idea of the passage is stated:
a. in sentence 1.
b. in sentence 4.
c. in sentence 8.
d. not stated.

In a song of many years past, Bob Dylan sang, “The times, they are a changing.” 2Well, the times have changed dramatically, making a parent’s job today much more challenging than it was a generation ago. 3 Today’s parents must try, first of all, to control all the new distractions that tempt children away from schoolwork. 4At home, a child may have a room furnished with a stereo, personal computer, and television. 5Not many young people can resist the urge to listen to a CD, surf the Internet, or watch MTV — especially if it is time to do schoolwork. 6Outside the home the distractions are even more alluring. 7Children no longer “hangout” on a neighborhood corner within earshot of Mom or Dad’s reminder to come in and do homework. 8Instead, they congregate in vast shopping malls, buzzing video arcades, and gleaming fast food restaurants. 9Parents and school assignments have obvious difficulty competing with such enticing alternatives.
10Besides dealing with these distractions, parents have to shield their children from a flood of sexually explicit materials. 11Today, children can download pornographic pictures from the Internet or find sex magazines and X-rated videos in the same corner store that used to sell only comics and candy. 12Children will not see the fuzzily photographed nudes that a previous generation did but will encounter the hard-core raunchiness of Playboy or Penthouse. 13Moreover, the movies young people attend often focus on highly sexual situations. 14It is difficult to teach children traditional values when films show teachers seducing students and young people treating sex as a casual sport. 15An even more difficult matter fro parents is the heavily sexual content of programs on television. 16With just the flick of the dial, children can see soap-opera stars cavorting in bed or watch cable programs where nudity is common. 17And even national TV news shows expose children to raw details about sexual misbehaviors of celebrities or national politicians.
18Most disturbing to parents is the increase in life-threatening dangers that face young people. 19When children are small, their parents fear that their youngsters may be victims of violence. 20Every news program seems to carry a report about a mass murderer that preys on young girls, a deviant who has buried six boys in his cellar, or an organized pornography ring that molests preschoolers. 21When children are older; parents begin to worry about their kids’ use of drugs. 22Peer pressure to experiment with drugs is often stronger than parents’ warnings. 23This pressure to experiment can be fatal. 24Finally, kids must still resist the pressure to drink. 25Although alcohol has always held an attraction for teenagers; reports indicate that they are drinking even more than before. 26As many parents know, the consequences of this attraction can be deadly–especially when drinking is combined with driving.

16. In sentence 9, enticing means:
a. low-cost
b. uncommon
c. educational
d. tempting

17. The three major supporting details in this reading concern:
a. malls, arcades, and drugs
b. new temptations, former temptations, and life-threatening dangers
c. stereo and television, sexually explicit materials, and drinking and driving
d. new distractions from homework, sexually explicit materials, and life-threatening dangers

18. The main organizational pattern of the second paragraph is:
a. time order
b. list of items
c. comparison
d. definition and example

19. Sentence 18 is a(n):
a. fact
b. opinion

20. From reading the passage, one can conclude that the author believes:
a. Children today are less moral and more irresponsible than children of past generations.
b. Parents should not allow their children to ask questions about sex, drugs, or alcohol.
c. Children who are raised properly will not be affected by the pressures of modern life.
d. Children today are faced with situations they are not mature enough to deal with.

21. The tone of this passage can be described as primarily:
a. revengeful
b. concerned
c. reassuring
d. ambivalent

22. The author’s purpose is:
a. Inform the reader a parent’s job today is much more challenging than it was a generation ago.
b. Persuade the reader to believe a parent’s job today is much more challenging than it was a generation ago.
c. Entertain the reader with tasks parents must accomplish regarding their children.

Those with closed minds refuse to consider any contradictory facts, and they proceed with their planned course of action, full speed ahead, with their “minds made up” and tightly shut. 2As an illustration, consider the situation in 1986, prior to the space shuttle Challenger’s disastrous launch that killed all seven astronauts aboard. 3There was a heated telephone debate between two engineers for the company that produced the shuttle booster rockets and top officials of NASA (the federal government’s space agency). 4The engineers insisted that the flight was too risky because of freezing temperatures at the Florida launch site. 5They explained that some of the seals on the fuel tanks were not designed to withstand such low temperatures and might leak under pressure, thus endangering the craft and crew.
6Despite the pleas to abort the flight, officials at NASA overruled the engineers, who were best qualified to make judgments about the complex technical problems of space flight. 7What caused the officials to ignore the engineers? 8Several flights had already been postponed, and it would not look good to postpone another. 9It would be bad public relations to disappoint the crowds of people and news reporters waiting for the launch. 10Top government officials were ready to appear on national television and take the credit for another safe flight. 11As a result, with their minds absolutely closed to the facts presented by the engineers, NASA officials ordered the Challenger to take off. 12Seventy-three seconds later, the spacecraft was enveloped in flame.
13Incredibly, seventeen years later, the lesson of the Challenger disaster was repeated. 14In 2003, the space shuttle Columbia broke apart while re-entering the earth’s atmosphere, killing another crew of seven. 15During the shuttle’s liftoff, a piece of foam insulation had broken off, hitting the shuttle’s wing at five hundred miles per hour. 16Lower-level engineers at NASA begged for photographs of the Columbia in orbit, which might have shown the extent of the damage, but their closed-minded superiors ignored their requests. 17It was the damage caused by the 1.7-pound chunk of insulation that doomed the Columbia.
18There is no virtue in ignoring contradictory facts and “sticking to your guns” when the course taken shows all the signs of being the wrong one. 19Closed minds are especially noticeable in political campaigns and debates. 20Many people line up to support one candidate or another and won’t listen to any facts presented by the opposing candidate.
21All those with an open mind say is this:”I don’t know everything, so I’d better keep my mind, eyes, and ears open to any new facts that may come along.” 22The world would be a much better and safer place is everyone had this attitude.

23.In sentence 6, the word abort means:
a. take.
b. rush.
c. watch.
d. stop.

24. The pattern of organization used in the second paragraph is:
a. cause and effect.
b. illustration.
c. comparison.
d. contrast.

25. The Challenger’s weak point was:
a. it’s crew.
b. the fuel.
c. the fuel tanks’ seals.
d. the size of its rockets.

26. The author implies that:
a. The Columbia disaster was impossible to foresee.
b. Incompetent engineers were to blame for the Columbia’s explosion.
c. The Columbia’s damaged wing could not withstand the stress of reentering the earth’s atmosphere.
d. The Columbia was deliberately sabotaged.

27. The author’s main purpose is to:
a. Inform readers about what an open mind is.
b. Entertain the reader with two stories of tragedies in space.
c. Persuade readers of the importance of an open mind.

28. The tone of the second and third paragraphs can be described as:
a. amused.
b. critical.
c. revengeful.

29. Which sentence best expresses the main idea of the passage?
a. There is a great deal of closed-minded thinking in the federal government.
b. One is more likely to see closed-minded thinkers in science and politics.
c. An open mind is more logical and safer than a closed mind.
d. Closed-minded thinking is a widespread phenomenon.

It is clear that advertisements work. 2Attention is caught, communication occurs between producers and consumers, and sales result. 3It turns out to be difficult to detail the exact relationship between a specific ad and a specific purchase, or even between a campaign and subsequent sales figures, because advertising is only one of a host of influences upon consumption. 4Yet no one is fooled by this lack of perfect proof; everyone knows that advertising sells. 5If this were not the case, then tight-fisted American businesses would not spend a total of fifty billion dollars annually on these messages.
6But before anyone despairs that advertisers have our number to the extent that they can marshal us at will and march us like automatons to the checkout counters, we should recall the resiliency and obduracy of the American consumer. 7Advertisers may have uncovered the softest spots in our minds, but that does not mean they have found truly gaping holes. 8There is no evidence that advertising can get people to do things contrary to their self-interests. 9Despite all the finesse of advertisements, and all the subtle emotional tugs, the public resists the vast majority of the petitions. 10According to the marketing division of the A.C. Nielson Company, a whopping 75 percent of all new products die within a year in the market-place, the victims of consumer disinterest, which no amount of advertising could overcome. 11The appeals in advertising may be the most captivating there are to be had, but they are not enough to entrap the wily consumer.
12The key to understanding the discrepancy between, on the one hand, the fact that advertising truly works, and on the other, the fact that it hardly works, is to take into account the enormous numbers of people exposed to an ad. 13Modern-day communications permit an ad to be displayed to millions upon millions of individuals; if the smallest fraction of that audience can be moved to buy the product, then the ad has been successful. 14When 1 percent of the people exposed to a television advertising campaign reach for their wallets, that could be one million sales, which may be enough to keep the product and the advertisements coming.

30.In sentence 3, the word host means:
a. lack.
b. question.
c. fear.
d. large number.

31. The word discrepancy in sentence 12, means:
a. similarity.
b. inconsistency.
c. marketing.
d. delay.

32. The reading:
a. Contrasts advertisements with consumers.
b. States and clarifies the effectiveness of ads.
c. Lists reasons for advertising.
d. Sequences a series of events in the history of advertising.

33. The passage suggests that an ad may be considered successful if it:
a. makes people laugh or cry.
b. moves 1 percent of viewers to buy the product advertised.
c. is remembered by 75 percent of the viewers.
d. costs a great deal.

34. One can conclude from reading the passage that:
a. Advertisements aren’t worth their enormous cost.
b. Advertising is the single most important influence on a consumer’s decision to buy.
c. An ad cannot get people to buy a product they aren’t otherwise interested in.
d. Companies are generally reluctant to spend money on advertising.

35. Which title best summarizes the passage?
a. The Role of Advertising in Modern Life
b. Advertising: Effective but Not Foolproof
c. Why Advertising Fails
d. What Makes for a Good Advertisement?

For over 100 years this society has made the use of certain drugs illegal and has penalized illegal drug use. But during that time the use of marijuana, heroin and other opiates, and cocaine has become an epidemic. Most recently, Americans have spent billions of dollars on arresting and imprisoning sellers and importers of crack cocaine, with almost no effect on the supply or street price of the drug.
The societal costs of illegal drugs are immense. They include the costs of law enforcement, criminal proceedings against those arrested, and jails and prisons. They also include the spread of deadly diseases such as AIDS and hepatitis through the use of shared needles; the cost to society of raising “crack babies”, children poisoned by drugs even before birth; and the cost of raising a generation of young people who see illegal drug selling and violence as their only escape from poverty and desperation. Finally, the societal costs include the emotional cost of the violin that no one can now escape.
Legalizing drug use in this country would eliminate many of these costs. Billions of dollars would be saved. This money could be spent  on treatment of addicts, job training, and education programs to help many disadvantaged young people assume valuable roles in society. The government could make drug use legal for adults but impose severe penalties on anyone who sells drugs to young people. Drug sales could be heavily taxed, thus deterring drug purchases and giving society the benefit of tax revenues that could be used for drug treatment and education.

36.  What is the controversial topic of the passage?
a. Taxing drugs
b. Legalizing certain illegal drugs
c. Job training
d. The use of marijuana

37.  What is the author’s argument?
a. Taxing drugs would make them too expensive.
b. Training people for the right job would end drug use.
c. Certain drugs that are now illegal should be legalized.
d. Marijuana should be legalized.

38.  Author’s assumptions: What do the authors take for granted?
a. It is not possible to stop illegal drug usage with legislation.
b. Drugs have no effect on society.
c. It is possible to stop illegal drug usage with legislation.

For Questions 39-50
Read the following statements and identify the type of propaganda device used.

39.  Don’t be left out of the fun! Book your vacation today!
a. Bandwagon
b. Testimonial
c. Appeal to emotion
d. Misleading analogy

40.  Voting is your civic duty, a right, a privilege. If you don’t vote, shame on you!
a. Bandwagon
b. Appeal to emotion
c. Overgeneralization
d. Transfer

41.  Do not listen to Mr. Hite’s views on education because he didn’t even finish high school.
a. Appeal to emotion
b. Ad hominem
c. Bandwagon
d. Testimonial

42. Install a Siren Home Security System or pay the consequences.
a. Misleading analogy
b. Oversimplification
c. Slippery slope
d. Testimonial

43.  Democrats go to Washington to spend money with no regard for the hardworking taxpayer.
a. Overgeneralization
b. Transfer
c. Misleading analogy
d. Circular reasoning

44.  All women are bad drivers.
a. Transfer
b. Circular reasoning
c. Appeal to emotion
d. Overgeneralization

45.  Prayer in school is like cereal for breakfast. They both get the morning off to a good start.
a. Ad hominem
b. Slippery slope
c. Misleading analogy
d. Overgeneralization

46.  Vote Bob Roberts for senator. He’s the best person for the job because there is no one else better.
a. Circular reasoning
b. Bandwagon
c. Transfer
d. Questionable authority

47. Mother Teresa would have supported the legislation we are proposing to help the country’s homeless.
a. Transfer
b. Oversimplification
c. Overgeneralization
d. Questionable authority

48.  Buy stock in this restaurant chain because it is under new management and people eat out a lot.
a. Incomplete facts/Card stacking
b. Straw person
c. Bandwagon
d. Transfer

49.  “My opponent once lied about serving in the military when he was a young man. Why should you believe him now when he says he will reduce taxes if you elect him? He’s a liar, and every campaign promise he makes is just another lie.”
a. Straw person
b. Misleading analogy
c. Ad hominem
d. Testimonial

50.  Buy your next car at Cars R Us. Everybody agrees it’s the only dealership you’ll ever need!
a. Testimonial
b. Bandwagon
c. Ad hominem
d. Appeal to emotion

Here’s the SOLUTION

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Jazz Company purchased for $177,000 a patent for a new sound system

Journal entry and Amortization

Jazz Company purchased for $177,000 a patent for a new sound system. Although it gives legal protection for 20​ years, the patent is expected to provide the company with a competitive advantage for only six years.

After using the patent for two​ years,Poolz Music​ Company’s research director learns at a professional meeting that Warner is designing a more powerful system. On the basis of this new​ information,Poolz Music Company determines that the​ patent’s total useful life is only four years. Record amortization for year 3.

Make journal entries to record​:

(a) the purchase of the patent

(b) Record the amortization for year 1.

(c) Record amortization for year 3.

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Bridgeport Corp. issued $365,000,8%,25-year bonds on January 1, 2017

Bridgeport Corp. issued $365,000,8%,25-year bonds on January 1, 2017, for $329,149. This price resulted in an effective-interest rate of9% on the bonds. Interest is payable annually on January 1. Bridgeport uses the effective-interest method to amortize bond premium or discount.

Prepare the schedule using effective-interest method to amortize bond premium or discount of Bridgeport Corp

Prepare the journal entry to record the accrual of interest and the discount amortization on December 31, 2017

Prepare the journal entry to record the payment of interest on January 1, 2018.

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On January​ 1,2011​, Pizza Notra purchased a van for $45,000

Record a sale in journal entry – The depreciation method used was​straight-line

On January​ 1,2011​, Pizza Notra purchased a van for $45,000. Red Rock expects the van to have a useful life of 5 years and a residual value of $5,500.

The depreciation method used was​straight-line. On December​ 31,2014​, the van was sold for $15,000 cash.

1. What was the carrying amount of the van at the date of​ sale?
2. Record the sale of the van on December​ 31,2014. in journal entry.

Here’s the SOLUTION

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In November 2009, Accel Growth Fund invested $20 million in Groupon

In November 2009, Accel Growth Fund invested $20 million in Groupon by buying 2,932,553 shares of Series E convertible preferred stock. What was the realized IRR of this investment, if  the fund sold at IPO and “each share of Series E preferred stock was converted into 12 shares of Class A common stock on October 31, 2011″ (Amendment No. 8 to form S-1, filed with SEC on November 2, 2011, page II-3)? To find the IPO price, you should download Groupon’s IPO prospectus (form 424B4) from Edgar or other sources.

Formula/Calculation/Analysis required

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The owner of Pooch It Doggie Daycare and Groomer, Jan Michaels

It Takes Money to Make Money

The owner of Pooch It Doggie Daycare and Groomer, Jan Michaels, is well aware that it takes money to make money. She’s working on a plan to expand her facility and the services she offers but cannot finance the expansion without outside financing. She’s not completely clear on the benefits and drawbacks of each of her financing options so she’s enlisting the help of a group of friends who are in a business class and have a clearer understanding of her viable financing options (that would be YOU!). Jan has about half of the money necessary but is looking for the best option for the other half—which she plans to pay back in about 11 to 12 months.

Complete the following table from the perspective of Jan, the business owner.

Type of
Financing    Advantages    Disadvantages    How viable of an option is this? Why?

Trade Credit
Promissory Note
Unsecured Bank Loan
Factoring

As the owner’s chief financial officer, you decide what the most appropriate option would be for Jan. Justify your decision.

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Adams Manufacturing, Inc. manufactures cooling and heating coils

Adams Manufacturing, Inc.: Activity-Based Costing versus Volume-Based Costing

Adams Manufacturing, Inc. manufactures cooling and heating coils for several different industries. It has two plants. Jewett City Plant (JCP) is an older, labor-intensive machine shop where skilled workers use tools to perform most of the work. Greenwich Plant (GP) is highly automated and uses computer numerically controlled (CNC) machines with a small number of highly paid workers. JCP manufactures a high tolerance coil (Pa) and finishes a second one (Pb). GP mass produces two standard coils, Pc and Pd, and performs basic operations on Pb before transferring it to JCP for finishing. Production takes place in batches. Each batch is made up of one product.

The products are sold directly to manufacturers by a technical sales force. Product Pa is a customized product manufactured to order, and requires a lot of specifications and negotiation with customers. Product Pb is a modification of the standardized products Pc and Pd. It is finished to meet each customer’s specifications, and as a result has more exacting technical specifications than Pc and Pd, and hence is finished in JCP. Products Pc and Pd are standardized products produced for stock and sold off the shelf and do not require much sales effort in writing up orders.

Each plant has six production and service departments: receiving, cutting and assembly, heat treatment, testing, packing and shipping, and repairs and maintenance (Charts 2 and 3). Exhibit 1 includes descriptions of activities in each of these departments. In addition, there are three departments—marketing, design and engineering support, and administration—at the corporate level (Chart 4).

The present accounting system is a traditional financial-reporting-driven system. Manufacturing costs are classified as material, labor, and overhead. Overhead is charged to products based on labor hours with the two plants treated as one cost center. Marketing, design and engineering support, and administration are considered period costs and not charged to products.

The President of the Company held a meeting with senior executives including VP–Finance, VP–Manufacturing, and VP–Marketing (Chart 1) to discuss the 2006 budget (Schedules 1, 2, and 3). She was unhappy with the fact that Pa’s budgeted price of $45 is below its standard cost of $48.29. However, she was not sure if the costing system, which treats both plants as one cost center, accurately determines the costs of the different products. She pointed out that GP is a machine-intensive plant while JCP is more labor-intensive. Furthermore, the products are produced in different numbers of batches (Schedule 6), and affect batch-related costs (e.g., testing and heat treatment) differently. She told VP–Finance that she has heard of an alternative costing method that uses multiple cost centers/pools and different cost bases to charge indirect costs to products. She also questioned the treatment of engineering support costs and marketing expenses as period costs. VP–Finance promised to investigate the President’s points and report back to the group.

Required

The VP–Finance appointed you to a team to investigate the President’s concerns. He suggested that you develop and compare several volume-based costing and activity-based costing (ABC) systems to identify and recommend the system that you deem to give the most accurate product costs.

For the traditional volume-based systems use the Overhead Allocation Menu (Exhibit 4) shown at the bottom of the case to perform the following tasks:

1. Use machine hours, instead of direct labor hours, to allocate manufacturing overhead to the four products and restate the Products Budget (Schedule 1).
2. Repeat requirement 1 for each plant separately assuming direct labor hours are used to allocate manufacturing overhead in both plants. Schedule 4 reports the labor hours per unit for each product.
3. Repeat requirement 2, assuming that labor hours are used to allocate manufacturing overhead in JCP and machine hours in GP. Schedule 5 reports the machine hours per unit for each product in the two plants.
4. Use an activity-based costing system to calculate new costs and profitability of each of the four products (Schedule 1) under the system.

To design the ABC systems, you have visited the two plants where you interviewed plant managers, department supervisors, and accountants. You also analyzed expense accounts and operations data. Based on the interviews and analyses, your team prepared descriptions of activities within each of the departments in each plant (Exhibit 1). You also decided to create plant-sustaining cost pool to which you allocated factory costs that you decided could not accurately be allocated to the other departments. Finally, you prepared an analysis and description of the costs in each cost pool (Exhibit 2) and allocated the costs of the eight cost pools as shown in Schedule 9 to the different departments and to the plant-sustaining cost pool.

To complete the design of the ABC system you have to make decisions on the following:

a. Which cost driver should be used for allocating the costs of each activity to each of the products? Schedules 4 & 5 present labor hours and machine hours per unit for each product. Schedule 6 lists the number of batches for each product. Schedule 1 lists the number of units for each product.

b. Should you charge the design and engineering support and marketing expenses to products or treat them as firm-wide costs? Schedules 7 & 8 present sales personnel time distribution, and design and engineering support time distribution. If you decide to treat design and engineering and marketing as product costs, use the Allocation Menu to select the cost drivers and charge the cost to the products.

5. Write a report to the President that includes your analysis in Requirements 1-4, and state which of the four you recommend and why.

Here’s the SOLUTION

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Captain Bob’s Favorite Fishing Hole Simulation Project

Captain Bob’s Favorite Fishing Hole Simulation Project

Bob Night opened “Captain Bob’s Favorite Fishing Hole.” The fishing camp is open from April through September and attracts many famous college basketball coaches during the off-season. Guests typically register for one week, arriving on Sunday afternoon and returning home the following Saturday afternoon. The registration fee includes room and board, the use of fishing boats, and professional instruction in fishing techniques. In addition, a small camp store is operated for sales of bait, tackle and t-shirts. All customers at the camp store are charged 6% sales tax. Registration fees are exempt from sales tax. Employees are taxed at the following rates. The SUTA tax rate is 5.4%, the FUTA tax rate is 0.6%, both on the first $7,000 of earnings. The Social Security Tax rate is 6.2% on the first $110,100 of earnings. The Medicare rate is 1.45% of gross earnings. The chart of accounts for the camping operations is provided below.

TRANSACTION INFORMATION

THE FOLLOWING TRANSACTIONS TOOK PLACE DURING THE MONTH OF APRIL.

Date    Description
Apr.  1    Night invested additional cash in business, $75,000.
   Paid insurance premium to Allstate Insurance for six-month camping season, $12000.
1    Established a petty cash fund for the office manager, $100.
   Paid rent to Universal Properties for the month of April, $40,000.
2    Deposited registration fees, $35,000.
2    Purchased 10 fishing boats on account from Fred’s Flat Bottom Boat Co. for $60,000. The boats have estimated useful lives of five years, at which time they will be donated to a local day camp. Arrangements were made to pay for the boats in July.
   Bought food supplies from Acme Super Market on account, $12,079.
4    Purchased merchandise for camp store from Buffalo Bill’s Emporium Ltd. on account, $1500, terms 2/10, n/30.
5    Bought office supplies from Gordon Office Supplies on account, $500.
   Deposited registration fees, $38,600.
   Returned defective merchandise received on 4th to Buffalo Bill’s Emporium Ltd. for credit on account, $100.
   Earned registration fees on account from a hunting trip tour guide company, Big Game, Inc., $6000.
12    Paid Buffalo Bill’s Emporium Ltd. balance owed for April 4 purchase less April 8 return less 2% discount.
13    “A guest, Jane Doe, became ill and was unable to stay for the entire week.
A refund check was issued in the amount of $1,000. Jane originally paid her registration fees in cash on the 7th.”
14    Deposited registration fees, $30,500 plus sales from camp store, $1500 plus $90 sales tax.
15    Journalize the payroll entry using the following data taken from the payroll register for April 15th. Regular earnings $9000, Overtime earnings $1000, Deductions: Federal income tax $1250, Social Security tax $620, Medicare tax $145.
15    Journalize the employer’s payroll taxes expense for the above payroll using the following information: Taxable Earnings for All Employees for Social Security Wages was $10,000. Taxable Earnings for All Employees for Unemployment Compensation was $500. (Note: Tax rates are given description paragraph above the Chart of Accounts.)
15    Paid 941 taxes for the 1st Quarter which include Employee Income Tax Payable $1435, Social Security Tax Payable $620 and Medicare Tax Payable $145. (See opening balances given for March 31st.)
16    Received cash on account from Big Game, Inc. , $3000.
17    Earned registration fees on account from a new customer, Happy Trails, Inc., $2500, terms 2/10, n/30.
18    Paid for stamps from the US Postmaster, $150.
18    Night’s office manager returned office supplies to Gordon Office Supply and received a credit on account, $100. (Hint: Credit will be to Office Supplies account.)
20    Paid Florida Dept. of Revenue for March sales tax, $180.
21    Deposited registration fees, $35,600 plus sales from camp store, $500 plus $30 sales tax.
23    Paid for advertising spots on National Sports Talk Radio, $2500.
24    Bought food supplies from Acme Super Market on account, $12,500.
25    Returned food supplies to Acme Super Market and received a credit on account, $350. (Hint: Credit will be to Food Supplies account.)
25    Paid Don Brown to repair damaged fishing boat, $850.
26    Received payment from Happy Trails, Inc. on account for Apr 17th invoice less discount.
27    Issued refund check to customer for merchandise purchased at camp store, $50 plus $3 sales tax.
28    Deposited registration fees, $32,000 plus sales from camp store, $600 plus $36 sales tax.
29    Petty Cash fund records showed the following totals at the end of the month: Repairs $65, Postage $14. Petty cash fund was replenished.
30    Paid Acme Super Market on account, $11,229.
30    Paid utilities bill to Progress Energy, $2,000.
30    Bob Night withdrew cash for personal use, $5,000.
30    Paid FUTA tax for first quarter, $80.
30    Paid SUTA tax from first quarter, $540.
30    Journalize the payroll entry using the following data taken from the payroll register for April 30th. Regular earnings $7500, Overtime earnings $500, Deductions: Federal income tax $1050, Social Security tax $496, Medicare tax $116.
30    Journalize the employer’s payroll taxes expense for the above payroll using the following information: Taxable Earnings for All Employees for Social Security Wages was $8,000. Taxable Earnings for All Employees for Unemployment Compensation was $1,000. (Note: Tax rates are given description paragraph above the Chart of Accounts.)

Here’s the SOLUTION

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