The Economic Downturn Hits J.C. Penney’s Hard

About 600 employees were laid off at the corporate headquarters of J.C. Penney this week. Under the leadership of the new CEO, Ron Johnson, one of its three call centers in Pittsburgh, PA, will also be closed later this year, which eliminates 300 more jobs.

Questions:

1. What type of business is J.C. Penney? Research the company. How old is it and what characterizes its financial situation over the last 5 years?
2. If the 600 employees that were laid off make up 14% of the staff at corporate headquarters, how many employees did corporate headquarters have before the cuts?
3. What are some of the strategic plans that the new CEO has announced? Explain the logic of each in terms of helping the bottom line.

Source:

Clifford, S. (2012). J.C. Penney Cuts Headquarters Staff. The New York Times, April 5 (Retrievable online at http://www.nytimes.com/2012/04/06/business/jc-penney-cuts-headquarters-staff.html?ref=business)

Here comes Scoot!

Singapore Airlines’ wholly-owned budget carrier Scoot will begin flights into China, with flights between Singapore and Tianjin during August. Two more Chinese destinations are also being considered, but the capital of Beijing is not one of them.

Questions:

1. How much is S$88 in U.S. dollars? How does this compare to the fares offered by Southwest Airlines?
2. What is being used by consumers as the reference price for the company in helping to set prices?
3. Compare Scoot’s model to Hong Kong Airline’s new niche model. What are some of the variables that cost analysts must take into consideration for these two models?

Source:
Cnn video.com. (2012). Asia’s low-cost carrier boom (Retrievable online at http://www.cnn.com/video/#/video/international/2012/03/14/business-traveller-asia-low-cost-airlines.cnn)

Tan, V. (2012). Scoot to Launch Tianjin-S’pore Flights in August. Channel News Asia.com, March 27. (Retrievable online at http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1191503/1/.html)

Coinstar and Self-Service Retailing

Coinstar is a company that was founded just over two decades ago by Jens Molbak, who as a Stanford University graduate student, realized there wasn’t an easy way to spend the spare change piled up in a jar on top of his dresser. Since that time the company has become known for its Redbox kiosks, its movie rental subsidiary. Redbox has largely overshadowed its parent company’s broader ambitions to reinvent vending machines by applying them to new categories of retailing.

Questions:

1. What percentage of Coinstar’s revenue came from Redbox last year?

2. Based on the percentage of Redbox’s investment in Verizon’s online movie services, how should this be accounted for in Redbox’s financial statements?

3. According to the article, Coinstar has about eight or nine kiosk ideas in various stages of development. In general, how should the company account for these?

4. In 2009, Redbox signed Sony to $460 Million distribution agreement, which was a five-year deal that guarantees that the studio would provide DVDs to the kiosk rental company. How do you think Redbox accounted for this agreement? How do you think Sony accounted for this agreement?

Source:
Wingfield, N. (2012) Thinking outside the Redbox. The New York Times, Feb. 17 (Retrievable online at http://www.nytimes.com/2012/02/18/business/coinstar-ventures-beyond-its-redbox-success.html?_r=1&ref=business)

What are you doing in the Summer of 2014?

Country singer Dolly Parton is set to expand her entertainment empire and open a water-snow theme park in Nashville, Tennessee. The 66-year-old launched Dollywood in the Pigeon Forge area of Tennessee in 1986 and added a water park next door in 2001. Now Parton is working on a new addition to her popular attractions and she announced plans for the new $50 million venture on E! online.The new, as of yet unnamed park, will be opened in the Spring or Summer of 2014.

 

Questions:

1.  In general, how would you book the $50 million dollar costs?
2. How should these costs be classified on the financial statements?
3. What is Dolly’s Secret regarding Dollywood?

Sources:

Cnn Video. (2012). Dolly’s New Adventure, Jan. 19 (Retrievable online at http://www.cnn.com/video/#/video/bestoftv/2012/01/19/exp-dollys-new-adventure.cnn)

King, Dennis. (2012) Dolly Parton’s Dollywood Secret. News OK, Jan. 24 (Retrievable online at http://newsok.com/dolly-partons-dollywood-secret/article/3642804)

First-Class Travel Has Never Been So Good, For Those Who Can Afford It!

Though first class represents less than 5 percent of all seats flown on long-haul routes, and business class accounts for 15 percent, those seats combined to generate 40 to 50 percent of airlines’ revenue, according to Peter Morris, the chief economist at Ascend, an aviation consulting firm. After its merger with Continental last year, United Airlines kept its first-class cabin only on some international routes that used to be served by United but not on those flown by Continental. It is also installing new flat-bed seats across its fleet in business class.

Questions:

1. According to the video, what was the price of a coach seat versus a business class seat versus a 1st class seat on a flight from the U.S. to Zurich, Switzerland?
2. Based on your answer in #1, assume that a plane going to Zurich has 230 coach, 50 business seats, and 20 first-class seats? What would be the gross revenue?
3. Based on your answer in #2, what would the expenses be in order to achieve a 50 percent net revenue?
4. How many times more is a first-class seat as compared to a coach seat, based on your answer in #1?
5. Discuss how you think an airline decides to configure its seating options. What is the linkage between this type of decision and cost or managerial accounting?

Source:
Mouawad, J. (2011). Taking First-Class Coddling Above and Beyond, The New York Times, Nov. 20 (Retrievable online at http://www.nytimes.com/2011/11/21/business/taking-first-class-coddling-above-and-beyond.html?pagewanted=1)

Video. (2011). In First Class, A World Apart, New York Times Video (Retrievable online at http://video.nytimes.com/video/2011/11/21/business/100000001182807/in-first-class-a-world-apart.html)

The Cost of Sweet Music

Manuel Rodriguez III owns the century-old family business of the same name, heir to a tradition of guitar manufacturers which dates back to 1905 when his grandfather gave up fishing in Cadiz to dedicate his life to his musical passion. Now the Spanish guitar factory is looking beyond Europe to keep the company competitive.

Questions:

1. According to the video, by what percentage has the workforce been reduced by in the Spanish factory? How does this compare to the percentage quoted in the article? What does Manuel attribute this reduction to?
2. Discuss the processes Manuel discusses in terms of cost accounting, both at the Spanish and China factories, and how these impact the company’s costs.
3. Based on the figures given in the article concerning the lower range guitars, construct an annual income statement.

Sources:

Castellanos, C and C. Ruano. (2011) Spanish Crisis Won’t Silence Manuel Rodriguez Guitars, Reuters.com, Apr. 7 (Retrievable online at http://uk.reuters.com/article/2011/04/07/uk-spain-guitars-idUKTRE73641V20110407)

CNN Videos. (2011). Spanish Guitar Factory Eyes Investment, Dec. 8 (Retrievable online at www.cnn.com/videos)

Shadow Work: How does it affect the Economy?

Shadow work is a term coined 30 years ago by the Austrian philosopher and social critic Ivan Illich. For Dr. Illich, shadow work was all the unpaid labor — including, for example, housework — done in a wage-based economy. The conventional wisdom is that America has become a “service economy,” but actually, in many sectors, “service” is disappearing. Not too many years ago, a gas station attendant would routinely fill your tank and even check your oil and clean your windshield and rear window without charge, then settle your bill. Today, all those jobs have been transferred to the customer: we pump our own gas, squeegee our own windshield, and pay our own bill by swiping a credit card. Many examples exist, helping drive unemployment rates. As the article explains, shadow work can be paid or unpaid.

Questions:

1. Give some examples of shadow work that you perform each week and estimate how much it would cost a company to pay someone to do this as part of their job. How would this affect the Wages and Salaries Expense and profit for a company?

2. According to the article, what is the downside of shadow work? Give examples and discuss.

3. According to the article, what are the benefits of shadow work? Give examples and discuss.

Source:

Lambert, C. (2011). Our Unpaid, Extra Shadow Work. The New York Times, Oct. 29 (Retrievable online at http://www.nytimes.com/2011/10/30/opinion/sunday/our-unpaid-extra-shadow-work.html?pagewanted=1&_r=1&ref=opinion)

The Big Bank of America Settlement

On November 7, 2011, a federal judge gave final approval to a $410 million settlement in a class-action lawsuit affecting more than 13 million Bank of America customers who had debit card overdrafts during the past decade.  The settlement became final a week after Charlotte, N.C.-based Bank of America backed off a plan to charge a $5 monthly fee for debit-card purchases. The outcry prompted other major banks, including JPMorgan Chase & Co. and Wells Fargo & Co., to cancel trial tests of their own debit card fees.

 

Questions:

1.  Although the judge awarded $410 Million in the suit, what percentage did Barry Himmelstein, an attorney for customers, anticipate was the actual amount collected by Bank of America for the overdrafts?

2.   Explain how the suit claimed that Bank of America maximized these fees.  Give an example that includes 5 overdraft incidences.

3.  Make the journal entry for Bank of America for the settlement, including amounts to be paid to the class-action lawyers.

Sources:

Associated Press Staff (2011). Judge Approves $410 Million Settlement of Lawsuit Against Bank of America On Overdraft Fees, Nov. 7 (Retrievable online at http://www.washingtonpost.com/national/judge-mulling-over-410-million-settlement-in-bank-of-america-overdraft-lawsuit/2011/11/07/gIQACKjZuM_story.html)

Youtube video (2011). Bank of America Agrees in Overdraft Fee Lawsuit to Pay $410 Million (Retrievable online at http://www.youtube.com/watch?feature=player_embedded&v=1Ov6QBMStt8)

Brother, can you spare $5

Beginning Tuesday, Starbucks coffee drinkers can get their morning caffeine fix and help create jobs in small businesses across the country. According to CEO Howard Schultz of Starbucks, the company will accept donations for a program that helps raise money and spurs job creation by small businesses, at its almost 6,800 locations across the nation, in addition to its website at www.CreateJobsforUSA.org.

Questions:

1. What is the Opportunity Finance Network? Do you think this a good approach to the downturn in our economy? Discuss.
2. Based on these articles, each job created equal to a salary of $21,000 or are other factors being considered in the multiplier effect mentioned?
3. Do you believe that this campaign is about marketing rather than what the CEO purports? Discuss the pros and cons.
4. Comment on Mr. Schultz’s comment about the importance of a trade off between social contract and traditional profit being needed. Does this indicate that there might be a new profit paradigm emerging in today’s economy? Discuss.
5. Mr. Schultz indicated that Starbucks would probably be spending millions of dollars on the campaign. How would you as their accountant classify these costs?

Sources:
Clifford, C. (2011) Starbucks steps up to the jobs challenge, Oct. 4 (Retrievable online at http://money.cnn.com/2011/10/03/smallbusiness/starbucks_jobs/index.htm?iid=EL)
Clifford, C. (2011) Get your Starbucks, create a job, Nov. 2 (Retrievable online at http://money.cnn.com/2011/11/01/smallbusiness/starbucks_jobs/)

Eneslow Shoes: Change is Good!

Eneslow – The Foot Comfort Center was founded in 1909 and is a family owned business providing high quality, stylish and comfortable shoes, as well as therapeutic accessories, on-site shoe makeovers and repairs and custom-made footwear. When New York State dropped Medicaid support for orthopedic shoes, Robert Schwartz saw his business drop by nearly 50%. As a result, he sought counsel and closed seven out of eight of the company’s stores in 1989. He used this as an opportunity to reposition the company’s products and now avoids the perception of being an “old ladies store.”

Questions:
1. What were some of the key costs that Robert Schwartz probably eliminated in repositioning his store? What are some costs that Schwartz probably could not eliminate in the downsizing of his operations?

2. Schwartz mentioned that he went to a mentor/counselor about the downturn in his business. What type of services could you provide him as a CPA regarding increasing his business?

3. What was the old model that Eneslow followed? What is the new model according to the video?

4. Go to Eneslow’s website at http://www.eneslow.com/home.cfm Does the company still have one store? What are the most interesting/favorable things that you notice about the company’s website?

Source:

MSNBC Video. (2011). If the Shoe Fits, Your Business (Retrievable online at http://www.msnbc.msn.com/id/21134540/vp/25142886#25003452)

Eneslow website, http://www.eneslow.com/home.cfm.

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