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)

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.

Visit msnbc.com for breaking news, world news, and news about the economy

Huge job cuts – Bank of America

Bank of America, trying to break free from a pile of bad mortgages and a sagging stock price, announced plans to lay off 30,000 employees over the next few years.

In a statement Monday, the bank said its goal is “not a given number of job reductions,” but to focus “all of its resources on serving individuals, companies, and institutional investors.”

The Charlotte, N.C.-based bank, the largest in the U.S. by deposits, said it will cut $5 billion in costs.  The bank, which has a workforce of 288,000, has already said it plans to cut 6,000 jobs by the end of the year.

According to analyst Paul Miller of FBR Capital Markets & Co., “we knew they were shrinking the balance sheet and cutting costs. Today, there is just an exact plan. If the bank got rid of Countrywide’s litigation expenses and liabilities, it could have a $10 to $12 stock price overnight,” Miller told ABC News.  But Miller added that he did not think bankrupting Countrywide would be politically and legally feasible.

Warren Buffett, CEO of Berkshire Hathaway, announced plans on Aug. 25 to buy $5 billion of Bank of America shares.

Questions:

1.  How will the plans presented in the article shrink the balance sheet?  Be specific.  Based on the video, where does the Wall Street analyst think that the money from the cuts will go?

2. Explain the recording of Countrywide’s litigation expenses and liabilities.  What specific types of liabilities will be affected?

3.  What do you understand Bank of America’s strategy to be at this point and what is Berkshire Hathaway’s role?  What is Bank of America’s current stock price and what has happened to it during 2011?

4.  What percent of jobs is the bank cutting this year as a percentage of its total workforce?  If you compare the 30,000 job cut against their current workforce, what percentage is this?

Source:

Kim, Susanna (2011) Bank of America Confirms 30,000 Layoffs. ABC News.com, September 12 (Retrievable online at http://abcnews.go.com/Business/bank-america-layoff-30000-workers/story?id=14500577)

 Gogoi, P. (2011). Bank of America will cut 30,000 jobs. Associated Press, Sep. 12 (Retriveable online at  http://abcnews.go.com/Business/wireStory?id=14500592)

Fox News video, Bank of America to Cut 30K Jobs, Sep. 12 (Retrievable online at  http://video.foxnews.com)

Ostrich Farming, Anyone?

Ostrich meat, although poultry is red, not white like most other birds. This red meat, which looks and tastes much like beef, is lower in fat, calories and cholesterol than not only beef, but also white meats like chicken and turkey. Ostriches belong to a family of birds called ratites, which includes emus and rheas well, and they are easy to tell apart from other winged creatures because they can’t fly. All ratites have red meat. It has to do with their muscles. They reproduce more often than cows, and they sell for a lot more because their meat is considered a delicacy, at least in the United States.

Questions:

1. What are the five steps for starting an ostrich farm?  Prepare a brief financial plan for starting an ostrich farm.

2. Based on the video, the owner of the farm said that he sold 25,000 pounds of ostrich meat last year.  At the Exotic Meat Market of Las Vegas (www.exoticmeatmarket.com), 25 pounds of ostrich meat sells for $600. If you assume that the markup is 50%, how much would the ostrich farmer earn?

3.  Based on the video, one ostrich egg is equal to 24 chicken eggs.  At the Exotic Meat Market of Las Vegas (www.exoticmeatmarket.com), one ostrich egg sells for $60.  Assuming the equivalency, what would the buyer be willing to pay per chicken egg?  What is the normal amount that you would pay for a chicken egg?  Is there a benefit to the ostrich egg over the chicken egg that is responsible for the price difference?

4.  What are some of the fixed costs and variable costs that an ostrich farmer would have? 

 

Source:

CNN video. (2011). Demand for Ostrich Meat on the Rise. August 22, 2011.

Arie, B. (2011). How to Start an Ostrich Farm. Chron.com, August 22 (Retrievable online at http://smallbusiness.chron.com/start-ostrich-farm-17914.html)

Have A New Idea? Maybe It’s Not That Weird for a Business Opportunity?

Hart Main, age 13,  developed a new product called ManCans, candles with scents made specifically for men who don’t really want to smell like freshly laundered towels or a dewy forest. Basically, a typical ManCans scent is smells more like a fresh new baseball glove. It all started when his sister, age 12, started selling candles to raise money for school. Main wasn’t crazy about the girly scents and joked that there ought to be candles for guys — guys who didn’t want their bedrooms to smell like lavender soap. His mom encouraged her son to try to make some candles with a masculine aroma. ManCans now offers eight scents so far: New York Style Pizza, Grandpa’s Pipe, Sawdust, Campfire, New Mitt, Fresh Cut Grass, Coffee and, of course, Bacon.

Questions:

1.  How much did Hart sell the original candles for? 

2.  By what percentage did he raise the price?

3.  Based on the total current orders, how much is Hart’s sales revenue?

4.  According to the article, pricing has been tricky to figure out. What information do you need to find out his breakeven point?

5.  ManCan’s has a charitable arm.  Explain what it is and how you think it should be accounted for.

Source:

Williams, G. (2011). ManCans’ Hart Main: A 13-Year Old Entrepeneur Invents Candles for Men, AOL Small Business, May 10 (Retrievable online at http://smallbusiness.aol.com/2011/05/10/mancans-hart-main-a-13-year-old-entrepreneur-invents-candles-f/)

Have you thought about being an entrepeneur? Here is a new twist!

When Rent the Runway, a New York start-up hoping to make high-end fashion as accessible as renting a movie from Netflix, first introduced its service in late 2009, it wasn’t clear how successful the venture would be. In the past 18 months, since Rent the Runway came out of its beta testing phase, it has enticed a million members to join the service. Each week, another 40,000 new members sign up, the company said. The company has raised $16.5 million from venture capitalists, and grown from a few employees to 51 staffers, prompting a move to larger offices in downtown New York.

1.  Assume that the company rents two dresses a year to each member.  If the dresses rent for $50 and variable costs are $20 per rental and the company’s fixed costs for the year total $1,620,000, how many dresses must be rented in order for the company to break even? 

2. Assume that during the current year Rent the Runway reported total revenues of $891,640 and profit of $91,486.  Fixed costs were $332,043, and 44,000 dresses were rented.  If costs and prices are expected to stay the same next year, but the company expects to increase rentals to 50,000 dresses, what will be the company’s budgeted profit?

3. From an entrepreneurial standpoint, do you think this plan would work for any other type of product? Explain.

Source:
Fox Business Video (2011). Rent the Runway: Designer Dress Rental Catching On, Fox Business News.com February 8 (Retrievable online at http://video.foxsmallbusinesscenter.com/v/4529267/rent-the-runway/)

Wortham, J.(2011) Rent The Runway Takes Flight, The New York Times, May 2 (Retrievable online at http://bits.blogs.nytimes.com/2011/05/02/rent-the-runway-takes-flight/?ref=business)

The Poster Boy in a Different Type of Pennant Race – Time for a Reality Check

Yankees star Alex Rodriguez will pay virtually no property tax for a $6 million apartment he is buying on the upper West Side. Rodriguez will be billed around $1,200 this year in real estate tax for his 3,000-square-foot, five-bedroom penthouse with spectacular views of the Hudson River.Over the next 10 years Rodriguez and his fellow residents will continue to receive huge discounts on their tax, a city housing official said. A little-known tax abatement program, known as the “421A” program, has existed for decades, which grants as much as a 98% percent tax abatement for up to 25 years to condo owners in newly built housing. Although the program ended in December for any new construction, the city’s powerful real estate industry is determined to get it renewed and even get it expanded.

Questions:

1.  What percentage of A-Rod’s income would he pay if assessed the full tax bill of $60,000?

2. What percentage of A-Rod’s income is the $1,200 he currently pays under the tax abatement program?

3. If $900 million are lost to this program per year and the average salary of a firefighter or teacher is $50,000, how many jobs could be saved by the reform of this abatement?  If you assume that A-Rod’s full tax bill ($60,000) is the average for those who have taken this advantage, approximately how many people benefit from the discount?  Compare these two calculations and discuss.  

4.  Are there any issues that you could use to argue that the abatement program should be reinstated? 

Source: Gonzalez, Juan. (2011). Tax Breaks on Real Estate Deals for People Like A-Rod Cost City $900M a Year, New York Daily News, February 25 (Retrievable online at http://www.nydailynews.com/ny_local/2011/02/25/2011-02-25_tax_breaks_on_real_estate_deals_for_people_like_arod_cost_city_900m_a_year.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+nydnrss/home+%28Home%29)

Saving Money through Social Media

The recession has bred a new type of coupon: the group coupon. In recent months, several Web sites have launched nationwide giving customers discounts on restaurant meals, sporting events, spa treatments, golf outings — pretty much any expenditure that many people give up during economic downturns. The catch is that the coupon only applies if a certain number of people use it.

Questions:

1.  After watching the video and accessing http://www.groupon.com, explain the company’s business model. 

2. Do you think that the group coupon trend will continue?  Why or why not?

3.  Go to the “recent deals” in your area at http://www.groupon.com.  Pick one of the deals. If you were a company offering this deal and using the services of Groupon, what accounts would be affected by the  deals you provide?

Sources:

Eklund, Kevin. (2010) Best Social Group Buying Sites For Killer Daily Deals And Deep Discounts. Tomuse.com (Retrievable online at 

http://tomuse.com/group-buying-sites-coupon-deals-discount-savings/#ixzz0wt6rxlKihttp://tomuse.com/group-buying-sites-coupon-deals-discount-savings/)

Trejos, Nancy (2009). The Humble Coupon Joins Social-Media Web, The Washington Post, September 1 (Retrievable online at http://www.washingtonpost.com/wp-dyn/content/article/2009/08/31/AR2009083103837.html)

CNN Video. (2010). Group Coupon Business Soars, August 13. (Retrievable online at  http://www.cnn.com/video/#/video/tech/2010/08/13/am.group.coupon.business.cnn?iref=videosearch)

The Costs of Liposuction

Lots of people are curious about the price of liposuction (which is also referred to as lipoplasty and suction lipectomy). Although the procedure sports a somewhat hefty price tag, it is among the cheaper cosmetic surgeries available. Some the of the cheapest areas for liposuction are the arms, buttocks, female back, hips and outer thighs. These areas could cost around $1,500 to $5,000 to treat.

Questions:

For the following questions, pick an area of the body discussed in the article and answer questions 1-3.

1.  What factors can affect the overall cost? What qualitative issues are important before you chose the lowest costs in lipoplasty?

2.  What costs do you think are fixed costs relating to these procedures?

3.  What costs do you think are variable costs relating to these procedures?  What costs are mixed?

Source:

Heftel, Christian. (2010). What Would it Cost Me to Get Liposuction? MzoneArticles.com, July 30 (Retrievable online at http://www.mzonearticles.com/Art/28071/84/What-Would-It-Cost-Me-To-Get-Liposuction.html)

How Low Can the Costs Go?

India has developed the world’s cheapest laptop – a touchscreen device which resembles Apple’s wildly popular iPad but will cost just £23.

The prototype was unveiled this week by Kapil Sibal, the country’s human resource development minister, who said 110 million Indian schoolchildren would be the first recipients.

Questions:

1.  Find the current exchange rates and calculate the price of the laptop in U.S. dollars?  Show your work and the site you found to get the exchange rate.

2. What types of costs do you speculate that the country has been able to cut to achieve the £1,450 Tata Nano car and a mobile phone costing less than £11. 3 and now the £23 laptop?

3. What do you see as the biggest advantages are of this new laptop?

 

Source:

Halliday, J. (2010). India unveils world’s cheapest laptop. Guardian.co.uk, July 23 (Retrievable online at http://www.guardian.co.uk/world/2010/jul/23/india-unveils-cheapest-laptop)

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