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)

Typos cost businesses money

Websites could be losing millions in online sales because of poor spelling and grammar. This is because Internet users are becoming more wary of scams which are typically riddled with errors and are then reluctant to make purchases on websites. As the BBC reported in July 2011, Charles Duncombe, an Internet entrepreneur based in the United Kingdom, measured the revenue per visitor to the tightsplease.co.uk website and found that the revenue was twice as high after an error was corrected. Typos affect not only online sales, but sizable contracts in all lines of business.
Questions:
1. Which example presented in the article was your favorite?
2. What are typosquatters? Explain how people make money from this concept.
3. What journal entry would Google make for the revenue it makes associated with typosquatters?

Sources:
CNN videos. Typos cost millions in online revenue, Oct. 14 (Retrievable online at www.cnn.com)
Wooten, A. (2011). Million dollar typos cause worldwide losses, Deseret News, Oct. 7 (Retrievable online at http://www.deseretnews.com/article/705392032/Million-dollar-typos-cause-worldwide-losses.html)

Groupon in the News

Groupon disclosed a major accounting change on Friday, essentially halving its once-jaw-dropping revenue after it encountered resistance from regulators with its filing to go public. Groupon, the online coupon titan, announced separately that its chief operating officer of about five months, Margo Georgiadis, resigned and will return to her former employer, Google, as president of the Americas.

Questions:

1. What was the accounting change mentioned? Was it a violation of GAAP?

2. What effect did it have on the financial statements?

3. What is the SEC quiet period mentioned in the article, how long is it, and what is its purpose?

Source: De La Merced, M.J. and E.M. Rusli (2011). Accounting Change Cuts Groupon’s Revenue. The New York Times – DealBook, September 23 (Retrievable online at http://dealbook.nytimes.com/2011/09/23/groupon-changes-its-revenue-accounting/)

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)

Do great products translate into great profits?

So far the summer of 2011 has seen its share of giant wildfires. Recently GelTech Solutions, Inc. was profiled in CNN – Your Money’s segment on small businesses for its product – FireIce. The company is committed to continuing the work of developing sustainable solutions that solve common problems and maintain the integrity of the earth – today and for generations to come. The FireIce product appears to be incredible stuff if you are in the path of these destructive fires. While it appears to be remarkable, why isn’t the company doing so well? See if you can come up with some answers, based on their financial statements.

Questions:
1. Go to the company’s website at http://geltechsolutions.com/geltech/default.aspx. Then look at GelTech Solutions, Inc. 10K for 9/28/10 (found at http://ir.stockpr.com/geltechsolutions/filings?qm_page=8102). What amount has the company spent on Research and Development over the last two years? What was most of this spent on? Explain how you would account for R & D in terms of journal entries.
2. What is the company’s experience and expenditures for marketing?
3. Where is the company headquartered?
4. How old of a process did they say the FireIce concept was on the video?
5. What are the contingencies that the company is facing?
6. Are there any clues to why the company is not profitable? What are they?
7. Would you consider buying this stock? Why or why not? Explain.

Sources:
CNN.com. (2011). Blowtorch your hand without a wince, June 6 (Retrievable online at http://money.cnn.com/video/smallbusiness/2011/06/06/n_fireice.cnnmoney/)

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/)

Amazon.com Must Anticipate Profits in Diapers & Baby Care Products

Amazon.com Inc. agreed to buy Quidsi Inc., the owner of Diapers.com and Soap.com, for $500 million in cash, expanding in baby-care products and gaining merchandise- management expertise. Amazon will also assume about $45 million of closely held Quidsi’s debt and similar obligations, according to a statement from the companies today. They expect to close the deal in December.

Question:

1. Based on the article, what were the sales for Quidsi last year?
2. Based on the article, what was the U.S. e-commerce market last year?
3. Based on the article, what percent of the U.S. e-commerce market does Quidsi comprise?
4. Based on the information given in the article, discuss the accounting treatment  Amazon will record for the Quidsi acquisition.   

Source:

Galante, J. and Serena Saitto (2010). Amazon.com Agrees to Buy Diapers.com Owner for $500 Million, Bloomberg.com, November 8. (Retrievable online at http://www.bloomberg.com/news/2010-11-08/amazon-com-agrees-to-buy-diapers-com-owner-for-500-million.html)

Mickey D’s in the News: Which story is right?

According to the Wall Street Journal, McDonald’s Corp. has warned federal regulators that it could drop its health insurance plan for nearly 30,000 hourly restaurant workers unless regulators waive a new requirement of the U.S. health overhaul.  However, less than an hour after that release, ABC News  and Reuters reported that McDonald’s and the Obama administration said the claims of the  Wall Street Journal are false, regarding the dropping of its “mini-med” health insurance for hourly workers because of the new health care reform law.

Â

Question:

1.  Why do you think the stories are so different and why do you think there was such a quick response from McDonalds and the Obama administration?

2.  What is the medical loss ratio in the new legislation?

3. What effects do you think the new legislation will have on the financial statements of companies?

4.  What do you see as the costs and the benefits of this new legislation?

Sources:

 Adamy, J. (2010). McDonald’s May Drop Health Plan, Wall Street Journal, September 30 (Retrieved online at http://online.wsj.com/article/SB10001424052748703431604575522413101063070.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsThird)

Arnall, D. and H. Khan. (2010). McDonald’s Fights Back Against Report It Will Drop Health Care Plan, ABC News, September 30 (Retrieved online at http://abcnews.go.com/Politics/HealthCare/mcdonalds-fights-back-report-drop-health-care-plan/story?id=11764596)

Reuters. (2010). McDonald’s Denies Its Cutting Health Insurance, MSNBC, September 30 (Retrievable online at http://www.cnbc.com/id/39435771)

WSJ Video. (2010). AM Report: McDonald’s May Drop Health Plan, September 30.  (Retrievable online at http://online.wsj.com/public/page/0_0_WP_3001.html?currentPlayingLocation=37&currentlyPlayingCollection=The%20News%20Hub&currentlyPlayingVideoId={088AC31E-1087-428F-AD84-62AA9E6D5EA6})

What’s up with Hulu?

According to the New York Times, Hulu is approaching investment banks to underwrite an IPO this fall valuing the company at $2 billion. What is Hulu? Hulu is an online video service that offers a selection of hit shows, clips, movies, and more at Hulu.com and numerous destination sites online and across four screens — PCs, TVs, mobile phones and tablets.
Questions:

1. Based on Yarrow’s article, draft a simplified income statement for Hulu in 2009. Assume a year-end of December 31.

 
2. What is an IPO? Why does Atkinson see problems ahead with this?

 
3. How does Hulu generate revenue? What accounts do you think would be associated with this business model?

Source:
Yarrow, J. (2010). Hulu Wants To IPO At A $2 Billion Valuation, Business Insider SAI, August 16. (Retrievable at http://www.businessinsider.com/hulu-ipo-2010-8)

Atkinson, Claire. (2010). Hulu Faces Hurdles to Stock Offering. New York Post, August 17. (Retrievable online at http://www.nypost.com/p/news/business/hulu_faces_hurdles_to_stock_offering_2O1mh3F3PhtbXXbyrQ7QoO)

Next Page »