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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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)

New Banking Fees

Customers are frustrated by new controversial fees from banks. However, they are finding out that it is not so easy to disentangle your life from your bank.

Questions:
1. What does the article list as the main reason(s) that customers will stay with a bank, even though they are unhappy about new fees?
2. Which accounts at Bank of America will not carry the new fees? Why do you think those have been chosen?
3. How do you think the banks will record these fees in their general ledger? Give the assumed journal entry.
4. The article said,” Studies commissioned by Fiserv using data from SunTrust and Wachovia in 2007 and 2008 emphasize how online banking and e-bills reduce customer turnover while substantially raising profits per customer.” Does this statement help support or refute the need for increased fees? Discuss your reaction to the video.

Source:
Schwartz, N.D. (2011). Online Banking Keeps Customer on Hook for Fees, The New York Times, Oct. 15 (Retrievable online at http://www.nytimes.com/2011/10/16/business/online-banking-keeps-customers-on-hook-for-fees.html?_r=3&hp)

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/)

Tax Breaks Galore in Video Games

The United States government offers tax incentives to companies pursuing medical breakthroughs, urban redevelopment and alternatives to fossil fuels, but also to video game producers. They are able to combine tax breaks across software development, the entertainment industry, and online retailing for a bonanza effect.

Electronic Arts, founded in 1982, has since become one of the world’s dominant video game companies, producing popular titles like SimCity, FIFA soccer, Harry Potter, and Madden NFL, largely due to huge tax incentives.

Questions:

1. Discuss why you think that Union Carbide failed to meet the experimental threshold for the R & D credit, though video game makers often seem to have little trouble meeting the requirement.

2. What was the most interesting point made in this article that pertains to you as an accountant? Do you agree or disagree with the tax incentives that the video game industry has been able to capitalize on? Discuss.

3. Do you agree or disagree with video game industry officials that say by improving technology, they are indirectly helping society at large? Why or why not?

Source: Kocieniewski, D. (2011). Rich Tax Breaks Bolster Makers of Video Games, The New York Times, Sep. 10 (Retrievable online at http://www.nytimes.com/2011/09/11/technology/rich-tax-breaks-bolster-video-game-makers.html?_r=2&nl=todaysheadlines&emc=tha2)

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)

More evidence of the wealth divide

Even with the economy in a funk and many Americans pulling back on spending, the rich are again buying designer clothing, luxury cars and about anything that catches their fancy. Luxury goods stores, which fared much worse than other retailers in the recession, are more than recovering — they are zooming. Many high-end businesses are even able to mark up, rather than discount, items to attract customers who equate quality with price. In July, the luxury segment had an 11.6 percent increase, the biggest monthly gain in more than a year.

Questions:

1. According to the article, Tiffany’s first-quarter sales for 2011 were up 20 percent to $761 million, as compared to last year. Based on this information, what were the last year’s first quarter sales?

2. According to the article, in 2008, for example, the most expensive Louboutin item that Saks sold was a $1,575 pair of suede boots. Now, a $2,495 pair of suede boots costs $2,495 .  What percentage increase is that?

3. What is the snob factor?  What is your reaction to this article? Which comment to the article is your favorite and why?

4. If, as the article said, consumers awaited 70 percent discounts rather than buying right away and we assume that a luxury item was priced at $3,300, how much would the consumer pay?  

Source:

Clifford, S. (2011) Even Marked Up, Luxury Goods Fly Off Shelves, The New York Times, Aug. 3 (Retrievable online at http://www.nytimes.com/2011/08/04/business/sales-of-luxury-goods-are-recovering-strongly.html?src=ISMR_AP_LO_MST_FB)

The confused world of outsourcing

India’s outsourcing giants — faced with rising wages at home — have looked for growth opportunities in the United States. But with Washington crimping visas for visiting Indian workers, some companies such as Aegis are slowly hiring workers in North America, where their largest corporate customers are based. In this evolution, outsourcing has come home. At its U.S. sites, Aegis says, 90 percent or more of its workers are American.

Questions:

1.  Using the amounts given in the article (pay runs $12 to $14 an hour with bonus checks of up to $730 a month), use an average per hour amount of $13 per hour plus a bonus of $730 to calculate what a call center’s gross pay would be for an individual who works a 40-hour week.

2.  How would you make the journal entry for the bonus?

3.  According to the article, about 5,000 people work at nine U.S. call centers and Aegis aims to triple its U.S. head count to more than 15,000.  Based on this information:
          a. How many people on average work at each call center in the U.S.?
          b. What percentage increase in workers is anticipated?
          c.  From a managerial accounting perspective, what issues would you be concerned with regarding
               this growth?

Source:

Glader, P. (2011). As Indian Companies Grow in the U.S., Outsourcing Comes Home, The Washington Post, May 20 (Retrievable online at http://www.washingtonpost.com/business/as-indian-companies-grow-in-the-us-outsourcing-comes-home/2011/05/17/AFZbrp7G_story.html?hpid=z2)

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)

Way to go Detroit!

Chrysler has turned its first profit since leaving bankruptcy two years ago. The company reported first-quarter net income of $116 million and revenues of $13.1 billion on Monday. The profit is a milestone in Chrysler’s long road back to health after its 2009 bankruptcy. It last reported a profit in 2007.

Questions:

1. What percentage of revenues is Chrysler’s profit?

2.  According to the article, what factors led to this profit?

3. The U.S. government remains a part owner of Chrysler.  What percentage does it hold?

3. (a) According to the article, Fiat SpA gave Chrysler a vote of confidence when it said it will spend $1.3 billion to raise its stake in the American company. That will increase Fiat’s holdings from 30 percent to 46 percent. Based on this information, how much is Fiat paying for each percent of Chrysler that it buys?

(b) The U.S. government remains a part owner of Chrysler.  What percentage does it hold?

(c) Based on your answer in 3(a) and 3(b), what is the current market value of the U.S. holdings in Chrysler?  

Source:

Durbin, Dee-Ann (2011). Chrysler Posts First Profit Since Bankruptcy, Huffington Post, May 2 (Retrievable online at http://www.huffingtonpost.com/2011/05/02/chrysler-profit_n_856215.html)

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