Remember Driver’s Ed? Things have Changed!

Mercedes-Benz has long been at the forefront of creating safer cars and now they are aiming to create safer drivers. In December 2011, the company opened the its first driving school in the U.S. called Mercedes-Benz Driving Academy. Mercedes has three more in Europe). This school is located on Third Street in downtown Los Angeles. Open to drivers of all ages, its primary focus is teenagers, who want to get their California driver’s licenses and drive Mercedes in the process. The cost of the academy’s integrated program is $1,390, which includes 15 hours of online training, 10 hours in the classroom, five hours of workshops and 16 hours of behind the wheel coaching. The driving schools that the Bloomberg video showed are typically more expensive and generally focus on defensive driving skills of more experienced drivers.

Questions:

1. Based on the video, what types of return investments do you think the luxury car makers are receiving from their “driving schools”?
2. What types of costs would be involved in the luxury car driving schools shown in the video?
3. Go to http://exoticsracing.com/ and customize your ultimate driving experience. What was the most interesting thing you noticed about this company?
4. For the Mercedes-Benz Driving Academy, what would be some fixed costs and what would be some variable costs? Can you think of any mixed costs that the company might have? Would these be different for Exotics Racing School?

Source:

Bloomberg Video. (2012). Extreme Test Drives, May 10.

Jorrey, K. (2012) Luxury car maker sets new standard for driving school. The Acorn, April 26 (Retrievable online at http://www.theacorn.com/news/2012-04-26/Business/Luxury_car_maker_sets_new_standard_for_driving_sch.html)

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)

Is it Really February?

The warm and sunny weather is raising spirits all over the upper Midwest in January and February, but not for some businesses.

Questions:

1. What businesses did the video profile?
2. Can you think of other types of businesses that would be affected, both favorably and unfavorably? Discuss whether you mean in terms of profits, variable costs, fixed costs, mixed costs, etc.
3. Discuss how you believe the warm weather could either hurt or help our recessionary economy.
4. Contrast and compare by performing a brief cost/benefit analysis for a snow plow company and then a city government under this warm weather scenario.

Source:

You Tube Video. Warm Wisconsin winter hurts area businesses.mp4, Jan 31, 2012 (Retrievable online at http://www.youtube.com/watch?v=3aG6vO40cYs).

 

Insulting Discounts: The Costa Concordia Saga

The owners of the Costa Concordia are offering survivors of the disaster a 30 percent discount off future cruises as they battle to stave off law suits expected to cost hundreds of millions of pounds. As the body of a 12th victim was found inside the hull of the £370 million, 1,000 ft vessel, survivors call the discount offer “insulting.” The most recent victim was found wearing a life jacket on the fourth deck, close to a muster station.

 

Question:

1.  What was the difference between net income for Carnival from 2010 to 2011?

2.  What did Carnival attribute this drop in income to?

3.  What is Carnival’s connection with the Concordia and why is Carnival seeing a downturn in bookings this year?

 

CNN Video. (2012). Carnival Cruise Lines Takes Financial Hit, Jan. 16 (Retrievable online at http://www.cnn.com/video/#/video/world/2012/01/16/pkg-boulden-cruise-ship-business-after-concordia.cnn)

 

Duffin, C., R. Mendick, N. Squires, and V. Ward (2012). Costa Concordia: ‘Insulting’ Cruise Offer to Survivors, The Telegraph, Jan. 24 (Retrievable online at http://www.telegraph.co.uk/news/worldnews/europe/italy/9030212/Costa-Concordia-insulting-cruise-offer-to-survivors.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)

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

Expensive Snacks?

By now you have probably heard that an audit of the Department of Justice by the Inspector General says that taxpayer money was wasted on overpriced food and drinks. At one conference, the DOJ spent $4200 on 250 muffins–that’s about $16 a muffin. But what did the report actually say?

Considering the EOIR reported that at least 534 people received refreshments at its 2009 Legal Training Conference in Washington, D.C., it spent an average of $14.74 per attendee per day on food and beverages—just above the $14.72 JMD limit for refreshments. We credit the EOIR for implementing the following controls to reduce food and beverage costs: (1) it provided just refreshments and not full meals, (2) it ordered fewer refreshments than the total number of reported attendees, and (3) it received 15 gallons of coffee, 30 gallons of iced tea, and 200 pieces of fruit for free. However, many individual food and beverage items listed on conference invoices and paid by the EOIR were very costly. The EOIR spent $4,200 on 250 muffins and $2,880 on 300 cookies and brownies. By itemizing these costs, we determined that, with service and gratuity, muffins cost over $16 each and cookies and brownies cost almost $10 each.

Questions:

1.What controls were in place that the report mentioned?

2. What is the point that Drum is trying to make?

3. Compare this article to the video.  Discuss the situation in terms of variances and budgets that you use in managerial or cost accounting.

 

Source:

Drum, K. (2011). The Great $16 Muffin Myth. Mother Jones, Sep. 21 (Retrievable online at http://motherjones.com/kevin-drum/2011/09/great-16-dollar-muffin-myth)

CBS News VIDEO (2011). Audit finds DOJ Pays Big Bucks for Snacks, Sep. 21.

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/)

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