What is the profitability of each branch office using activity-based costing?

Miami Valley Architects Inc. provides a wide range of engineering and architectural consulting services through its three branch offices in Columbus, Cincinnati, and Dayton. The company allocates resources and bonuses to the three branches based on the net income reported for the period. The following presents the results of 2020 performance ($ in thousands).

Columbus Cincinnati Dayton Total
Sales $1,500 $1,419 $1,067 $3,986
Less: Direct labor (382) (317) (317) (1,016)
Direct material (281) (421) (185) (887)
Overhead (710) (589) (589) (1,888)
Net income $ 127 $ 92 $ (24) $ (195)

Overhead items are accumulated in one overhead pool and allocated to the branches based on direct labor dollars. For 2020, this predetermined overhead rate was $1.859 for every direct labor dollar incurred by an office. The overhead pool includes rent, depreciation, taxes, and so on, regardless of which office incurred the expense. This method of accumulating costs forces the offices to absorb a portion of the overhead incurred by other offices.
Management is concerned with the results of the 2020 performance reports. During a review of the overhead, it became apparent that many items of overhead are not correlated to the movement in direct labor dollars as previously assumed. Management decided that applying overhead based on activity-based costing and direct tracing, where possible, should provide a more accurate picture of the profitability of each branch.
An analysis of the overhead revealed that the following dollars for rent, utilities, depreciation, taxes, and so on, could be traced directly to the office that incurred the overhead ($ in thousands).

Columbus Cincinnati Dayton Total
Direct overhead $180 $270 $177 $627

Activity pools and activity drivers were determined from the accounting records and staff surveys as follows:

# OF ACTIVITIES BY LOCATION
Activity Pools Activity Driver Columbus Cincinnati Dayton
General Administration $ 409,000 Direct Labor $ 382,413 317,086 317,188
Project Costing 48,000 # of Timesheet Entries 6,000 3,800 3,500
Accounts Payable/Receiving 139,000 # of Vendor Invoices 1,020 850 400
Accounts Receivable 47,000 # of Client Invoices 588 444 96
Payroll/Mail Sort & Delivery 30,000 # of Employees 23 26 18
Personnel Recruiting 38,000 # of New Hires 8 4 7
Employee Insurance Processing 14,000 Insurance Claims Filed 230 260 180
Proposals 139,000 # of Proposals 200 250 60
Sales Meetings/Sales Aids 202,000 Contracted Sales 1,824,439 1,399,617 571,208
Shipping 24,000 # of Projects 99 124 30
Ordering 48,000 # of Purchase Orders 135 110 80
Duplicating Costs 46,000 # of Copies Duplicated 162,500 146,250 65,000
Blueprinting 77,000 # of Blueprints 39,000 31,200 16,000
$1,261,000

Required (all weight equal to the Case’s final mark_
What overhead costs should be assigned to each branch based on activity-based costing concepts?
What is the contribution of each branch before subtracting the results obtained in part (a)?
What is the profitability of each branch office using activity-based costing?
Evaluate the concerns of management regarding the traditional costing technique currently used
Provide a critical and argued discussion on the pros and cons of activity-based costing vs. traditional costing approaches.

Explain why it is important to have 3 to 6 months’ salary saved for an emergency fund.

Rhonda Jones and her husband have a combined annual income of $50,000 after taxes. Their mortgage payment is $1,284 per month. Their average utilities payment per month is $403. The groceries and food expenses average $506 per month. They have a car payment of $402 a month. Their medical insurance is $198 per month. Gas for the car averages $102 a month, and their car insurance is $246 a month. Other miscellaneous expenses are $206 a month.

Download and complete this budget sheet, and submit it with this assignment. For this assignment, answer the following:

Do the Jones’s have a surplus or a deficit? If they have a surplus, suggest how they can use the extra money.
Explain why it is important to have 3 to 6 months’ salary saved for an emergency fund.
Explain the concept of “paying yourself first.”

Define this strategy and explain benefits and drawbacks to this approach as it relates to an expanding organization.

Select one of the following merger and acquisition strategies:

-Growth
-Diversification
-Operational synergy (economies of scale)
____________________________________________________________________________
Next, define this strategy and explain benefits and drawbacks to this approach as it relates to an expanding organization. Then review the list of bidders in Milestone One PDF. Based on the strategy you have described, discuss the bidder that you are leaning toward. Why might you choose this particular bidder?

Identify and describe a long-term investment project (either real or fictional) that would likely require significant capital commitment.

Why might companies disregard a positive NPV? MIT professor of financial economics Stewart C. Myers asserts that different decision rules might apply when investments are long-term rather than short-term (Myers, 1977). Financial managers may rationalize that it is in their immediate interest to invest in short-term projects because they bring the most shareholder benefits; this is, in other words, the so-called agency problem. However, what could be the long-term consequences of that strategy? Watch the short agency problem video (7:14) below for an explanation of this conundrum in detail with good examples.

Identify and describe a long-term investment project (either real or fictional) that would likely require significant capital commitment. If you were acting as a financial analyst, what factors would you consider in the decision to move forward or abandon the project? In your initial response, you may discuss such factors as:

NPV
IRR
EBIT
WACC
Corporate structure
Market structure
Corporate goals and mission

Regardless of these factors, why might this project still be a worthy investment? Are there certain industries that might demand a more long-term strategy? Which ones? In your responses to your peers, compare and contrast your views with your classmates’ observations.

Write about financial and non-financial advantages and disadvantages Remember that you may add to the information to enhance the fact pattern.

1 page for statement and 2-3 pages for explanations of numbers plus any attachments
Remember that you may add to the information to enhance the fact pattern.
You may want to consider adding assets and/or debt that were not mentioned.
All items on the balance sheet must be explained.
2. Prepare a cash flow statement (see Worksheets and textbook for examples)
1 page for statement and 2-3 pages for explanations of numbers plus any attachments
Remember that you may add information to enhance the fact pattern.
You may want to consider adding income items, and you should add expense items because only a few are mentioned.
All items on the income statement must be explained.
3. Employment: Compare current job with new position
1 page for cover and 3-4+ pages to explain recommendation plus any attachments
Prepare a resume for the new position (see Worksheets for example)
Recommend action to take – keep current job or take new job and explain the choice
Write about financial and non-financial advantages and disadvantages
Remember that you may add to the information to enhance the fact pattern.
You may determine the education and experience for the resume
You may determine the type of new job and the salary & benefits of that position as well as the benefits, etc. of current position
(Note: Benefits may be non-financial as well as financial)
4. Credit: Evaluate debt situation
1 page for cover and 3-4+ pages to explain recommendation plus any attachments
Compute personal financial ratios to assess current financial situation and explain what each ratio means. (see lecture notes for information on ratios)
Recommend action to take – maintain current payments or pay off debt
Remember that you may add to the information to enhance the fact pattern.
You may determine the specifics about the student loan, credit card, etc. that are not already stated above
5. Housing: Compare current shared apartment to solo new apartment
1 page for cover and 3-4+ pages to explain recommendation plus any attachments
Prepare a chart to compare costs (rent, food, electric, cable, heat, etc.)
Recommend action to take – stay in shared apartment or get own apartment
Determine what is the best decision financially given all financial concerns and also address non-financial matters
Remember that you may add to the information to enhance the fact pattern.
You may determine the location, size, cost, etc. of the new apartment as compared to the current apartment.
You may need to calculate answers for certain sections of your financial plan.

For example, the fact pattern may give you the year, make and model of a car but not the value. In order to determine the value (which you will need for the balance sheet), you will need to go to Kelley Blue Book on the web (kbb.com). Print the page and attach to your plan! (You will lose points if this is not attached)
For example, the fact pattern may give you the amount, length, or interest rate for a loan but not the monthly payment. In order to determine the payment (which you will need for your cash flow statement), you will need to use an amortization schedule. There are several sites on the web to help you just search under amortization schedule. Print the page and attach to your plan! (You will lose points if this is not attached)

How sensitive is the project’s NPV to changes in fixed cost?Discuss

If all variables are assumed to be at their expected value (normal forecast).

How sensitive is the project’s NPV to changes in fixed cost?

How sensitive is the project’s NPV to changes in prices?

How sensitive is the project’s NPV to changes in variable cost?

Which factors seems most important to the success of the plane?

Is the Mooreliner a risky project? Explain