instructions

Part 1

St. Ashton Resorts operates high-end, all-inclusive vacation destinations in 12 locations, including Maui, Hawaii; Los Cabos, Mexico; and the Great Barrier Reef, Australia. At St. Ashton properties, the guest pays a flat daily rate that includes lodging, all meals and beverages, golf, and spa treatments.

Each resort is treated as a profit center, and the managers of the resort receive bonuses for achieving or beating the budget. Under the profit center approach, each resort management team is rewarded based on the difference between budgeted and actual profits.

Last year, St. Ashton switched its budgeting methodology. Previously, the CFO’s office of St. Ashton set each property’s annual budget based on the projected occupancy rate and expected costs. The annual budget was then broken down into monthly budgets adjusted for the number of days in the month and any seasonal fluctuation in the occupancy rate.

The new CFO, hired in the middle of last year, felt the old budget approach, which was set before the year began, did not take into account the dynamic nature of the tourism market. Travelers used to plan their leisure travel 6–9 months ahead, which allowed resorts to develop reasonably accurate forecasts of demand and hence accurate budgets. The Internet and global markets caused the once-predictable demand to become more unpredictable. The old budget was out of date shortly after the new year began, causing managers rewarded under the budget great consternation. The new CFO changed the budgeting system for the current fiscal year to a monthly rolling model. Before the current fiscal year began, the CFO’s office sets the spending targets per guest room occupied for each department in each resort (lodging, food and beverage, golf, and spa) as well as annual budgets to cover each department’s fixed costs. The annual departmental budgets are converted to monthly budgets by taking the annual budget, dividing it by 365, and multiplying that by the number of days in the month. The following table illustrates the new budget model for the St. Ashton Maui Resort for the current year.

Required:

a. What is the St. Ashton Maui Resort’s break-even occupancy rate?

b. Prepare the St. Ashton Maui Resort monthly budget for October (with 31 days) for the current year before the current year begins.

c. To evaluate and reward the performance of the St. Ashton Maui managers under the new budget model, St. Ashton uses the actual number of guest days in the month, the budgeted variable costs per room, and budgeted fixed costs to establish what the target expenses for the month should have been. This is then compared to the actual expenses incurred. Managerial bonuses are paid based on the difference between the target and the actual expenses. For October of the current year, the St. Ashton Maui had 10,500 guest days at $1,700 per day and reported the following revenues and expenses:

Prepare the performance report of the St. Ashton Maui Resort for October that compares actual to budgeted results.

d. Based on the performance report you prepared in part (c), briefly evaluate the performance of the St. Ashton Maui Resort management team.

e. In reviewing the performance of the St. Ashton Maui Resort since the beginning of the current year, St. Ashton’s CFO noticed that while favorable cost variances have resulted in most months, an alarming trend in occupancy rates is emerging:

The St. Ashton Maui Resort managers attribute the falling occupancy rate to new luxury resorts opening in the Hawaiian Islands. However, similar trends in cost variances and occupancy rates exist at other St. Ashton resorts where the budgeting system has been changed to the system used at the St. Ashton Maui Resort.

Discuss possible reasons for the declining occupancy rate at the St. Ashton Maui resort.

Part 2

Adrian Power manufactures small power supplies for car stereos. The company uses flexible budgeting techniques to deal with the seasonal and cyclical nature of the business. The accounting department provided the accompanying data on budgeted manufacturing costs for the month of January:

Actual operations for January are summarized as

Required:

a. Prepare a report comparing the actual operating results with the flexible budget at actual production.

b. Write a short memo analyzing the report prepared in part (a). What likely managerial implications do you draw from this report? What are the numbers telling you?

· respond to the following classmates initial post (1 classmates post). The reply post should be at least 150 words per response

classmate 1

I believe that Christian Children’s Fund (CCF) story as described in the discussion question took a brilliant decision when in 1995 it implemented what it called the Annual Impact Monitoring Evaluation System (AIMS). Users of Not for Profit Financial Statements includes, donors, members, creditors, and others who provide resources, for example governments provisions of grants have common needs.   These needs will among other things,  the ability to asses:

·  The services the organization provides

·   The organizational ability to provide these services.

·   The method the organization’s mangers use to discharge their stewardship responsibilities.

CCF developed a robust evaluation system that helped provide feedback that help the organization direct resources to programs in those areas that make a measurable difference in the lives of its target population. This strategy helped the organization to be more effective in the use of its dollars.

Another strength identified in the background is the fact that local program directors are give the free hand to customize the needs of the locality where they manage. This organizational architecture is correctly described in (Zimmerman 2016, p 139).  Here, Zimmerman described Organizational Architecture in terms of a three-legged stool. If one leg is  in bad shape, this will affect the health of the rest of the others. 

The three legs being:

·  A system that measures performance

·  A system that rewards and punishes performance

·  A system that assigns decision rights

Not only did CCCF provides a matrix for measuring performance through the AIMES model, it also provides the appropriate decision rights by allowing local program directors in about the countries it has presence to take decisions that works best in the local community.

 Also, moving on to the Financial aspect of  CCF. A close look at the Consolidated Statement of Activities in exhibit 1, the company recorded a $ 9.8m increase in revenue in 2003, a 7.4%  year-on-year compared to 2002. This is a strength. The ability of a company to continue to do the good work it has been doing since 1938, depends in parts to its ability to continue to raise funds to support its operations. Not only did the company increased it revenue, it also managed it expenses for the period. This is why CCF made a Net Increase in Net Assets (The equivalent of Net Profits in a for “Profit Financial Statement”) of $ 116,726 in 2003.

 A weakness I see from reading the background is that I did not see much mentioned about how rewards are tied to these matrices for the program directors who are involves in managing these programs. As mentioned earlier, Zimmerman 2016, described this as the second of the three-legged stool in what he titled Organizational Architecture.   Therefore, I will like to see the organization not only developed this great matrix but also use it to motivate the program directors who are in the field working hard to make good on CCF’s mission.

 References:

Becker Professional Education (2019) CPA Exam Review, Business.

Whittington, R. & Pany, K (2016) Principles of Auditing & Other Assurance Services

Zimmerman, J. (2016) Accounting for Decision Making and Control. Ninth Edition McGraw-Hill Education

Classmate 2

Strengths and Weaknesses of CCF’s AIMES

              Annual Impact Monitoring and Evaluation System (AIMES) as a tool for monitoring and evaluation of the activities of the CCF has by a great extent, contributed to the overwhelming performance of the project. The directors of the CCF project use the guidelines highlighted by this tool to provide better services to the children and families which they sponsor. 

Strengths

Enhanced evaluation of the sponsored children progress

              Adoption of AIMES tool by the project directors improved their evaluation process on how the little children are faring, because every child's data from the various families sponsored can quickly be taken and analyzed. This improves the project's ability to identify the areas that needed improvement and take action to adjust on them so that the children’s lives are maintained. Since the primary source of the revenue used to take of these children came from donors, this tool, therefore, has made it possible for the directors to form a close follow up of how these funds are used in the different countries. This makes them have confidence that funds used in the best way possible by those in charge of the states (Pratley, 2016).

Provision of a guide to the project staff and volunteers

              This guide is meant to provide direction so that the system is made more measurable and accountable within the project. The strategic move taken by the directors to make personal visits to the sponsored children in various countries has enabled them to update their health matters. This has enabled them to cover many countries which they work with to collect data about the children’s progress for evaluation purposes.

Improved utilization of resources for the betterment of the children's health

              AIMES as a tool guides the different countries where the children are based on ensuring that funds donated by the donors are put into good use by the directors. The system provides well-designed metrics for purposes of keeping track of how these resources are used. The AIMES tool also enabled customization of measures taken by the directors of the project based on the needs of the children and the families they work in. For example, if the need arose to improve the health conditions of the children due to high health crisis, then they would do precisely that to make their services more profitable to the children (Sarvet, et al.,2016).

Weaknesses

Lack of vision and mission statements

              Despite the excellent improvements in service delivery to sponsored children, it is crucial to have a mission and vision statement that clearly states its goals. This because a vision statement provides directives and strategies which can be used by the staff and volunteers to achieve the purposes of the system. Therefore, lack of these statements makes it difficult for the team to accomplish the same goal for the betterment of the project.

Unclear allocation of roles and responsibilities

              When duties are not properly allocated to the staff, it becomes chaotic in-service delivery to the children. Misappropriation of funds is also possible because the system does not provide transparent responsibility allocation to every individual.

Lack of planned strategy for all communities

              AIMES does not have a well-laid strategy for the communities they work in. Hence, these communities must have their own designed strategy on how best they can utilize the program to benefit the children. However, this may be difficult because they may implement a plan that can be rejected by the project directors, which can, in the long run, lower their morale in offering the best services to the children.

References

Pratley, P. (2016). Associations between quantitative measures of women's empowerment and access to care and health status for mothers and their children: a systematic review of evidence from the developing world. Social Science & Medicine, 169, 119-131.

Sarvet, B., Gold, J., Bostic, J. Q., Masek, B. J., Prince, J. B., Jeffers-Terry, M., ... & Straus, J. H. (2010). Improving access to mental health care for children: the Massachusetts Child Psychiatry Access Project. Pediatrics, 126(6), 1191-1200.

Classmate 3

Critically evaluate Eastern University’s costing of parking permits. What do you think accounts for the university administration’s reluctance to build a parking garage?

According to Eastern University, there is a shortage of parking and they are trying to come up with a resolution to resolve the issue.  Currently they are offering two areas to park in which have two different cost.  The two costs of parking consists of distance to the school.  The closer to the school the more costly for the parking space. 

The proposal to construct a multi-floor parking facility sounds like a great idea.  It appears the cost of construction and the longevity to retrieve the cost back is making the university reluctant to proceed with the parking garage.  Their reluctance comes with fear that many will not purchase a parking space due to the cost they will have to charge each individual.  By not knowing for sure who would be willing to pay for a parking space, the university has no plans to build a parking building.

I find it extremely unique that Eastern University is under the expectation to recover the construction cost quickly and that if it is not possible, then they are reluctant.  There should be a plan in place to make the spaces affordable but still have a positive reinforcement of return for the university. 

The university can start by having a plan in place to recover the funds of building the garage and all costs incurred to maintain it.  Although the university believes that they should charge $1200.00 or more per space, there may be an alternative solution.  A separate evaluation can be put in place where they determine how many spaces are needed, maintenance and any other costs incurred.  They could evaluate the growth of the university and determine a reasonable yearly fee based on that information.  The university could also take into consideration that they will be maintaining one area versus the two different areas prior. 

After analyzing and reviewing this multiple times, I feel the university could use the “Methods of Recovering the Cost of Capital Assets.”  The university can use this method to recover the construction costs over a period of time for a certain period.  This will ensure a visual plan of cost and recovery and they could re-evaluate to make a better decision of the need and size of the parking garage and recovery of costs incurred.

The one concern that I had is the limited information of the university.  Although the university has a shortage of parking spaces, the assignment left out whether or not is was due to consistent increase in enrollment or any other reasoning.  Other factors should be in place other than reluctance to recovering costs.

Bragg, S. and Bragg, S. (2019). Cost recovery method — AccountingTools. [online] AccountingTools. Available at: https://www.accountingtools.com/articles/2017/5/15/cost-recovery-method [Accessed 27 Oct. 2019].

McGew, M. (2019, June 5). How to Calculate the Cost of Recovery Methods. Retrieved October 27, 2019, from https://homeguides.sfgate.com/how-to-calculate-the-cost-of-recovery-methods-13409679.html .

Wilkinson, J. (2019, February 26). Cost Recovery Definition: Cost Recovery Example. Retrieved October 27, 2019, from https://strategiccfo.com/cost-recovery/ .

 

 

· Do you agree or disagree with your classmates' posts, or can you offer different insight? Reply to 2 students 200 words

classmate 1

Communication climate mainly refers to build the relationship with each other by verbal or non-verbal messages. By this way of communication relations will be stronger.

This climate will be created by knowing about each other. Conductive communication climate will be established by positive way when the people feel that they are valued at that situation. In positive climate interaction between the people will be confident about their meetings. People will communicate their feelings and convey messages very confidently. In positive climate all the information to be conveyed very accurately. But in negative climate there will no effectiveness in their conveying message, causing errors and misunderstandings.

There are some of the communication channels which would be useful to improve the organizational changes. Communication channels in organization mainly tends to that how employees in the organization communicate with each other.

Face to Face

Face to Face communication is one of the effective channels which was practiced in every organization. When two persons are speaking to each other feeling can be exchanged easily and there will no doubts in the conveying messages in this channel. When speaking to a group you can determine your audience and convey the messages that is intended and ask follow-up questions.

Electronic

Emails, internet, and social media are some of the platforms in communication channels to convey. This will be practiced very rarely but if it was being practiced it should be effective. This communication is less personal, however it is the most efficient.

Broadcast Messages

This method was practiced conveying for the mass audience. TV, radio is some of the channels in broadcast Messages. Larger corporations use this method often, CEOs will have a broadcast feed that can be viewed across their global sites.

Williams, O. (2019, January 25). What Are Communication Channels Within an Organization? Retrieved from Chron: https://smallbusiness.chron.com/communication-channels-within-organization-61447.html

Classmate 2

To be a great and effective leader/manager one must be open to new ideas even if they are not ideas from self.  Effective communication is key to any successful business or organization. 

How would I establish a conducive communication climate?

I would have an open door policy, and stick to it meaning all employees can feel safe to come talk to me about any problems, situations, ideas and etc. I would not dismiss any of my employees’ feelings.  Oftentimes, and speaking from experience the first thing your supervisor say is I have an open door policy so please feel free to come in and express any concerns, comments, or questions.  Well this is not accurate.  Employees in most companies feel unappreciated, and not respected all because their opinions and feelings were dismissed. 

I’m a firm believer that employees drive the company, they are the ones making sure your vision becomes a reality so we as managers must treat them as such.  I would incorporate the 10 golden rules written by Jayson Demers.

1. Be consistent.

In order to be effective as a manger, communication, rules and regulations must be consistent. Have the same approach for the same behaviors when they occur and treat all employees equal. (DeMers, 2016)

2. Focus on clarity, accuracy and thoroughness in communication.

Be as precise, accurate, and thorough when presenting ideas, policy, and changes as possible to prevent confusion.  (DeMers, 2016)

3. Set the goal of working as a team.

Let employees work together on projects related to the company, to inspire them to work as a unit. (DeMers, 2016)

4. Publicly reward and recognize hard work.

We are all driven by accolades, so why not reward those employees reaching their goals and going above and beyond.  This will motivate the employees to do great at all times.  They will have something extra to look forward to besides a paycheck.  Public recognition will let employees know they are appreciated.  As the manager it is imperative to be consistent with the rewards so it will not be seen as showing favoritism. (DeMers, 2016)

5. Be the example.

Lead by example.  Show and display the actions and work you want your employees to display. For example if a meeting is scheduled for 10 am, the manager should be there on time, because we expect our employees to arrive on time. In the words of Jayson DeMers “Strive to be your own ideal of the perfect worker, especially in front of the team”. (DeMers, 2016)

6. Never go with one-size-fits-all.

All employees have their own uniqueness where it be strengths, weakness, or how they handle different situations.  No two employees are the same therefore; as a manager your approach will need to be adjusted to meet all employees where they are. (DeMers, 2016)

7. Remain transparent as possible.

Try to never have an employee feel unknowledgeable about things within the company that they should be made privy too. Being transparent will build a long lasting trust between managers and employees. (DeMers, 2016)

8. Encourage all opinions and ideas.

It’s great to have active participation within a company from employees to build a more grand business, and improve things that needs improvement. Be welcoming and never dismiss an employees’ ideas and opinions. (DeMers, 2016)

9. Help people enjoy work.

Make work fun, take suggestions from employees on how work can be fun.  For example, creating a nice space for employees to have breaks, bring doughnuts on Friday, and etc. (DeMers, 2016)

10. Listen and ask questions.

Always ask your employees if they have any questions, comments, or concerns. Keep an open dialogue with all employees. (DeMers, 2016)

As a manager I strongly feel if the above 10 rules are incorporated your business will flourish and be successful.

 

DeMers, J. (2016). Management Lessons. The 10 Golden Rules of Effective Management.

 

 

Case Study: Woodhaven Service

Background

Woodhaven Service is a small, independent gas station located in the Woodhaven section of Queens. The station has three gasoline pumps and two service bays. The repair facility specializes in automotive maintenance (oil changes, tune-ups, etc.) and minor repairs (mufflers, shock absorbers, etc.). Woodhaven generally refers customers who require major work, such as transmission rebuilds and electronics, to shops that are better equipped to handle such repairs. Major repairs are done in-house only when both the customer and mechanic agree that this is the best course of action.

During the 20 years that he has owned Woodhaven Service, Harold Mateen’s competence and fairness have built a loyal customer base of neighborhood residents. In fact, demand for his services has been more than he can reasonably meet, yet the repair end of his business is not especially profitable. Most of his competitors earn the lion’s share of their profits through repairs, but Harold is making almost all of his money by selling gasoline. If he could make more money on repairs, Woodhaven would be the most successful service station in the area. Harold believes that Woodhaven’s weakness in repair profitability is due to the inefficiency of his mechanics, who are paid the industry average of $500 per week. While Harold does not think he overpays them, he feels he is not getting his money’s worth.

Harold’s son, Andrew, is a student at the university, where he has learned the Socratic dictum, “To know the Good is to do the Good.” Andrew provided his father with a classic text on employee morality, Dr. Weisbrotten’s Work Hard and Follow the Righteous Way. Every morning for two months, Harold, Andrew, and the mechanics devoted one hour to studying this text. Despite many lively and fascinating discussions on the rights and responsibilities of the employee, productivity did not improve one bit. Harold figured he would just have to go out and hire harder-working mechanics.

The failure of the Weisbrotten method did not surprise Lisa, Harold’s daughter. She knew that Andrew’s methods were bunk. As anyone serious about business knows, the true science of productivity and management of human resources resides in Professor von Drekken’s masterful Modifying Organizational Behavior through Employee Commitment. Yes, employee commitment was the answer to everything! Harold followed the scientific methods to the letter. Yet, despite giving out gold stars, blowing up balloons, and wearing a smiley face button, he found Lisa’s approach no more successful than Andrew’s.

Compensation Plans

Harold thinks that his neighbor Jack Myers, owner of Honest Jack’s Pre-Enjoyed Autorama, might be helpful. After all, one does not become as successful as Jack without a lot of practical knowledge. Or maybe it is Jack’s great radio jingle that does it. Jack tells Harold,

It’s not the jingle, you idiot! It’s the way I pay my guys. Your mechanics make $500 a week no matter what. Why should they put out for you? Because of those stupid buttons? My guys—my guys get paid straight commission and nothing more. They do good by me and I do good by them. Otherwise, let ’em starve.

Look, it’s real simple. Pay ’em a percent of the sales for the work they do. If you need to be a nice guy about it, make that percent so that if sales are average, then they make their usual $500. But if sales are better, they get that percent extra. This way they don’t get hurt but got real reason to help you out.

This hurt Harold. He really liked those buttons. Still, Jack did have a point. Straight commission, however, seemed a little radical. What if sales were bad for a week? That would hurt the mechanics.

Harold figured that it would be better to pay each mechanic a guaranteed $300 a week plus a commission rate that would, given an average volume of business, pay them the extra $200 that would bring their wage back to $500. Under this system, the mechanics would be insulated from a bad week, would not be penalized for an average week, and would still have the incentive to attempt to improve sales. Yes, this seemed more fair.

On the other hand, maybe Jack knows only about the used car business, not about business in general. Harold figured that he should look for an incentive pay method more in line with the way things are done in the auto repair business. Perhaps he should pay his mechanics as he is paid by his customers—by the job. It is standard practice for service stations to charge customers a flat rate for the labor associated with any job. The number of labor hours for which the customer is charged is generally taken from a manual that outlines expected labor times for specific jobs on specific vehicles. The customer pays for these expected hours regardless of how many actual labor hours are expended on the job. Many shops also pay their mechanics by the job. Harold thinks that this approach makes sense because it links the mechanic’s pay to the labor charges paid by the customer.

Required:

a.	This case presents some popular approaches to alleviating agency costs. Although certain aspects of each of these methods are consistent with the views presented in the text, none of these methods is likely to succeed. Discuss the similarities and differences between the ideas of the chapter and (i) Dr. Weisbrotten’s approach. (ii) Harold Mateen’s idea of hiring “harder-working” mechanics.
b.	Discuss the expected general effect on agency costs at Woodhaven Service of the new incentive compensation plans. How might they help Woodhaven? Assuming that Harold wants his business to be successful for a long time to come, what major divergent behaviors would be expected under the new compensation proposals? How damaging would you expect these new behaviors to be to a business such as Woodhaven Service? Also, present a defense of the following propositions: (i) Harold’s plan offers less incentive for divergent behavior than Honest Jack’s. (ii) Limiting a mechanic’s pay by placing an upper bound of $750 per week on his or her earnings reduces the incentive for divergent behavior.
c.	Suppose Harold owned a large auto repair franchise located in a department store in a popular suburban shopping mall. Suppose also that this department store is a heavily promoted, well-known national chain that is famous for its good values and easy credit. How should Harold’s thinking on incentive compensation change? What if Harold did not own the franchise but was only the manager of a company-owned outlet?
d.	In this problem, it is assumed that knowledge and decision rights are linked. The mechanic who services the car decides what services are warranted. Discuss the costs and benefits of this fact for Woodhaven Service and the independently owned chain-store repair shop.
e.	Suppose that Woodhaven’s problems are not due to agency costs. Briefly describe a likely problem that is apparent from the background description in this problem.