What would be the cost per unit of producing Guest Room Set A using factory space as the allocation basis?

What would be the cost per unit of producing Guest Room Set A using factory space as the allocation basis?
InstructionsInstructions Read and follow these instructions to complete the workbook. 1. To complete the Income Statement worksheet, Balance Sheet worksheet, and Cash Flow worksheet: a. Visit the SEC website at sec.gov and find the Choice Hotels (CHH) 10-K report for 2017 and 2016. b. Collect Marriott International’s 10-K 2017 and 2016 data from the Securities Exchange Commission website. c. Complete the percent change columns on the right side each table of the workbook. d. Answer the questions in the space given. 2. Given the supplied data in the Cost and Investing worksheet, answer the questions in the space provided. 3. To complete the Budgeting worksheet and Profitability worksheet: a. Solve the ratios provided. b. Answer the questions in the space given.
Income StatementCHH 2017 10-K Report CHH 2016 10-K Report MAR 2017 10-K Report MAR 2016 10-K ReportChoice Hotels 10-K Marriott International 10-K2017 2016 (2017/2016)-1 2017 2016 (2017/2016)-1Account Name 2017 10-K 2016 10-K Percent change from 2016 to 2017 Account Name 2017 10-K 2016 10-K Percent change from 2016 to 2017REVENUES REVENUESRoyalty fees $ 345,302 $ 320,547 Base management fees $ 1,102 $ 806Initial franchise and relicensing fees $ 26,262 $ 23,953 Franchise fees $ 1,618 $ 1,169Procurement services $ 34,661 $ 31,226 Incentive management fees $ 607 $ 425Marketing and reservation system $ 567,083 $ 525,716 Owned, leased, and other revenue $ 1,802 $ 1,126Other $ 34,048 $ 23,199 Cost reimbursements $ 17,765 $ 13,546Total revenues $ 1,007,356 $ 924,641 9% Total revenue $ 22,894 $ 17,072 34%OPERATING EXPENSES OPERATING COSTS AND EXPENSESSelling, general and administrative $ 163,377 $ 148,728 Owned, leased, and other-direct $ 1,427 $ 900Depreciation and amortization $ 12,431 $ 11,705 Reimbursed costs $ 17,765 $ 13,546Marketing and reservation system $ 567,083 $ 525,716 Depreciation, amortization, and other $ 290 $ 168Total operating expenses $ 742,891 $ 686,149 General, administrative, and other $ 894 $ 704Gain (loss) on sale of assets, net $ (32) $ 403 Merger-related costs and charges $ 159 $ 386Operating income $ 264,433 $ 238,895 11% Costs and Expenses, Total $ 20,535 $ 15,704Operating income $ 2,359 $ 1,368 72%OTHER INCOME AND EXPENSES, NET Gains and other income, net $ 688 $ 5Interest expense $ 45,039 $ 44,446 Interest expense $ (288) $ (234)Interest income $ (5,920) $ (3,535) Interest income $ 38 $ 35Other gains $ (3,229) $ (1,504) Equity in earnings $ 39 $ 10Equity in net (income) loss of affiliates $ 4,546 $ (492)Total other income and expenses, net $ 40,436 $ 38,915 4%Income before income taxes $ 223,997 $ 199,980 12% Income before income taxes $ 2,836 $ 1,184 140%Income taxes $ 109,104 $ 60,609 80% Provision for income taxes $ (1,464) $ (404) 262%Net income $ 114,893 $ 139,371 -18% Net income $ 1,372 $ 780 76%Questions: 1. Based on your horizontal analysis of Choice Hotels’ and Marriott International’s total revenue, total expenses, and net income, which company would be a more attractive target for an acquisition by the equity firm and why? 2. Given the changes in total revenue, operating income, and net income from 2016 to 2017, did Choice Hotels or Marriott International experience more change? Which area (total revenue, operating income, or net income) changed most?
Answer questions 1 and 2 here. 1. Marriott’s Hotels would be a more attractive target for an acquisition by the equity firm as it has recorded a higher improvement across the revenues by 76% while Choice has recorded an 18% decline . The operating income has also increased by 725 compared to Choice’s 11%. Futhermore, Marriot’s largest expense, Cost Reimburesments are instantly canceled out by the matching revenue and cost reimbursments. As a reslut, it leaves little worry considering paying back short term expenses. 2. Marriott’s recorded more change in total revenues , operating incomes as well as the net incomes
https://www.sec.gov/Archives/edgar/data/1046311/000104631118000006/0001046311-18-000006-index.htm https://www.sec.gov/Archives/edgar/data/1046311/000104631117000006/0001046311-17-000006-index.htm https://www.sec.gov/Archives/edgar/data/1048286/000162828018001756/0001628280-18-001756-index.htm https://www.sec.gov/Archives/edgar/data/1048286/000162828017001506/0001628280-17-001506-index.htmBalance SheetCHH 2017 10-K Report CHH 2016 10-K Report MAR 2017 10-K Report MAR 2016 10-K ReportAccount name 2017 2016 (2017/2016)-1 Account name 2017 2016 (2017/2016)-1ASSETS CHH 2017 10-K Report CHH 2016 10-K Report Percent change from 2016 to 2017 ASSETS MAR 2017 10-K Report MAR 2016 10-K Report Percent change from 2016 to 2017Current assets Current assetsCash and cash equivalents $ 235,336.00 $ 202,463.00 16% Cash and equivalents $ 383.00 $ 858.00 -55%Receivables $ 125,452.00 $ 107,336.00 17% Accounts and notes receivable, net $ 1,991.00 $ 1,695.00 17%Income taxes receivable $ – 0 $ 316.00 -100% Prepaid expenses and other $ 224.00 $ 230.00 -3%Notes receivable, net of allowance $ 13,904.00 $ 7,873.00 77% Assets held for sale $ 149.00 $ 588.00 -75%Other current assets $ 28,241.00 $ 26,885.00 5% Assets, current, total $ 2,747.00 $ 3,371.00 -19%Total current assets $ 402,933.00 $ 344,873.00 17% Property and equipment, net $ 1,793.00 $ 2,335.00 -23%Property and equipment, at cost, net $ 83,374.00 $ 84,061.00 -1% Intangible assetsGoodwill $ 80,757.00 $ 78,905.00 2% Intangible assets $ 8,805.00 $ 9,270.00 -5%Intangible assets, net $ 14,672.00 $ 15,738.00 -7% Goodwill $ 9,207.00 $ 7,598.00 21%Notes receivable, net of allowances $ 147,993.00 $ 110,608.00 34% Goodwill and intangible assets, net, total $ 18,012.00 $ 16,868.00 7%Investments, employee benefit plans, at fair value $ 20,838.00 $ 16,975.00 23% Equity and cost method investments $ 740.00 $ 728.00 2%Investments in unconsolidated entities $ 134,226.00 $ 94,839.00 42% Notes receivable, net $ 142.00 $ 245.00 -42%Deferred income taxes $ 13,335.00 $ 52,812.00 -75% Deferred tax assets $ 93.00 $ 116.00 -20%Other assets $ 29,479.00 $ 53,657.00 -45% Other noncurrent assets $ 421.00 $ 477.00 -12%Total assets $ 927,607.00 $ 852,468.00 9% Total assets $ 23,948.00 $ 24,140.00 -1%LIABILITIES AND SHAREHOLDERS EQUITY CHH 2017 10-K Report CHH 2016 10-K Report LIABILITIES AND SHAREHOLDERS EQUITY MAR 2017 10-K Report MAR 2016 10-K ReportCurrent liabilities Current liabilitiesAccounts payable $ 63,540.00 $ 48,071.00 32% Current portion of long-term debt $ 398.00 $ 309.00 29%Accrued expenses and other current liabilities $ 85,838.00 $ 80,388.00 7% Accounts payable $ 780.00 $ 687.00 14%Deferred revenue $ 141,111.00 $ 133,218.00 6% Accrued payroll and benefits $ 1,227.00 $ 1,174.00 5%Current portion of long-term debt $ 1,232.00 $ 1,195.00 3% Liability for guest loyalty programs $ 2,064.00 $ 1,866.00 11%Income taxes payable $ 2,776.00 $ 796.00 249% Accrued expenses and other $ 1,541.00 $ 1,111.00 39%Total current liabilities $ 294,497.00 $ 263,668.00 12% Liabilities, current, total $ 6,010.00 $ 5,147.00 17%Long-term debt $ 725,292.00 $ 839,409.00 -14% Long-term debt $ 7,840.00 $ 8,197.00 -4%Deferred compensation and retirement plan obligations $ 25,566.00 $ 21,595.00 18% Liability for guest loyalty programs $ 2,876.00 $ 2,675.00 8%Income taxes payable $ 29,041.00 $ – 0 Deferred tax liabilities $ 604.00 $ 1,020.00 -41%Deferred income taxes $ 39.00 $ 292.00 -87% Other noncurrent liabilities $ 2,887.00 $ 1,744.00 66%Other liabilities $ 65,274.00 $ 38,853.00 68% total liabilities $ 20,217.00 $ 18,783.00 8%Total liabilities $ 1,139,709.00 $ 1,163,817.00 -2% Shareholders’ equityClass A Common Stock $ 5.00 $ 5.00 0%Commitments and Contingencies Additional paid-in-capital $ 5,770.00 $ 5,808.00 -1%Common stock $ 951.00 $ 951.00 0% Retained earnings $ 7,391.00 $ 6,501.00 14%Additional paid-in-capital $ 182,448.00 $ 159,045.00 15% Treasury stock, at cost $ (9,418.00) $ (6,460.00) 46%Accumulated other comprehensive loss $ (4,699.00) $ (8,522.00) -45% Accumulated other comprehensive loss $ (17.00) $ (497.00) -97%Treasury stock $ (1,064,573.00) $ (1,070,383.00) -1% Stockholders’ deficit $ 3,731.00 $ 5,357.00 -30%Retained earnings $ 673,771.00 $ 607,560.00 11% Liabilities and deficit, total $ 23,948.00 $ 24,140.00 -1%Total shareholders equity $ (212,102.00) $ (311,349.00) -32%Total liabilities and shareholders equity $ 927,607.00 $ 852,468.00 9%Questions: 1. Based on your horizontal analysis of Choice Hotels’ and Marriott International’s total assets, total liabilities, and total equity, which company is most attractive for an acquisition by the equity firm and why? 2. What advice would you give to the client, Choice Hotels, to reduce its total liabilities?
Answer questions 1 and 2 here. 1. The horizontal analysis shows that Choice Hotels is the most attractive as the assets have increased by 9%, the liabilities have reduced by 2% while the paid in capital increased by 15% and the shareholder equity has also improved by 32%. On the other hand, Marriott’s has seen the stockholder equity decrease by 30%, liability has increased by 8% and the assets have reduced by 1% 2. Choice Hotels should consider using internal sources of finance to reduce the total liabilities. The Accounting Manager should know how to reduce the Transition Tax that they pay when bringing in foreign income in the United States. If unable to cut it down, they should consider to paying it over time in lieu of a lump sum. Another alternative would be to apply cash and cas equivalents to any libilities notabily: long-term debt and account payable.
https://www.sec.gov/Archives/edgar/data/1046311/000104631118000006/0001046311-18-000006-index.htm https://www.sec.gov/Archives/edgar/data/1046311/000104631117000006/0001046311-17-000006-index.htm https://www.sec.gov/Archives/edgar/data/1048286/000162828018001756/0001628280-18-001756-index.htm https://www.sec.gov/Archives/edgar/data/1048286/000162828017001506/0001628280-17-001506-index.htmCash FlowCHH 2017 10-K Report CHH 2016 10-K Report MAR 2017 10-K Report MAR 2016 10-K Report10-K 10-KChoice Hotels 2017 2016 (2017/2016)-1 Marriott International 2017 2016 (2017/2016)-1CASH FLOWS FROM OPERATING ACTIVITIES 2017 10-K 2016 10-K Percent change from 2016 to 2017 CASH FLOWS FROM OPERATING ACTIVITIES 2017 10-K 2016 10-K Percent change from 2016 to 2017Net income $ 114,893 $ 139,371 -0.1756319464 Net income $ 1,372 $ 780 76%Adjustments to reconcile net income to net cash provided by operating activities Adjustments to reconcile to cash provided by operating activities:Depreciation and amortization $ 12,431 $ 11,705 6% Depreciation, amortization, and other $ 290 $ 168 73%Loss (gain) on disposal of assets $ 52 $ (346) -115% Share-based compensation $ 181 $ 212 -15%Provision for bad debts, net $ 3,440 $ 2,151 60% Income taxes $ 828 $ 76 989%Non-cash stock compensation and other charges $ 23,340 $ 15,458 51% Liability for guest loyalty program $ 378 $ 343 10%Non-cash interest and other (income) loss $ (772) $ 1,059 -173% Merger-related charges $ (124) $ 113 -210%Deferred income taxes $ 39,320 $ (10,542) -473% Working capital changes $ 81 $ (77) -205%Equity in net losses from unconsolidated joint ventures, less distributions received $ 6,579 $ 1,025 542% (Gain) loss on asset dispositions $ (687) $ 1 -68800%Changes in assets and liabilities, net of acquisition Other $ 117 $ 66 77%Receivables $ (23,126) $ (21,919) 6% Net cash provided by operating activities $ 2,436 $ 1,682 45%Advances to/from marketing and reservation system activities, net $ 51,722 $ (21,449) -341%Forgivable notes receivable, net $ (30,638) $ (17,410) 76% INVESTING ACTIVITIESAccounts payable $ 12,455 $ (13,689) -191% Acquisition of a business, net of cash acquired $ – 0 $ (2,412) -100%Accrued expenses and other current liabilities $ 7,176 $ 5,225 37% Capital expenditures $ (240) $ (199) 21%Income taxes payable/receivable $ 31,383 $ 5,775 443% Dispositions $ 1,418 $ 218 550%Deferred revenue $ 7,797 $ 61,646 -87% Loan advances $ (93) $ (32) 191%Other assets $ 1,521 $ (8,703) -117% Loan collections $ 187 $ 67 179%Other liabilities $ (199) $ 2,678 -107% Contract acquisition costs $ (189) $ (80) 136%Net cash provided by operating activities $ 257,374 $ 152,035 69% Redemption of debt security $ – 0 $ – 0Other $ (63) $ 29 -317%CASH FLOWS FROM INVESTING ACTIVITIES Net cash provided by (used in) investing activities $ 1,020 $ (2,409) -142%Investment in property and equipment $ (23,437) $ (25,191) -7%Investment in intangible assets $ (2,517) $ (2,580) -2% FINANCING ACTIVITIESProceeds from sales of assets $ 1,000 $ 11,462 -91% Commercial paper/Credit Facility, net $ 25 $ 1,365 -98%Acquisitions of real estate $ – 0 $ (28,583) -100% Issuance of long-term debt $ – 0 $ 1,482 -100%Business acquisition, net of cash acquired $ – 0 $ (1,341) -100% Repayment of long-term debt $ (310) $ (326) -5%Contributions to equity method investments $ (50,554) $ (34,661) 46% Issuance of Class A Common Stock $ 6 $ 34 -82%Distributions from equity method investments $ 4,569 $ 3,700 23% Dividends paid $ (482) $ (374) 29%Purchases of investments, employee benefit plans $ (2,447) $ (1,661) 47% Purchase of treasury stock $ (3,013) $ (568) 430%Proceeds from sales of investments, employee benefit plans $ 2,245 $ 1,911 17% Share-based compensation withholding taxes $ (157) $ (100) 57%Issuance of mezzanine and other notes receivable $ (19,738) $ (32,604) -39% Other $ – 0 $ (24) -100%Collections of mezzanine and other notes receivable $ 655 $ 11,070 -94% Net cash (used in) provided by financing activities $ (3,931) $ 1,489 -364%Other items, net $ 109 $ 11 891% (DECREASE) INCREASE IN CASH AND EQUIVALENTS $ (475) $ 762 -162%Net cash used by investing activities $ (90,115) $ (98,467) -8% CASH AND EQUIVALENTS, beginning of period $ 858 $ 96 794%CASH AND EQUIVALENTS, end of period $ 383 $ 858 -55%CASH FLOWS FROM FINANCING ACTIVITIESProceeds from the issuance of long-term debt $ – 0 $ – 0Net (repayments) borrowings pursuant to revolving credit facilities $ (115,003) $ 25,795 -546%Principal payments on long-term debt $ (660) $ (988) -33%Proceeds from other debt agreements $ – 0 $ 550 -100%Debt issuance costs $ – 0 $ (284) -100%Purchases of treasury stock $ (9,807) $ (35,926) -73%Dividends paid $ (48,651) $ (46,182) 5%Proceeds from transfer of interest in notes receivable $ 24,237 $ – 0Proceeds from exercise of stock options $ 14,107 $ 12,951 9%Net cash used by financing activities $ (135,777) $ (44,084) 208%Net change in cash and cash equivalents $ 31,482 $ 9,484 232%Effect of foreign exchange rate changes on cash and cash equivalents $ 1,391 $ (462) -401%Cash and cash equivalents at beginning of period $ 202,463 $ 193,441 5%Cash and cash equivalents at end of period $ 235,336 $ 202,463 16%Questions: 1. Based on your horizontal analysis of Choice Hotels’ and Marriott International’s operating, investing, and financing activities, which company is most attractive for an acquisition by the equity firm and why? 2. What advice would you give to the client, Choice Hotels, to improve their investing and financing activities?
Answer questions 1 and 2 here. 1. Choice Hotels has seen an improvement in cash from operations , financing activities and a reduction in the investing activities cash flows. Choie Hotels invests massively in purchasing more real estate. Futhermore, the horizontal analysis and cash flows ratios show that Choice Hotels has enough cash flows from operarations and iti is financially looking good. On the other hand, Marriott’s has seen an improvement in the cash from operation but a reduction in cash flow investing and financing activities. Therefore, Choice Hotels is the most attractive company for acquisition. 2. Concerning Choice Hotels financial activities improvement, the copmany should consider issuing shares of stock to raise raise funds so as to boost its financinf activities. Another way of improving financial activities is to re-negotiate different terms with creditors on how to pay down its debts to reduce long-term debts. Moreover, for Choice Hotels to increase its financial activities, it would best to reduce the amount of dividents paid out each year to shareholders. Regarding how to improve investing activities, Choice Hotels should recognize more shares of the investees’ net loss to reduce its equity mehod of investment. Finally, the company should consider leasing instead of acquiring the assets, seek equity sources to finance the assets instead of issuing notes to pay for the investments. The company should also invest in vehicles that have higher returns
https://www.sec.gov/Archives/edgar/data/1046311/000104631118000006/0001046311-18-000006-index.htm https://www.sec.gov/Archives/edgar/data/1046311/000104631117000006/0001046311-17-000006-index.htm https://www.sec.gov/Archives/edgar/data/1048286/000162828018001756/0001628280-18-001756-index.htm https://www.sec.gov/Archives/edgar/data/1048286/000162828017001506/0001628280-17-001506-index.htmCost and InvestingChoice Hotels Sales, Production, and Cost Information Overhead CostsRoom Type Standard Guest Room Junior Suite Presidential Suite Type CostVolume 150 110 25 285 Depreciation $3,200,000 $750,000 $8,550,000Price $140,000 $240,000 $1,050,000 Maintenance $1,800,000Unit costs Purchasing $320,000 $950,000Direct materials $30,000 $92,000 $310,000 Inspection $850,000 $100,000Direct labor $54,000 $85,000 $640,000 Indirect materials $490,000 $104,251.89Manufacturing $30,000 $30,000 $30,000 Supervision $1,700,000 $35,748overhead Supplies $190,000Total unit cost $114,000 $207,000 $980,000 Total manufacturing overhead cost $8,550,000Unit gross profit $26,000 $33,000 $70,000 Note: Manufacturing overhead costs are fixed. They do not vary with the volume of manufacturing activity.Direct labor hours 1,200 1,300 5,940Rate per hour $45.00 $65.38 $107.74Answer Questions 1 and 2 Below:135562.12Choice Hotels’ controller developed the following data for use in activity-based costing: Complete the calculations to help you answer the questions below. Answer Questions 3 to 10 Below:Manufacturing overhead Amount Cost driver Standard Guest Room Junior Suite Presidential Suite Sum of Cost Drivers Cost per cost driver Cost per Standard Guest room Cost per Junior Suite Cost per Presidential Suite CheckDepreciation $3,200,000 Square feet 50,000 30,000 30,000 110,000 $ 29.09 $ 1,454,545 $ 872,727 $ 872,727 $ 3,200,000Maintenance $1,800,000 Direct labor hours 180,000 143,000 148,500 471,500 4 687,169 545,917 566,914 1,800,000Purchasing $320,000 # of purchase orders 2,500 1,500 9,000 13,000 25 61,538 36,923 221,538 320,000Inspection $850,000 # of inspections 1,000 850 3,500 5,350 159 158,879 135,047 556,075 850,000Indirect $490,000 Units manufactured 150 110 25 285 $1,719.30 257894.736842105 189122.807017544 42982.4561403509 490000materialsSupervision $1,700,000 # of inspections 1,000 850 3,500 5,350 $317.76 $317,757.01 $270,093.46 $1,112,149.53 $1,700,000.00Supplies $190,000 Units manufactured 150 110 25 285 $666.67 $100,000.00 $73,333.33 $16,666.67 $190,000.00Total $8,550,000 234,800 176,420 194,550 $ 3,037,782.78 $ 2,123,163.96 $ 3,389,053.26 $ 8,550,000.00 19301.490545454520251.8852Questions: 1. What would be the cost per unit of producing Guest Room Set A using factory space as the allocation basis? What would be the cost per unit using labor as the allocation basis? 2. What would be the cost per unit of producing Guest Room Set A using activity-based costing? 3. Should Choice Hotels build Guest Room Set A or Guest Room Set B? Why? 4. Should Choice Hotels build or purchase the guest room furniture? Why?
Choice Hotels produces three models of guest rooms: the standard guest room, Junior Suite, and Presidential Suite. The Standard Guest Room comes with basic furniture, bathroom plan, and amenities. It sells for $140,000 to franchise hotels. The Junior Suite model is larger and includes an enhanced furniture selection, upgraded bathroom fixtures, more comfortable bedding. The guest room is considered an upgrade from the standard guestroom model. The Junior Suite sells for $240,000 to franchise hotels. The Presidential Suite model is a custom-made guest room with floors and walls constructed from specialty wood. The drapes are made from the traditional flax-based canvass. It has the look and feel of a room in the White House, with modern comforts and security. The Presidential Suite sells for $1,050,000 to franchise hotels. Workers who build the Presidential Suite are specialized craftsmen. They earn twice the hourly rate of those working on the Standard Guest Room and Junior Suite models. The labor rate is fully burdened to include benefits. Most of Choice Hotels’ guest room sales come from the Standard Guest Room and the Junior Suite, but sales of the Presidential Suite model have been growing. The company’s sales, production, and cost information for last year is provided to the right.
Questions: 3. Use activity-based costing to allocate the costs of overhead per unit and in total to each guest room type. Show all supporting calculations in the space provided to the right. 4. Calculate the cost of one Presidential Suite using activity-based costing.
Questions: 1. The cost-allocation system Choice Hotels has been using allocates over 90 percent of overhead costs to the Standard Guest Room and the Junior Suite, because over 90 percent of the models produced were one of these two models. How much overhead was allocated to each of the three models last year? Discuss why this might not be an accurate way to assign overhead costs to products. 2. Choice Hotels’ production manager proposes allocating overhead by direct labor hours instead, since the different models require different amounts of labor. How much overhead would be allocated to each guest room (per unit and in total) using this method? Show all supporting calculations.
Questions: 5. At the current selling price, is the company covering its true cost of production of the Presidential Suite? Briefly discuss. 6. What should price should Choice Hotels charges for the Presidential Suite? 7. Assume that the Presidential Suite has the same profit margin as the standard guest room. What should its selling price be? Show all calculations. 8. What should Choice Hotels do if the quantity of the Presidential Suite Guest Rooms sold at the new price falls to 10 per year? 9. What should Choice Hotels do if the price of the Presidential Suite cannot exceed $1,050,000? 10. At a selling price of $1,050,000 each, what is the breakeven unit volume for the Presidential Suite?
Question: 1 . The allocation based on volumes means that the standard room is allocated $4.5 million, while the Junior suites gets $3.3 million and the presidential suites gets $750,0000. this allocation is erroneous as it does not take into account the actual costs for each of the units. The direct labor overhead should be allocated based on the actual labor used in each units , the direct material overheads should be allocated based on the purchase made but not the number of customers using the suites. Question: 2 standard suites = (1200/8440)8550000 = $1,215,639.81 Junior suites = (1300/8440)8550000 = $1,316,943.13 presidential suites = (5940/8440)*8550000 = $6,017,417.06 Question 2: The answer is incorrect; you must calculate using ABC and show your work.Because the cost driver is labor hours, it is not just the number of hours that need to be considered. The hours for each type must be multiplied by the rate per hour. The Labor Hours Cost must be found by finding rate per hour and multiplying the rate per hour by the unit labor hours. Here is how: multiplying the number of labor hours by the number of units for each type (e.g. Standard is 1,200 x 150 = 180,000) this gives the total labor hours for each type; then add all the total labor hours for each type together to get total labor hours for all manufacturing; then divide the total manufacturing overhead (MoH) cost by the total labor hours, that gives you the rate per hour; then multiply the rate per hour by the hours for each type giving you total MoH (hint: added together, total MoH should equal $8,550,000); then divide the total MoH for each type by the number of units produced to get the MoH per type; then divide the total MoH for each type by the Total MoH to find the percent of total MoH
Answer Questions 3 and 4 here. standard junior Suite presidential Suite depreciation $ 3,200,000 [(50,000/110,000)3,200,000] = $ 1,454,545 [(30,000/110,000)3,200,000] = $ 872,727 [(30,000/110,000)3,200,000] = $ 872,727 Maintenance [(180,000/471,500)1,800,00]= 687,169 [(143,000/471,500)1,800,00]= 545,917 [(471,050/471,500)1,800,00]= 566,914 Purchasing [(2500/13000)32000)= 61,538 [(1500/13000)32000)= 36,923 [(9000/13000)32000)= 221,538 Inspection [(1000/5350)85000] =158,879 [(850/5350)85000] = 135,047 [(850/5350)85000] = 556,075 Indirect Materials [(150/285)$490,000 ]= 257894.74 [(110/285)$490,000 ]= 189122.807 [(25/285)$490,000 ]= 42982.46 Supervision [(1000/5350)$1,700,000]=$317,757.01 [(850/5350)$1,700,000]=$270,093.46 [(3500/5350)$1,700,000]=$1,112,149.53 Supplies [(150/666.7)190,000]= $100,000.00 [(110/666.7)190,000]= $73,333.33 [(285/666.7)*190,000]= $16,666.67 Total $3,037,782.78 $2,123,163.96 $3,389,053.26 Total pr unit ($3,037,782.78 /150)=20251.8852 ($2,123,163.96 /110)=19301.49055 ( $3,389,053.26 /25) =135562.12 Question 4 direct material 310,000 direct labor 640,000 manufacturing overheads 3,389.053/25= 1355662.12 Total costs= Price $1,085,562
Answer Questions 5 to 10 here. 5. At the current price, the company is not meeting the true costs of the presidential suite. The Total costs incurred is $1,085,562 while the unit is selling at $1,050,000, which is $35,562. lower 6. Choice Hotels should sell the units at $110,497.24 ======>(1000,000/0.905) * Selling Price: 1,050,000. * –Direct Labor: 640,000. * –Direct Materials: 310,000. * Gross Profit: 100,000. * Gross Profit Margin: 100,000/1,050,000.====> 0.095 * Net Profit Margin: 1.00 – 0.095= 0.905 * New Sales Price: 100,000/0.905= 110,497.24 7. Standard guest room: costs = $93,333.33 ======>(56,000/0.6) * Selling Price: 140,000. * –Direct Labor: 54,000. * –Direct Materials: 30,000. * Gross Profit: 56,000. * Gross Profit Margin: 56,000/140,000..====> 0.4 * Net Profit Margin: 1.00 – 0.4= 0.6 * New Sales Price: 56,000/0.6= 93,333.33 8. If the units sold reduced to 10 per year, the company continues to make profit and therefore continue production 9. If prices cannot exceed the 105000 price, the company should stop producing these units since it will be a loss 10. the break even units at $1,050,000 is: * fixed costs = $1,085,562 * MOH: 30,000 * Contribution margin per unit: 100,000. =====> 1,050,000 – 950,000) * Breakenven= Fixed Cost / Unit Contribution * variable costs = 105000- (310,000+640,000) = 100000 break even = $1,085,562 /100,000 = 10.8556 units.
Choice Hotels has contracted with a mid-size furniture manufacturer for the production of guestroom furniture for three models of guest rooms: the standard guest room, Junior Suite, and Presidential Suite. The Standard Guest Room comes with basic furniture, bathroom plan, and amenities. It sells for $140,000 to franchise hotels. The Junior Suite model is larger and includes an enhanced furniture selection, upgraded bathroom fixtures, more comfortable bedding. The guest room is considered an upgrade from the standard guestroom model. The Junior Suite sells for $240,000 to franchise hotels. The Presidential Suite model is a custom-made guest room with floors and walls constructed from specialty wood. The drapes are made from the traditional flax-based canvass. It has the look and feel of a room in the White House, with modern comforts and security. The Presidential Suite sells for $1,050,000 to franchise hotels. Workers who build the Presidential Suite are specialized craftsmen. They earn twice the hourly rate of those working on the Standard Guest Room and Junior Suite models. The labor rate is fully burdened to include benefits. Most of Choice Hotels’ guest room sales come from the Standard Guest Room and the Junior Suite, but sales of the Presidential Suite model have been growing. The company’s sales, production, and cost information for last year is provided to the right.
Questions: 3. Use activity-based costing to allocate the costs of overhead per unit and in total to each guest room type. Show all supporting calculations in the space provided to the right. 4. Calculate the cost of one Presidential Suite using activity-based costing. 5. At the current selling price, is the company covering its true cost of production of the Presidential Suite? Briefly discuss. 6. What should price should Choice Hotels charges for the Presidential Suite? 7. Assume that the Presidential Suite has the same profit margin as the standard guest room. What should its selling price be? Show all calculations. 8. What should Choice Hotels do if the quantity of the Presidential Suite Guest Rooms sold at the new price falls to 10 per year? 9. What should Choice Hotels do if the price of the Presidential Suite cannot exceed $1,050,000? 10. At a selling price of $1,050,000 each, what is the breakeven unit volume for the Presidential Suite?
Questions: 1. The cost-allocation system Choice Hotels has been using allocates over 90 percent of overhead costs to the Standard Guest Room and the Junior Suite, because over 90 percent of the models produced were one of these two models. How much overhead was allocated to each of the three models last year? Discuss why this might not be an accurate way to assign overhead costs to products. 2. Choice Hotels’ production manager proposes allocating overhead by direct labor hours instead, since the different models require different amounts of labor. How much overhead would be allocated to each guest room (per unit and in total) using this method? Show all supporting calculations.
BudgetingChoice Hotels Marriott International (2017/2016)-1 (2017/2016)-1Ratios 2017 2016 2017 2016 Percent Change from 2016 to 2017 Percent Change from 2016 to 2017Quick ratio = (cash + cash equivalence + receivables) / current liabilities 1.2723117723 1.2060166573 0.39500832 0.4960170973 5% -20%Acid test ratio = current assets / current liabilities 1.368207486 1.3079820077 1.21247920 1.7635515834 5% -31%Debt ratio = total liabilities / total assets 1.2286550231 1.3652324779 1.18454766 1.2852047064 -10% -8%CHH: 2017 2016 Marriott: 2017 2016Cash and Cash Equivalents: 235336 202463 383 858Receivables: 125452 316 1991 1695Receivables: 13904 7873Receivables: 107336Current Assets: 402933 344873 7287 9077Total Assets: 927607 852468 23948 24140Current Liabilities: 294497 263668 6010 5147Total Liabilities: 1139709 1163817 20217 18783Questions: 1. Quick ratios between 0.5 and 1 are considered satisfactory as long as the collection of receivables is not expected to slow. Does the client, Choice Hotels, have enough current assets to meet the payment schedule of current liabilities with a margin of safety? 2. Which of the above ratios would you use to determine which company, Choice Hotels or Marriott International, is more attractive for an acquisition by the equity firm and why?
Answer Questions 1 to 3 here. 1. The quick ratios are above 1, which means that Choice Hotels has enough current assets to meet the current assets comfortably 2. The debt ratio would be better to determine which company is attractive for acquisition as this ratio indicates whether the company is able to finance all its debt requirements from the assets held. In case of a liquidation, the liability holders will be paid first before the equity holders Feedback for step 4: BUDGETING Quick ratios for both companies are incorrect. Quick and current ratios would be the same since neither company has inventory “Acid test ratio” (which is actually the current ratio) for Marriott are incorrect.. Use Total Liabilities as the numerator (hint: for Marriott you will need to add total current liabilities to long term liabilities [everything between Liabilities, current, total and Shareholders’ Equity titles]) Debt ratios for Marriott are incorrect. Current assets number has Property, Plant & Equipment included, which are not Current Assets Question 1 and 2 are correct.
ProfitabilityChoice Hotels Marriott International (2017/2016)-1 (2017/2016)-1Ratios 2017 2016 2017 2016 Percent Change from 2016 to 2017 Percent Change from 2016 to 2017Return on equity (ROE) = net income / total equity -54% -45% 37% 15% 21% 153%Return on assets (ROA) = net income / total assets 12% 16% 6% 3% -24% 77%Questions: 1. The return on assets ratio tells us the profit generated by each dollar in assets. You will want to compare this ratio to Choice Hotels’ historical performance and to Marriott International to understand if it is an acceptable ratio. Is the return on assets ratio acceptable? Why or why not? 2. Which of the above ratios would you use to determine which company, Choice Hotels or Marriott International, is more attractive for an acquisition? Why? 3. Based on the financial statement analysis, earnings per share analysis, budgeting ratios, and the above profitability ratios, which company would you invest in and why?
Answer Questions 1 to 3 here. 1.The ROA of Choice Hotels is more than double that of Marriott, meaning that Choice is more profitable as each asset is generating more returns per each as held than its competitor. ROA and ROE ratios show financial health of the company. If ROE is worse than ROA, it means that the company has borrowed so much. As a result, potential investors will stay away from investing in this company. 2. The ROA is more reliable when making a acquisition choice as it informs how the company is profitable relative to the assets it holds. 3. I would invest in Choice as it has higher returns on the equity and has shown an improvement in the tow years under review choice also has higher liquidity ratios, has seen better improvement in the financial position , cash flows and has higher revenues than Marriott’s. Prof Feedback: PROFITABILITY All ratios are correct The answer to question 1 is partially correct. While the ROA is better, the ROE is much worse. What does that mean for potential buyers?
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