Do you agree with Timmy that his strategy is wonderful? Why or why not?
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Timmy knows that Tammy, his boss at ABC Corp., desperately wants to bring the department in under-budget for the year so that she can earn herself a nice year-end bonus. And since Timmy is desperate to butter Tammy up and become her favorite employee, his brain churns out the following logic:
Even though I used my own credit card to take that big group of customers out to eat and to the ball game last night, and even though the total cost was $1,200, I’ll not submit an expense report and so not get reimbursed, which will make Tammy very happy and she’ll like me very much! Oh, and since I file a Schedule C for my side business (tax return prep), I’ll just deduct the $1,200 there! Wonderful strategy!
Do you agree with Timmy that his strategy is wonderful? Why or why not?
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- Recently, the owner of a Trader Joe's franchise decided to change how she compensated her top manager. Last year, she paid him a fixed salary of $65,000, and her store made $120,000 in profits (not counting payment to her top manager). She suspected the store could do much better and feared the fixed salary was causing her top manager to shirk on the job. Therefore, this year she decided to offer him a fixed salary of $30,000 plus 15 percent of the store's profits. Since the change, the store is performing much better, and she forecasts profits this year to be $280,000 (again, not counting the payment to her top manager). Assuming the change in compensation is the reason for the increased profits, and that the forecast is accurate, (a) Which compensation method (the old one or the new one) will the manager prefer? Please explain why. (b) Which compensation method (the old one or the new one) would the owner of the franchise prefer? Please explain why. (c) If there was another…Mary Smith is the owner and manager of a small bakery, “Mary’s Cookies”, which is known for its special gigantic almond-chocolate chip cookies. She has been offered a job by Cookie Monster, Inc., to come to work for them at $110,000 per year. Currently, she is producing her own cookies and she has revenues of $260,000 per year. Her costs are $10,000 for rent, $35,000 for ingredients, $5,000 for utilities, and $80,000 for wages, including $40,000 for Mary in concept of manager’s salary. She has $100,000 of her own money invested in the operation, which if she leaves, can be sold for $40,000 that she can invest at 8.2% per year. Using this information, calculate: Accounting profits = $ Economic profits = $ If instead, Mary pays herself no salary: Accounting profits = $ Economic profits = $Curley Maple has produced handcrafted tables for wholesale in his woodworking shop for the past year. He worked 6 days a week, 10 hour per day for 49 weeks of the year, leaving 3 weeks for holidays, vacation, and sick days. Curley has used up his savings over the past year, and now he needs to begin to draw an income from the business. Worried he is not pricing his tables correctly, curley decided to analyze the detailed records of his time and expenses that he has kept for the past year. Complete the chart:
- 1. Garrison Boutique, a small novelty store, just spent $4,000 on a new software program that will help in organizing its inventory. Due to the steep learning curve required to use the new software, Garrison must decide between hiring two part-time college students or one full-time employee. Each college student would work 20 hours per week, and would earn $15 per hour. The full-time employee would work 40 hours per week and would earn $15 per hour plus the equivalent of $2 per hour in benefits. Employees are given two polo shirts to wear as their uniform. The polo-shirts cost Garrison $10 each. Software, $4,000 None Shirts, $20 Shirts, $10 Benefits, $80 Benefits, $2 What are the relevant costs, relevant revenues, sunk costs, and opportunity costs for Garrison? PLEASE NOTE: For categories with multiple items from the list above, you will list them in the order in which they are presented in the problem and for the proper dollar amount. Categories: First Item Second Item…John Milton and two of his colleagues are considering opening a law office in New York City that would make inexpensive legal services available to those who could not otherwise afford these services. The intent is to provide easy access for their clients by having the office open 360 days per year, 16 hours each day from 7:00 a.m. to 11:00 p.m. The office would be staffed by a lawyer, paralegal, legal secretary, and clerk-receptionist for each of the two 8-hour shifts. In order to determine the feasibility of the project, John hired a marketing consultant to assist with market projections. The results of this study show that if the firm spends $500,000 on advertising the first year, the number of new clients expected each day would have the following probability distribution: Number of New Clients per Day Probability 20 0.10 30 0.30 55 0.40 85 0.20 John and his associates believe these numbers are reasonable and are prepared to spend the $500,000 on advertising. Other pertinent…Designs Ventures is a small business owned and run by Kwesi Foh from a small rented art studio at Akyem, Cape Coast. He designs and makes T-shirts for craft shops. In most months he produces and sells 1,000 T-Shirts at GH¢50 each. Kwesi would need your assistance in preparing a cash budget so that he can manage his business finances better and plan for unforeseen events that may have an impact on his business costs and revenues. He was sick a few months ago and was unable to meet some orders. As a result, his revenue was down and he has to use a bank overdraft to cover a large electricity bill. The overdraft has now been paid off but Kwesi does not want to run out of cash again. Develop a cash budget for Kwesi showing total cash in and out of his business each month and his cash balances. He currently has GH¢15,000 in his business account at a bank and has made you the list of regular outgoings shown below: Your cash budget should be for the period June to December. Quarterly bills…
