MANAGERIAL ACCTG W/MYLAB FDOC
5th Edition
ISBN: 9780136471868
Author: Braun
Publisher: PEARSON
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Textbook Question
Chapter 14, Problem 14.5SE
Analyze common-size income statements (Learning Objectives 1, 2, & 3)
Pandora Internet Radio by Pandora Media is a streaming music service. Its free advertising-supported radio service was first launched in 2005. Pandora users streamed 20.03 billion hours of Internet radio during 2014. In December 2014, there were 81.5 million active users of Pandora, making it the largest streaming music service currently, Pandora has a database of over 1,000,000 songs from over 125,000 artists.
Pandora offers its streaming music through two services:
- 1. Free Service: This option allows the listener access to the music by including advertisements.
- 2. Pandora One: This option is a paid subscription model without any advertisements; it also allows users to have more daily skips and longer listening times.
While Pandora currently has plenty of cash from its investors, it has yet to generate a profit since its inception. Pandora is facing increasing competition from sources such as Apple Music (approximately 6.5 million subscribers in 2015), Spotify (approximately 20 million paid subscribers in 2015), and other streaming services. In addition, Pandora’s costs in some areas are increasing.
When Pandora released its earnings for the third quarter of 2015, earnings were less than expected by investors and Pandora’s stock price fell sharply. Following are excerpts from Pandora’s statement of operations, both in dollars and in common-size formats. (These excerpts are condensed for educational use only.)
14.1-71 Full Alternative Text
14.1-72 Full Alternative Text
Requirements
- 1. Using the statement of operations excerpt in dollars, what can you say about how Pandora is doing in the third quarter of 2015 compared to the third quarter of 2014? What can you say about how Pandora is doing for the nine months ended September 30, 2015 compared to September 30, 2014? Can you tell if the rate of increase is greater for revenues or expenses from 2014 to 2015? Why or why not?
- 2. Using the statement of operations excerpt in dollars again, why is the loss from operations larger in 2015 than in 2014?
- 3. Using the common-size statement of operations excerpt, what can you say about how Pandora is doing in the third quarter of 2015 compared to the third quarter of 2014? What can you say about how Pandora is doing for the nine months ended September 30, 2015 compared to September 30, 2014? Is the rate of increase greater for revenues or expenses from 2014 to 2015?
- 4. Using the common-size statement of operations excerpt again, why is the loss from operations larger in 2015 than in 2014? Also, what can you say about the mix of advertising revenue versus subscription revenue?
- 5. Which statement (dollars versus common-size) is more useful for analyzing the financial performance of Pandora in this case? Explain.
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Social Media, Inc. (SMI) has two services for users. To ot!, which connects tuters with students who are looking for tutoring services, and TiX, which can be used to buy, sell, or exchange event tickets. For the following year, SMI expects the following results. Toot! TiX Total Users 13,100 20,100 33,200 Revenues $ 1,800,000 $ 1,760,000 $ 3,560,000 Engineering hours 9,300 7,300 16,600 Engineering cost $ 687,750 $ 806,250 $ 1,494,000 Administrative costs $ 1,195,200 Required: a. Compute the predetermined overhead rate used to apply administrative costs to the two services assuming SMI uses the number of users to allocate administrative costs. b. Based on the rates computed in requirement (a), what is the profit for each service?
Social Media, Inc. (SMI) has two services for users. Toot!, which connects tutors with students who are looking for tutoring services, and TiX, which can be used to buy, sell, or exchange event tickets. For the following year, SMI expects the following results.
Toot!
TiX
Total
Users
13,700
20,600
34,300
Revenues
$
1,850,000
$
1,840,000
$
3,690,000
Engineering hours
9,575
7,575
17,150
Engineering cost
$
734,000
$
852,375
$
1,586,375
Administrative costs
$
1,269,100
The company is considering using a two-stage cost allocation system and wants to assess the effects on reported product profits. The company is considering using Engineering Hours and Users as the allocation base. Additional information follows.
Toot!
TiX
Total
Engineering hours
9,575
7,575
17,150
Users
13,700
20,600
34,300
Engineering-hour related administrative cost
$
171,500
User-related…
Social Media, Inc. (SMI) has two services for users. Toot!, which connects tutors with students who are looking for tutoring services, and TiX, which can be used to buy, sell, or exchange event tickets. For the following year, SMI expects the following results.
Toot!
TiX
Total
Users
10,700
18,100
28,800
Revenues
$
1,600,000
$
1,440,000
$
3,040,000
Engineering hours
8,200
6,200
14,400
Engineering cost
$
516,500
$
635,500
$
1,152,000
Administrative costs
$
921,600
Required:
Compute the predetermined overhead rate used to apply administrative costs to the two services assuming SMI uses the number of usersto allocate administrative costs.
Based on the rates computed in requirement (a), what is the profit for each service?
Chapter 14 Solutions
MANAGERIAL ACCTG W/MYLAB FDOC
Ch. 14 - (Learning Objective 1) Which of the following...Ch. 14 - Prob. 2QCCh. 14 - Prob. 3QCCh. 14 - Prob. 4QCCh. 14 - (Learning Objective 3) Which of the following is...Ch. 14 - (Learning Objective 4) Working capital is defined...Ch. 14 - Prob. 7QCCh. 14 - Prob. 8QCCh. 14 - Prob. 9QCCh. 14 - Prob. 10QC
Ch. 14 - Prob. 14.1SECh. 14 - Find trend percentages (Learning Objective 1)...Ch. 14 - Prob. 14.3SECh. 14 - Prepare common-size income statements (Learning...Ch. 14 - Analyze common-size income statements (Learning...Ch. 14 - Cartwrights Data Set used for S14-6 through...Ch. 14 - Cartwrights Data Set used for S14-6 through...Ch. 14 - Cartwrights Data Set used for S14-6 through...Ch. 14 - Prob. 14.9SECh. 14 - Prob. 14.10SECh. 14 - Prob. 14.11SECh. 14 - Prob. 14.12AECh. 14 - Prob. 14.13AECh. 14 - Prob. 14.14AECh. 14 - Prob. 14.15AECh. 14 - Prob. 14.16AECh. 14 - Calculate ratios (Learning Objective 4) Kelleher...Ch. 14 - Prob. 14.18AECh. 14 - Prob. 14.19AECh. 14 - Prob. 14.20AECh. 14 - Prob. 14.21AECh. 14 - Classify company sustainability measurements into...Ch. 14 - Prob. 14.23BECh. 14 - Prob. 14.24BECh. 14 - Prob. 14.25BECh. 14 - Prob. 14.26BECh. 14 - Prob. 14.27BECh. 14 - Calculate ratios (Learning Objective 4) Ponderosa...Ch. 14 - Prob. 14.29BECh. 14 - Prob. 14.30BECh. 14 - Prob. 14.31BECh. 14 - Calculate ratios (Learning Objective 4) Thornton...Ch. 14 - Prob. 14.33BECh. 14 - Prob. 14.34APCh. 14 - Comprehensive analysis (Learning Objectives 2, 3, ...Ch. 14 - Prob. 14.36APCh. 14 - Ratio analysis over two years (Learning Objective...Ch. 14 - Prob. 14.38APCh. 14 - Prob. 14.39BPCh. 14 - Prob. 14.40BPCh. 14 - Prob. 14.41BPCh. 14 - Ratio analysis over two years (Learning Objective...Ch. 14 - Make an investment decision (Learning Objective 4)...Ch. 14 - Prob. 14.44SCCh. 14 - Discussion Questions 1. Describe horizontal...Ch. 14 - Prob. 14.47ACTCh. 14 - Using financial statement ratios to analyze...
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