Case 1: Purchase Point Media Corporation (PPMC)
INTRODUCTION
This case is based on actual financial projections developed and provided by a publicly traded firm, Purchase Point Media Corporation (PPMC). Carefully examine the PPMC projections, which are presented in a sequence and format suitable for break-even calculation and analysis. After you calculate the break-even point, use additional, publicly available informa- tion to come to a decision with respect to market potential.
The increase in the price per share of PPMC stock suggests that, over time, the market may have reacted to their results and analyses, using a comparable methodology.
OBJECTIVES
When you complete this case, you'll be able to
- Identify discernable errors, irregularities, and impropri- eties in style and format within publicly reported data
- Meet financial statement presentation requirements for a specific "real world" example
- Determine whether financial information provided follows generally accepted accounting principles (GAAP) or is presented in "good form"
- Distinguish between the substance and form of financial statements
- Estimate variable and fixed costs for a publicly traded company
- Assess publicly disseminated information from publicly traded companies to determine the feasibility of market potential and market penetration
- Exercise enhanced critical-thinking skills
CASE BACKGROUND
Purchase Point Media Corporation (Pink Sheets: PPMC) is what some refer to as a thinly traded "corporate shell." The firm held patents in the United States, Canada, United Kingdom, and Germany for a shopping-cart display device, but was a nonreporting and nonoperating entity.
On March 18, 2002, PPMC reported its intention to sell these patents and related trademarks. The initial estimates sug- gested a stock price of nearly $2.50 per share, before related per-share deductions for sale-related broker's commissions and legal fees. At the time of the news release, the firm's stock was trading at $0.04 per share. In less than 60 days the stock was trading at more than $0.60 per share (Cataldo 2003, 55-60), for a 1,400 percent increase in price per share. (Note that investors and speculators alike would view this as a very risky investment, and the price per share for PPMC stock would be expected to fall short of or sell at a significant discount to the "anticipated" selling price for the firm's intan- gible assets. See Arbel and Strebel 1982 and 1983; Arbel, Carvell and Strebel 1983; and Arbel 1985 for guidance on thinly traded or "neglected" firms.)
While this initial news release attracted speculators, causing the stock price to rise, after months without any additional news releases, the stock price drifted down again. On August 20, 2003, PPMC again announced its intention to sell the firm's intangible assets (Business Wire 2003).
In the second announcement, PPMC management referred interested investors to their corporate Web site. Among the data provided, PPMC included a financial projection and other items they felt might be of interest to potential pur- chasers of the firm's intangible assets (see Exhibit 1, Purchase Point Media Corp. statement, which follows).
To begin this case, review and comment on the "form" of the public disclosure circulated by PPMC. Then use the "substance" of this information to develop per-unit, sales- based contribution margins and break-even points for the first year of operations. Last, gather other publicly available information to determine the market feasibility of achieving its break-even point.
PROJECT REQUIREMENTS
The project requires three steps to be presented. Step 1 - Identify Form and Substance Errors.
Step 2 - Compute the Purchase Point Media (PPMC) break-even points in terms of carts and stores.
Step 3 - Determine the number of grocery stores for various food chains.
In one Word document, provide individual sections for each Step. This Word document along with the Excel file
(described below for Step 2) will be uploaded when you click on the Take Exam button on your Student Portal to submit your project (described under the "Submitting Your Assignment" later in the instructions).
This Senior Capstone project highlights your knowledge and the skills you have developed over the course of your education. There is nothing "new" to be learned here.
The knowledge and skills required for this project include English Composition, Financial Accounting, Managerial Accounting, Information Literacy and the abilities to think critically, do research and to present your work in a professional manner.
If you are unsure or don't understand something about the project, then go back to your previous subjects to review.
For example, if you don't remember how to make a proper citation, then revisit your English Composition to see how to make a correct citation. Or, if you don't remember how to calculate a break-even point, go back to Managerial Accounting and review the subject matter pertaining to that concept.
Remember, there is nothing "new" here. Everything about this project you should already know how to do.
Case 2: Motomart
INTRODUCTION
The Motomart case is designed to supplement your Managerial/ Cost Accounting textbook coverage of cost behavior and variable costing using real-world cost data and an auto-industry- accepted cost driver. Unlike textbook problems, this data is real. It won't necessarily produce a clear solution when you attempt to analyze cost behavior and apply scatter-plot, high-low, and regression methods to separate mixed costs into their fixed and variable components. This case also illustrates that Financial Accounting decisions and methods can have an influence on Cost Accounting and Managerial applications and decisions.
OBJECTIVES
When you complete this case, you'll be able to
- Explain the importance of accrual accounting and proper application of the matching principle for the computation of contribution margins and break-even points
- Apply knowledge of generally accepted accounting principles (GAAP) to a specific real-world example
- Integrate statistical analyses and scatter plots, line graphs, and regression to determine the reliability of financial information prepared for external use
- Use analytical review procedures to examine a firm's financial statements
- Apply critical-thinking skills to real-world business circumstances
CASE BACKGROUND
This case is based on real financial data provided by a retail automobile dealership (Motomart) seeking to relocate closer to an existing retail dealership. You'll examine the mixed cost data from Motomart and apply both high-low and regression to attempt to separate mixed costs into their fixed and variable components for break-even and contribution margin compu- tations. You'll find that the data is flawed because Motomart was a single observation in a larger database. Don't attempt to correct the data (e.g., remove outliers or influential outliers).
You'll be producing a scatterplot and apply high-low and regression methods to the extent practicable and writing a summary report of the findings.
Motomart operates a retail automobile dealership. The manufacturer of Motomart products, like all automobile manufacturers, produces forecasts. It has long been an industry practice to use variable costing-based/break-even analyses as the foundation for these forecasts, to examine their cost behavior as it relates to the new retail vehicles sold (NRVS) cost driver. In preparing this financial information, a common financial statement format and accounting proce- dures manual is provided to each retail auto dealership.
The dealership is required to produce monthly financial statements using the guidelines provided by this common accounting procedures manual, and then furnish these financial statements to the manufacturer. General Motors, Ford, Nissan, and all other automobile manufacturers employ similar procedures manuals.
The use of a common format facilitates the development of composite financial statements that can be used to estimate costs and produce financial forecasts for future or proposed retail dealership sites (Cataldo and Kruck 1998). Zimmerman (2003) suggests that as many as 77 percent of manufacturers divide costs into variable and fixed components, and that managers arrive at these estimates by classifying individual accounts as being primarily fixed or primarily variable (67).
For this case, you'll examine mixed costs as defined by the manufacturer. Using the scatterplot, high-low, and regression methods, separate these mixed costs into their fixed and variable components. The data is problematic, and a clear solution won't exist. Don't attempt to correct the data by removing outliers, but make observations based on any pat- terns you observe. The case will expose you to actual data and require you to summarize your findings, including any conclusions you're able to reach and why the financial data makes it impossible to separate the mixed costs into their fixed and variable components.
REQUIREMENTS
The project requires five steps to be presented.
Step 1 - Provide comments on a 5 year Income Statement. Step 2 - Discuss patterns in expense items.
Step 3 - Identify High/Low activity levels. Step 4 - Compute cost equations.
Step 5 - Summarize your findings.
In one Word document, provide individual sections for each Step. This Word document along with the Excel file (described below) will be uploaded when you click on the Take Exam button on your Student Portal to submit your project (described under "Submitting Your Assignment" later in the instructions).
This Senior Capstone project highlights your knowledge and the skills you have developed over the course of your educa- tion. There is nothing "new" to be learned here.
The knowledge and skills required for this project include English Composition, Financial Accounting, Managerial Accounting, Business Statistics and the abilities to think crit- ically and to present your work in a professional manner.
If you are unsure or don't understand something about the project, then go back to your previous subjects to review. For example, if you don't remember how to use the High/Low Method, the revisit your Managerial Accounting to refresh your memory on how to use the High/Low Method
Remember, there is nothing "new" here. Everything about this project you should already know how to do.
On your Student Portal, under the Supplements section of the Senior Capstone subject is a downloadable Excel file titled "Exam 500896 - Motomart Excel Spreadsheet".
• The Excel file provides a detailed example of what needs to be done for one of the expenses in order to fill out the figures required in Steps 3 & 4. You will include this Excel file as part of your project submission along with the Word document you create to present this project.
o There is a "60 Months" worksheet that has the 60 months of data already entered. There is also a "Sample" worksheet that an example of how to cal- culate the R-sq.
o There is a "PLOT - SALARY" worksheet that shows how the FC, VC and R-sq figures are calculated for Salary.
o There is also a "high&low" worksheet for help with the high/low method in Step 3.
o Complete and include the Excel spreadsheet. You will need to create new worksheets for each of the other expenses following the example to calculate the figures needed for Table 5.
Attachment:- Senior Capstone.rar