Internet Exercise (Cont’d.)
5.Agilent and HP have entered into separation agreements covering:
General Assignment and Assumption of Assets and Liabilities
Indemnification and Insurance Matters
Real Estate Matters
Information Technology Sharing
Chapter 14 Video Case
The video case can be discussed using only the case writeup in the chapter. Alternatively, instructors can have students view the videotape of the company that is the subject of the case. The videotape can be obtained by contacting your Prentice Hall representative. The case questions challenge students to apply the concepts learned in the chapter to a specific business situation.
NANTUCKET NECTARS: COST ALLOCATION VIDEO CASE
1.The types of economic decisions faced by Nantucket Nectars might include deciding which new juice flavors to introduce to the market, which to discontinue, and how many new flavors the market can absorb. In determining which flavors are most profitable, Nantucket Nectars would need to allocate the costs of the Mobile Juice Guy Team to the different flavors, based perhaps on the time the Mobile Team spends promoting the different flavors and the samples and coupons it distributes. The company may also be interested in determining the profitability of its different regions. To calculate this profitability, the costs of the Mobile Juice Guy Team would need to be allocated to the different regions. The costs of the Mobile Team are: van depreciation, insurance, full-time employee salaries, depreciation of display tables and banners, travel costs (lodging, meals, vehicle gas, and maintenance), coupons, juice beverages, and sample cups. The costs that would go into the fixed- cost subpool are: depreciation on the full-size van, depreciation on the banners and display tables, insurance on the van and equipment, and salaries for the four Mobile Team members. The variable subpool costs would include coupons, bottled juice flavors dispensed, sample cups, and travel expenses for the team. The most appropriate activity base used for allocating the subpool costs would be the time spent in each region, including travel days to the region.
2.Nantucket Nectars could motivate regional sales managers to use more of the Mobile Juice Guy Team by not allocating the full cost of the Team to regional managers. Such a system may, however, lead regional managers to overuse the Mobile Team.
3.Nantucket Nectars would need to cost-justify the Mobile Team’s operations to be sure the company is getting the necessary sales and profitability boost expected for this set of expenditures. This requires the company to estimate the sales and profitability attributable to the Mobile Team.
4.Although the company is privately held, it still must produce internal financial reports for use by management and external reports for tax purposes. The company also has a majority shareholder, Ocean Spray, for whom reports must be generated. Cost allocation can help with appropriately valuing inventory and assets associated with operations.