Assignment 1: Discussion—ABC or Activity-Based Costing In your readings this module, you were introduced to Activity-Based Costing or ABC. It is a method used to determine a reliable predetermined benchmark for the allocation of overhead costs to the products produced based on their activity levels. In this discussion, we will work a case study on ABC together. For your initial response, attempt to answer the questions yourself and post all the required items into the Discussion Area. You may want to post some elements during different days so the class can work this problem together. Then in your response postings, help each other with misunderstandings or miscalculations. Tasks: Examine the case below and then… Calculate the amount of overhead allocated to small and large advertising campaigns under existing methods. Apply activity-based costing to calculate the cost per cost driver for each of the cost pools. Use the costs per cost driver to calculate the activity-based overhead applicable to small and large campaigns. Calculate the percentage to be added to direct advertising costs to recover overhead costs under activity-based costing. Merit-o-cracy PLC is a specialist advertising agency. It has been long-established but is experiencing difficulties in winning new business. The Chief Executive believes that its pricing methods are leading to the loss of large customer advertising campaigns while it is consistently winning smaller business. Merit-o-cracy costs work for pricing purposes on the basis of direct advertising costs (i.e. space or time purchased from newspapers, radio and TV) plus 100%. The 100% is intended to cover all the overheads of the business, which run at $2 million per year. It does not include any profit margin. This budget cost comprises: Creative staff $500,000 Production staff $750,000 Administrative & support staff $300,000 Rental and associated costs $450,000 Merit-o-cracy classifies its advertising campaigns as either small or large. Of the 350 campaigns the agency wins, about 325 are classified as small. A typical small advertising campaign incurs direct advertising costs of $4,000 each (and therefore is allocated $4,000 of overheads under current methods). The other 25 advertising campaigns are large and incur direct advertising costs of $28,000 each. Merit-o-cracy’s accountant has heard of activity-based costing. After speaking to the management team, she has gathered information on the most common causes of costs. She believes that creative staff costs are linked to the number of advertising campaigns the agency competes for. Production staff costs are related to the number of advertising campaigns the agency wins. Administrative and support staff costs are related to the number of customers the agency has. Rental and associated costs are people-based and as a similar number of staff is employed in each of the three departments, the costs should be equally shared. The accountant has also collected data on the activity levels in each of the three departments over the budget period. These are: Creative 800 advertising campaigns the agency bids for 400 of these are bids for large campaigns and 400 for small campaigns Production 350 advertising campaigns the agency wins 325 of these are small campaigns and 25 large campaigns Admin & support 400 customers the agency services 300 of these are customers with small campaigns and 100 have large campaigns Submission Details: By Saturday, February 25, 2017, post your initial response to the Discussion Area below. Through Wednesday, March 1, 2017, review and comment on at least two peers’ responses on two different days. Your response should be thorough and address all components of the posted question in detail, include citations of all sources, where needed, according to APA style, and demonstrate accurate spelling, grammar, and punctuation Do the following when responding to your peers:

03 Jul Assignment 1: Discussion—ABC or Activity-Based Costing In your readings this module, you were introduced to Activity-Based Costing or ABC. It is a method used to determine a reliable predetermined benchmark for the allocation of overhead costs to the products produced based on their activity levels. In this discussion, we will work a case study on ABC together. For your initial response, attempt to answer the questions yourself and post all the required items into the Discussion Area. You may want to post some elements during different days so the class can work this problem together. Then in your response postings, help each other with misunderstandings or miscalculations. Tasks: Examine the case below and then… Calculate the amount of overhead allocated to small and large advertising campaigns under existing methods. Apply activity-based costing to calculate the cost per cost driver for each of the cost pools. Use the costs per cost driver to calculate the activity-based overhead applicable to small and large campaigns. Calculate the percentage to be added to direct advertising costs to recover overhead costs under activity-based costing. Merit-o-cracy PLC is a specialist advertising agency. It has been long-established but is experiencing difficulties in winning new business. The Chief Executive believes that its pricing methods are leading to the loss of large customer advertising campaigns while it is consistently winning smaller business. Merit-o-cracy costs work for pricing purposes on the basis of direct advertising costs (i.e. space or time purchased from newspapers, radio and TV) plus 100%. The 100% is intended to cover all the overheads of the business, which run at $2 million per year. It does not include any profit margin. This budget cost comprises: Creative staff $500,000 Production staff $750,000 Administrative & support staff $300,000 Rental and associated costs $450,000 Merit-o-cracy classifies its advertising campaigns as either small or large. Of the 350 campaigns the agency wins, about 325 are classified as small. A typical small advertising campaign incurs direct advertising costs of $4,000 each (and therefore is allocated $4,000 of overheads under current methods). The other 25 advertising campaigns are large and incur direct advertising costs of $28,000 each. Merit-o-cracy’s accountant has heard of activity-based costing. After speaking to the management team, she has gathered information on the most common causes of costs. She believes that creative staff costs are linked to the number of advertising campaigns the agency competes for. Production staff costs are related to the number of advertising campaigns the agency wins. Administrative and support staff costs are related to the number of customers the agency has. Rental and associated costs are people-based and as a similar number of staff is employed in each of the three departments, the costs should be equally shared. The accountant has also collected data on the activity levels in each of the three departments over the budget period. These are: Creative 800 advertising campaigns the agency bids for 400 of these are bids for large campaigns and 400 for small campaigns Production 350 advertising campaigns the agency wins 325 of these are small campaigns and 25 large campaigns Admin & support 400 customers the agency services 300 of these are customers with small campaigns and 100 have large campaigns Submission Details: By Saturday, February 25, 2017, post your initial response to the Discussion Area below. Through Wednesday, March 1, 2017, review and comment on at least two peers’ responses on two different days. Your response should be thorough and address all components of the posted question in detail, include citations of all sources, where needed, according to APA style, and demonstrate accurate spelling, grammar, and punctuation Do the following when responding to your peers:

Question

The _____ is the price at which a bank or financial services firm is willing to buy a specific currency.

Question 1 options:

1) exchange rate

2) foreign exchange

3) bid

4) ask

5) spread

Question 2 (1 point)

Which of the following is true for the term “spot exchange rate”?

Question 2 options:

1) It refers to the technique of protecting against the potential losses that result from adverse changes in exchange rates.

2) It refers to the simultaneous and instantaneous purchase and sale of a currency for a profit.

3) It refers to the exchange rates that require immediate settlement with delivery of the traded currency.

4) It refers to the practice of buying and selling a currency with the expectation that the value will change and result in a profit.

5) It refers to the exchange rate between two currencies, neither of which is the official currency in the country in which the quote is provided.

Question 3 (1 point)

A currency swap helps a firm to reduce its foreign exchange rate risk by simultaneously locking into the price for two transactions of a currency.

Question 3 options:

1) True

2) False

Question 4 (1 point)

An organization makes use of the spot rate for making an immediate payment. The organization does not face the risk of the currency increasing or decreasing in value.

Question 4 options:

1) True

2) False

Question 5 (1 point)

Non-finance companies prefer currency arbitrage and speculation while making investments, as they are not a risk and there are high gain methods of earning profits.

Question 5 options:

1) True

2) False

Question 6 (1 point)

Which of the following is true for futures contracts?

Question 6 options:

1) They do not have standardized terms.

2) They have clearinghouses that guarantee the transactions.

3) They are private contracts between two parties.

4) The parties have a higher risk of defaulting on a contract.

5)The settlement of a futures contract occurs at the end of the contract.

Question 7 (1 point)

The only reason a saver puts his cash at risk in the capital market is if the returns on the investment are greater than returns on holding risk-free assets.

Question 7 options:

1) True

2) False

Question 8 (1 point)

A company operating globally must deal in foreign currencies, as it has to pay suppliers in other countries with a currency different from its home country’s currency.

Question 8 options:

1) True

2) False

Question 9 (1 point)

In the forward markets, foreign exchange is always quoted against the U.S. dollar.

Question 9 options:

1) True

2) False

Question 10 (1 point)

A _____ is a system in which people, companies, and governments with an excess of funds transfer those funds to people, companies, and governments that have a shortage of funds.

Question 10 options:

1) forward contract

2) currency swap

3) currency conversion

4) capital market

Question 11 (1 point)

If a European company opts to buy shirts from India with payment due in 60 days, it would be able to access the forward market to enter into a contract to lock in a future price for its payment. This would enable the European firm to protect itself against depreciation of the euro, which would require more euros to buy one Indian rupee. This contract is referred to as a(n):

Question 11 options:

1) option contract.

2) forward contract.

3) implicit contract.

4) voidable contract.

5) quasi-contract.

Question 12 (1 point)

VCs are characterized primarily by their investments in smaller, high-growth firms that are considered riskier than traditional investments.

Question 12 options:

1) True

2) False

Question 13 (1 point)

A movie production house makes a gross profit of $10 million from a movie release. If the company spends $4 million, including taxes and all expenses, then it has $6 million in profits. The company can invest the $6 million in the bonds of a company. Making such an investment is riskier than keeping the $6 million in a savings account. The financial officer hopes that over the long term, the investment will yield greater returns than cash holdings or interest on a savings account. This is an example of a form of:

Question 13 options:

1) direct finance.

2) indirect finance.

3) currency swap.

4) currency conversion.

5) cross rate.

Question 14 (1 point)

Currency arbitrage refers to the:

Question 14 options:

1) conversion of one currency into another.

2) technique of protecting against the potential losses that result from adverse changes in exchange rates.

3) simultaneous and instantaneous purchase and sale of a currency for a profit.

4) price at which a bank or a financial services firm is willing to sell a currency.

5) practice of buying and selling a currency with the expectation that the value will change and result in a profit.

Question 15 (1 point)

The indirect quote method follows the American terms for noting the base and quoted currency.

Question 15 options:

1) True

2) False

Question 16 (1 point)

Companies use hedging as a way to protect themselves if there is a time lag between when they bill and receive payment from a customer.

Question 16 options:

1) True

2) False

Question 17 (1 point)

Which of the following is true of equity securities?

Question 17 options:

1) It refers to the technique of protecting against the potential losses that result from adverse changes in exchange rates.

2) It refers to a loan from the investor to a company or government entity.

3) It refers to the simultaneous and instantaneous purchase and sale of a currency for a profit.

4) It refers to the ownership of a part of a company.

Question 18 (1 point)

_____ refers to the money of one country denominated in the currency of another country or a group of countries.

Question 18 options:

1) Forward rate

2) Foreign exchange

3) Stock exchange

4) Equity swap

5) Loan

Question 19 (1 point)

A _____ is a simultaneous buy and sell of a currency for two different dates.

Question 19 options:

1) spot rate

2) currency conversion

3) currency futures contract

4) currency swap

5) currency option

Question 20 (1 point)

Speculators, who bet on the direction in which a currency’s price will move, frequently employ:

Question 20 options:

1) forward contracts.

2) a bid.

3) an ask.

4) currency futures contracts.

5) a cross rate.

Question 21 (1 point)

In an indirect quote, the domestic currency is a variable amount and the foreign currency is fixed at one unit.

Question 21 options:

1) True

2) False

Question 22 (1 point)

Suppose we quote the number of Indian rupees required to purchase 1 U.S. dollar as INR 45 / USD 1. In this case, INR is referred to as:

Question 22 options:

1) currency hedging.

2) base currency.

3) currency speculation.

4) currency arbitrage.

5) quoted currency.