Practice Case- Use it or lose it- managerial accounting PDF

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CPA MOCK Evaluation

Core 2 Module

USE IT OR LOSE IT CORP.

Page 1 Suggested Time (60 minutes)

Use It or Lose It Corp. (ULC) was founded 12 years ago and provides a full range of fitness training facilities, personal training, and nutritional counseling services. The state of the art flagship location in Toronto, the community feel of each of the other five locations, the well-trained staff, the avoidance of overcrowding and superior cost control are the major reasons for ULC’s success. It is now January 16, 2021 and you, CPA, are the accounting manager at ULC. Audrey Au, the owner of ULC, wants to introduce a new series of Bikram yoga classes (Appendix I). She asks you to determine what the profit would be for the yoga classes based on the expected enrollment. She also wants to know what the average enrollment level for a 10-week session of yoga classes must be to produce an annual additional net profit of $25,000. You are concerned about whether this new initiative is consistent with ULC’s overall business strategy. You decide to include this strategic analysis, including suggestions for improvements, in your report to Audrey.

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CPA MOCK Evaluation

Core 2 Module

Page 2

APPENDIX I INFORMATION PERTAINING TO BIKRAM YOGA CLASSES Bikram yoga is also known as “hot yoga” and consists of a series of 26 poses performed in a room that is 39 degrees Celsius. To make use of the idle space (15% of total square footage) at the flagship location, the space will be converted to a yoga studio with a proposed series of weekly Bikram yoga classes offered at various levels over a 10-week period. These 10-week sessions will be offered continuously throughout the year (five consecutive sessions per year). The classes for each session will be offered at six different time slots, each for 90 minutes. The time slots will correspond with peak periods such as Mondays to Thursdays from 6:00 pm to 7:30 pm and Saturdays and Sundays from 9:00 am to 10:30 am. The current expected enrollment for the six time slots is 122. The maximum enrollment is expected to be 150. The yoga classes will cost members an additional $130 for each 10-week session (one class per week). No refunds are permitted for missed classes. The yoga instructors were originally budgeted to be paid $100 per class but Audrey thinks that $125 per class is closer to the market rate that qualified instructors expect to be paid. She is aware of the general shortage of qualified Bikram yoga instructors in the area and that may further increase the market rate. Additional insurance is required because of the liability risk due to the hot temperatures involved with Bikram yoga. Coverage for all of the classes for a 10-week session will cost $1,000. Fixed overhead costs of $1,500 have been allocated to each 10-week session. Other incremental costs to be incurred in relation to a 10-week session of classes (for all six time slots) include heating and electrical costs of $2,000. Annual advertising and promotion costs for the new classes are expected to be $15,000. All registrants will receive a free yoga outfit (cost to ULC of $17) and a free yoga mat (cost to ULC of $11). The monthly lease cost of the flagship location is $5,000.

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CPA MOCK Evaluation

Core 2 Module

Page 3

APPENDIX II ADDITIONAL INFORMATION GATHERED ULC’s staffing costs are approximately 10% below that of its competitors. Historically, many of the employees accepted the lower compensation in exchange for the excellent work experience acquired in the short-term. Lately, there has been much greater demand for trained staff due to increased competition in the local fitness market. Some of ULC’s staff are starting to leave to work for competitors. Although Audrey has no experience in managing a Bikram yoga studio, she is confident that with her past experience in fitness, the yoga classes will be an overwhelming success.

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