I am working on a project case 2 Moto mart, Here are the instructions,
I need help understanding the solution: EQUIREMENTSThe 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 eachStep. This Word document along with the Excel file(described below) will be uploaded when you click on theTake Exam button on your Student Portal to submit yourproject (described under "Submitting Your Assignment" laterin the instructions).This Senior Capstone project highlights your knowledge andthe 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 includeOperating Profits andSemi-Fixed ExpensesStep 1First, using Tables 2-4, note the pattern of operating profits(or losses) over the five-year period. Then focus only on thesemi-fixed expenses contained in Table 2. Do any amountsappear to be odd? (Think about whether the figures are rightor wrong. What is it about the individual numbers that is not"right"?) Next, briefly comment on the five-year pattern ortrend for operating profit/loss measures. You should be ableto respond to this step in a few well-written sentences.Senior Capstone: Business 45Step 2Focus only on the detailed semi-fixed expense contained inTable 3. Are there any unusual or odd patterns you mightnote in this detailed financial data? There are 5 expenses thathave an oddity about them which doesn't make sense. Similarto Step 1, what is it about the individual numbers that is not"right"? There are 4 expenses that "stick out" as not being correctand one that has an unusual pattern. attention. Youshould be able to respond to this requirement in a few wellwrittensentences. Briefly comment on only the most obviousor apparent measures or patterns, by expense item.Step 3Identify the high and low measures in each column, just asyou would in preparation for application of the high-low methodor technique. For example, in Table 3 the high measure forthe cost driver (NRVS) is 280 NRVS in month 13 and the lowmeasure is 31 NRVS in month 12. Repeat this process foreach of the eight separate semi-fixed expense columns andalso for the total expense column. Insert a table for Step 3 topresent your findings. The table should have three columns; 1. Expense 2. High Figure 3. Low FigureAfter the high and low measures have been identified in eachcolumn, try to match each expense column's high and lowmeasure, separately, to the highs and lows identified in theNRVS column. They won't match. Don't try to correct the data,but comment on the potential for application of the high-lowtechnique. What happens when the high and low activity leveldoesn't match the high and low expense measure? Does thisprevent you from correctly applying the high-low technique?Don't overanalyze this data, because there's a problem with itand you don't have sufficient information to correct it. Merelysummarize your observations and unsuccessful attempts tomatch the high and low NRVS months (identified above),separately, with each of the high and low expense measuremonths. You should be able to do this in a very few wellwrittensentences.Step 4Using the Excel file "Exam 500896 - Motomart ExcelSpreadsheet" as per the instructions found above under the"Project Requirements", reproduce and complete the followingTable 5 and answer the four questions. The Excel file providesan example of how to arrive at the figures that need tobe entered into the Table. You will create new worksheets foreach of the remaining expenses. Do the work to arrive at thefigures for each expense. Be sure to include the Excel file aspart of your submission to "backup" the data presented inthe Table in the Word document being submitted.The Excel spread sheet, while it will be included in your submissionfor the project, will not be graded. It is supportingdocumentation for what is being presented in the Word document.Only the information that is in the Word document willbe graded.The FC and VC should be rounded to the nearest dollar. TheR-sq is a percentage figure carried out to 2 decimal places.Table 5Column Expense FC VC r-sq1 Salaries $106,866 -$110 4.10%2 Vacation3 Advertising and training4 Supplies/tools/laundry5 Freight6 Vehicles7 Demonstrators8 Floor planningComputed total9 TotalSenior Capstone: Business 47Complete the cost equations for the table. Use the R-squaredas the single measure of "goodness of fit." Don't attempt toimprove your results with the elimination of "outliers" or"influential outliers." As you complete Table 5, answer thefollowing questions: 1. What problems did you encounter? 2. Are the R-squared measures high or low? 3. Are the slopes negative or positive? 4. Are your conclusions consistent with those from thehigh-low effort?Step 5Summarize your findings by answering the following questions: 1. Can the Motomart data be used to prepare a reliablefinancial forecast? Why or why not? 2. If Motomart is included in the very large database usedto prepare the financial forecast that supports the relocationof Motomart closer to Existing Dealer, whatconcerns might present themselves with respect to theremainder of the database used for this fore3. Would you rely on this forecast?The case is as follows: 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-industryaccepted 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 34 Senior Capstone: Business 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 computations. 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 procedures 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 patterns 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. Motomart: A Litigation Support Engagement The Motomart case evolved from a litigation support engagement. The lead author of this case was hired to analyze the data and provide expert testimony. His report and testimony was made available to the public (for a fee to cover reproduction costs). A broad description of the relevant points for the Motomart case follows. Motomart wanted to move their retail automobile dealership, blaming their location for declining profits and increasing losses. They provided financial projections, using variable costing, to show that after relocation both Motomart and the existing dealership would be profitable. They created these financial projections using a database provided by the manufacturer, which included all North American retail automobile dealerships. Motomart was one of the observations or retail automobile dealerships included in the database used to create these financial projections. You'll be examining portions of Motomart's historical financial data. The relocation site was quite close to the existing dealership (which we'll refer to as Existing Dealer), and Existing Dealer felt that, if the relocation was permitted, one or both of the dealerships would fail to break even and eventually go bankrupt, leading to poor service, or what the industry refers to as "orphaned" owners of these automobiles. Antitrust laws provided Existing Dealer with the means to block the relocation requested by Motomart, but only if it could prove that the relocation wasn't in the best interest of the consuming public. Generally, the only way to prove this 36 Senior Capstone: Business is to prove that there's simply not enough business for both retail automobile dealerships to break even (or generate a reasonable return on investment, given the risks associated with the industry). Again, the manufacturer, in support of the proposed Motomart relocation, supplied financial projections showing that both retail automobile dealerships would be profitable after the relocation. The expert witness hired to investigate the merits of the relocation was given the Motomart data, but not the entire database that included the Motomart data. The Motomart data was in such poor form that it wasn't possible to produce a financial forecast. An alternative forecast, not included in this case, was produced. This alternative forecast did not support the relocation of Motomart to a site closer to Existing Dealer. The alternative forecast showed that the market simply couldn't support two retail automobile dealerships. The implication was that, as the weaker of the two dealerships, Motomart was losing business to Existing Dealer. In conclusion, the relocation request by Motomart was denied. Income and Expense Data The following tables give you information such as income statements, semi-fixed expenses, and salaries for Motomart. Look for unusual entries or discrepancies in their records and, where you can, note the cause of the problems. Table 3 summarizes financial and cost driver information produced by Motomart, where new retail vehicles sold (NRVS) is the cost driver. The account classification method has resulted in three cost behavior classifications: variable, semi-fixed, and fixed costs. Semi-fixed is the automobile industry-specific term used for mixed costs. We'll assume that Motomart's classifications of variable costs (VCs) and fixed costs (FCs) are correct, and focus our analysis on Motomart's semi-fixed or mixed costs. Senior Capstone: Business 37 Table 3 provides five years of monthly data (N=60) for NRVS and the related semi-fixed or mixed cost measures. Semifixed costs were significant. Recall that they ranged from nearly $1.2 million for calendar and fiscal year (FY) 1984 to almost $2.2 million for FY 1988 (see Table 2). Recall the cost function applying to the high-low and regression methods, which are provided in a variety of forms, depending on the texts you used in your previous math, economics, or accounting courses.Just need some help with this project, I sent the attachment to the email