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Q. 2. Using MS Excel and the data given in the case: a. Create a histogram of the weekly operating profits from the prior year
Q. 2. Using MS Excel and the data given in the case:
a. Create a histogram of the weekly operating profits from the prior year of operation, using 6 equal-sized bins. What is the mode on the histogram? How would you define it? Which probability distribution does the histogram resemble? (You may wish to use the Excel file Holiday Trees Case.xls at the Gateway website.)
b. What was the average weekly profit for the prior 12-month period? Determine and define the variance and standard deviation of weekly profit.
c. How confident are you of this estimate? Calculate a 99% confidence interval for weekly profits, assuming that sigma is unknown. What does this tell you about weekly profits?
d. Based on the above, what is the expected exposure on the lost profits claim?
Q. 4. Assume that, based on Q. 2. d. above, Holiday Trees made an initial settlement offer to Burger. However, on behalf of Delish Burger, Mr. Austin declined the offer because he felt the offer underestimated the lost profits. He stated that profits from the last six months (26 weeks) before the fire are more indicative of future expected profits. He feels that only data from the last six months should be used to calculate future expected profits.
a. To formally test Mr. Austins claim, test to see if there was a significant difference in mean weekly profits between the first 6 months of the year and the last 6 months. Use a 0.05 significance level and assume equal variances. Does this support Mr. Austins claim?
b. Having thought about Mr. Austins suggestion, you consider several options as an estimate of lost profits. These include 1) the full year, 2) the last six months only, 3) a weighted average that gives twice the weight to the last six months as to the first six months, or 4) some other weighted average. Which method do you think gives the most accurate estimate of lost profits?
HOLIDAY TREE SERVICES, INC.
Memo
As you may remember, Holiday Tree Services, Inc. (HTS) has recently entered into a contract with Delish Burger (Delish), whereby HTS is to supply and decorate a Christmas tree in each of Delish Burgers one hundred and thirty-seven fast food restaurants in Gould each year in December. The first year of the contract was 2019.
You undoubtedly remember the December 6, 2019's disaster. On that day one of the Christmas trees that we had delivered and decorated in early December to one of Delish Burgers restaurants in Lakeview, Gould caught on fire. The fire then severely damaged the restaurants premises, including the kitchen and dining areas. Earlier today, I received an angry call from Duran Austin, the president of Delish, updating me on the recent calculations of losses from the disaster.
Our records indicate that the Christmas tree was delivered to Delish Burgers Lakeview site on time and in good order on the morning of Friday, December 6th, 2019. As the manager on site requested our delivery crew, they placed the tree inside the restaurant in an area next to the ordering counter. The crew then spent the next two hours, as they routinely do, decorating the tree to the satisfaction of the on-site manager, Leon Grant. Mr. Grant then initialed the receipt provided to him by our delivery crew, acknowledging receipt and full satisfaction with the decorated tree. Mr. Grant then fully paid for the tree and the services with a company check.
The fire broke out inside the Lakeview restaurant just as the last employee was leaving at approximately 11:37 p.m. on December 6th. Fortunately, there were no customers in the restaurant at that time as the store generally closes at 11:00 p.m. on weekdays. Mr. Austin indicated to me during the phone conversation that a report he received yesterday from the local fire department tentatively concluded that the fire originated from the Christmas tree. He went on to say that the report indicates that the lights on the tree required too much power for the one outlet they were plugged into, causing an electrical short. The spark from this instantly ignited the tree. The employee, who had been about to unplug the tree and turn off the lights in the restaurant, was so shocked that he instantly ran out of the restaurant. He then searched for a phone to call the fire department (in his haste he had left his cell phone inside). It took a few minutes to find a phone, giving the fire a chance to spread.
Mr. Austin also said that as a result of the fire, the restaurant has been completely shut down for the past three months and that he does not expect the restaurant to be open for at least another three months pending complete renovation of the damaged areas.
Mr. Austin then demanded compensation for the losses that Delishs restaurant sustained as a result of the fire. He faxed me a copy of the construction bid Delishs restaurant accepted to reconstruct the premises, which came out to $575,000. In addition to the reconstruction costs, he also demands
To: Kevin Kareem, Manager of Risk Management Department
From: Jennifer Baron, Supervisor, Sales Department
Date: February 20, 2020
Re: Delish Burger __________________________________________________________________________________
compensation for the potential profits the restaurant could have generated during the downtime. I am attaching the documents I asked him to fax me, which include some of Delish Burgers financial data regarding revenues and expenses during 2018 and 2019.
I told Mr. Austin that I sympathize with the lost profits sustained by Lakeview Delish Burger, but that according to our agreement, Delish Burger agreed to waive all claims against us for any consequential damages. After he quickly looked at the Purchase Order Acknowledgment, he said that while there was such a clause in the document, it was not part of the contract since Delish Burger never agreed to it or signed it. I replied that I would look it over and get back to him soon.
Required
In addition to the financial data provided by Mr. Austin below, please read parts of the Gould Commercial Code and the cases attached in the legal library. Before Ms. Henry replies to Mr. Austin, write an objective report to her (refer to the report guidelines on the Gateway website). (Assume that the applicable precedent is from the fictional jurisdiction of the state of Gould
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Management Accounting Information for Decision-Making and Strategy Execution
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young
6th Edition
137024975, 978-0137024971
