Question

Accounting

Question 1. Starbuck’s normally displays its refrigerated inventory openly. What items do you believe have the highest and lowest gross profit margin? If a person steals one of the high gross profit margin inventory items, how many more does Starbucks have to sell to make up the cost of the stolen item? How many for the lowest gross profit margin inventory items? Demonstrate your understanding by provide calculations to support your claim.

Question 2. Starbucks has many fixed assets in its stores. For example, they have various machines to make drinks or cook food. Identify one of those pieces of equipment, conduct internet research to estimate a replacement cost if it were destroyed today, assuming it is January 1st (cost). How many years do you estimate it will be functional and useful to help Starbucks produce revenue (estimated usefule life)? In that time period in the future, how much do you think Starbucks can sell it for (salvage value)?

Once you have the cost of a machine, an estimated useful life and a salvage value, calculate the item’s depreciation expense for its first year. Extrapolate your results over all Starbucks stores and determine the affect on the balance sheet and income statements by comparing if the item were to be depreciated using the straightline verse double-declining balance methods, over the estimated cost, estimated useful life and estimated salvage values you choose. You must show calculations. To answer this question, you may have to conduct research to determine the make/model machines they use. If you can’t figure it out, use a close substitute.

Answer 1

1. Gross profit Margin = Gross profit/Sales

Suppose item X has the highest gross profit say $20 margin and the cost is $80 then stars bucks has to sell same item with (4 items*$20 ) to recover the cost.

If it is small item Gross profit is $5 then to meet the cost of $80 then we must sell 16 extra items to recover the cost

2. WDV = Book Value - Accumulated depreciation

Suppose = 100 - 70 = 30

But salvage value is 25 then replacement cost would be 75

WDV method is preferable because in future the entity can claim more deprecation so that it can save it's tax