ACCT 351 Capital Budgeting

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Business Finance


  • Develop a list of inputs along with their associated costs, such as labor, materials, and overhead. You can research this information, make it up, or do a combination of both. Be specific as to costs.
  • You are to determine the selling price. Show your calculations, and discuss why you have determined this to be a good sale price.
  • How many items of your product will you need to produce to meet this sale price? How did you calculate this?
  • Determine which of the costing systems discussed in this class will work best for your company. Explain why.
    • Explain why those not chosen were not a good fit for your company.
    • You must explain "why not chosen" for a minimum of 3 costing methods.
  • Please devote at least 1 paragraph to the ethical considerations of costing methods.

Assignment Guidelines:

  • Add a section to your paper, outlining how you would implement capital budgeting in your company.
  • Prepare an example of a decision that you would make using either the IRR or Payback method of analysis. Why would you use this for your business

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Groupon was started privately in 2008, and it started providing routine services from the retailers to the local clients to allow them to enjoy the power group purchasing like discounts. The company negotiates large discounts as its website states. The discounts usually range from 50-90 per cent. The company send deals to its subscribers daily through email. The company currently operates in 43 countries providing its services in numerous cities across the world. The company has expanded its deals from Groupon daily to Groupon now. The Groupon now deals which are available for only a few hours. For a customer to make a purchase, the customer has to pay Groupon before using its website and its applications too. After the purchases have been made is when Groupon remitted the payments to the retailer of it has retained the commission fee. 

Groupon released its first public category of financial statements which were included in the SEC filing. The statements were required before the IPO. The non-GAAP filling was also recorded in the financial cash flow and was also part of the SEC filing. The non-GAAP measure was used to numerically measure the company historical financial performance as well as the future performance too. The measure is subject to adjustments which affect excluding amounts. The measure includes adjustments which have an effect on including amounts. Groupon allowed the use of ACSOI because its cost of obtaining new clienteles was high. The company based its argument on the basis that the cost of getting new clients was expensive than that of maintaining a new customer. ACSOL was calculated by taking the loss accumulated from operations and ad it to the expenses incurred when conducting online marketing, purchase related expenditures and stock-based expenditures. 


Standard setter argues if non-GAAP financial measures have help enlighten the investors or it has confused since the internet began in the 1990s. Groupon's accounting practices are a perfect reminder of the dotcom periods; this is the time when aggressive accounting practices were ensured. Even though there were some e-commerce company during this time, the majority of the companies failed. Some of the companies which succeeded during the dot-com days were Amazon and eBay. 

Groupon together with other companies innovated non-GAAP measures which helped it to strive. Lynn Turner who was the CA of SEC talked about the metrics have misled and led to the portray of an inaccurate picture to the shareholders. He used the terms EBBS to describe it. EBBS stands for "Earnings Before Bd Stuff."

The controversy

The market reacted strongly when Groupon started using ACSOI metrics and Groupon accounting practices as a whole. The use of ACSOI led to an increase in the valuation for companies like LinkedIn, Facebook, and Groupon. After a long period of criticism, Groupon abandoned the use of ACSOI since it had attracted a lot of negativity and it amended it S-I filing and made some changes to it. Instead of using ACSOL it started using CSOI which meant "Consolidated Segmented Operating Income. The difference between the two was that CSOI never included internet marketing expenses.


The revenue of the company was usually recorded inform of gross payments which Groupon received from its clients. The cost of revenue included the amount which paid to the suppliers. Because Groupon acted as an intermediary between the customer and the supplier.

Cash availability concerns

The company experienced a growing deficit of working capital which was due to its cash cycle style which led to the development of concerns whether Groupon will be able to fund its growth plans. The company currently uses two payment methods which are traditional and recovery. The company relied on the growth of transactions which used dollars and acquisitions to help recover from its fund deficit crisis. 

Refund provisions

Groupon failed to account on its failure to control the price of its offering as they kept on increasing and whose probability of being refunded to the customer was high. The company started selling plane tickets on a discount, and it also began offering Groupon reserve services. The new services reduced the company's revenue by $14,3 million.

Exhibit two

Groupon's originals-1 on non-GAAP STANDARDS

Non-GAAP financial measures

The organization (Groupon) makes use of adjusted CSOI or consolidated operating proceeds as well as free cash flow as the main non-GAAP financial standards. Free cash flow, as well as adjusted CSIO, are made us of in conjunction with proceeds which are presented concerning GAAP and ought to not be relied on in the exclusion the GAAP financial standards. Adjusted CSIO refers to operating proceeds of the organization's two segments namely international and North America, adjusted for the virtual marketing costs, stock affiliated reimbursement expense; acquisition affiliated expense as well as marketing costs. Virtual marketing costs represent the expenses of acquiring new users and are arrived at by the rate of subscriber development that the organization wishes to pursue. 

Limitations of the organization's use of CSOI which ought to be given a comparison as a substitute for assessment

The adjusted CSOI not necessarily reflects the cash investments that the organization makes to obtain new subscribers. 

The adjusted CSOI not necessarily reflects the possibly dilutive effect of issuing 

Exhibit three

The amended s-1 on Non-GAAP financial measures

Non-GAAP financial measures

We make use of consolidated segment operating income, free cash flow as the main GAAP financial measures. CSOI and free cash flow are embraced in conjunction with outcomes which are presented following the American GAAP and ought not to be depended on in the exclusion of the American GAAP financials standards. The free cash flow that is harmonized to the total cash that is given by the operating actions the proceeds from operations condensed by the purchase of equipment as well as property. Based on this we embrace the use of free ratios and cash flows based on the free cash flow to asses and conduct our operations. This is because even if it resembles cash flow right from its operations, we trust it will present extremely conservative standards of cash flow as being purchases of the software that is advanced for use, fixed assets, as well as the website advancement expenses, are a fundamental aspect of the enduring operations.  

 this in mind, CSOI refers to our federal operating income of the two of our segments mainly North America as well as International combined for stock-based reimbursement as well as acquisition affiliated expenses. Acquisition affiliated expenses are non-cash items and non- recurring items that are affiliated to some of the organization's assets. Stock associated reimbursement costs, on the other hand, are a non-cash item. The organization does not provide for stock affiliated compensation as well as acquisition affiliated value to segments as addressed in note 14 of the segment information. With this in mind, we contemplate CSOI as being a fundamental measure for the organization's management to assess the business' performance since it excludes some non-cash expenses. We trust it is fundamental to look at CSOI to as being a complement of other financial operations. When assessing the organization's performance, an individual ought to look CSOI as being a complement of other measures such as net loss, different cash flow metrics as well as the company's other American GAAP outcomes.

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Explanation & Answer


Considering Illumine Systems Company which basically deal with the development, production, and sell
of widgets. The company was incorporated and developed by a photographer and a musician in St.
Louis. The product produced by this company is primarily used in lighting and sound equipment. These
equipment may be used in theaters, concerts, and other related events. The associated cost of
production were prepared using the absorption costing method. This costing method accumulates the
costs that are associated with the production process of the widgets and apportions them to individual
products. The product absorbs both the variable and fixed costs. Absorption costing has four major
components; direct materials, direct labor, variable manufacturing overheads, and fixed manufacturing

Illumine Systems Company Standard Cost Card
Variable costs:
Material costs
Labor costs
variable manufacturing overheads
Total Variable costs
fixed manufacturing overheads




Total production costs
The total cost of producing a single unit of widget is $400. When setting up the price of the widget it
used the mark-up method, where the company determined the profit it anticipates to get and then adds
the manufacturing cost. The company policy is to have a mark-up of 150% over and above the total cost
of production.
Selling price calculation
Total production costs = 400
Mark-up percent = 150%
The gross mark-up (profit) = 400 × 150% = 600
Selling price = mark-up + total cost of production
Selling price = 600 + 400 = 1,000
The price has been determined through the method of mark-up which is one of the common methods
applied by companies when setting their selling prices. The company determines the mark-up or the
profit they would want to achieve when they sell their products. Once the mark-up has been
determined the total cost is used as the start point for setting the prices. The company compares the
prevailing prices with those in the market. If it happens the prices are higher than the prevailing market
prices, the company revises the production costs in order to achieve a relatively lower price. The markup price setting strategy is favorable as it is not complex and allows room for adjustment. The selling
price is comparable with the current widget market prices thus allowing Illumine Systems Company to
compete in the market segment as well as the electronics industry. The price also allows the company to
be competitive in the global market with similar products to those of Illumine Systems Company. The
management team responsible for...

Great study resource, helped me a lot.


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