Accounting 4 Case Studies Assignment
Case 1 You're a Advisor for the skilled service agency, BUSI 2083 LLP. Your agency makes a speciality of offering a vast number of inner enterprise options for various shoppers. It's your first day on the job and a Supervisor asks you for some assist with a consumer in the Know-how & Leisure sector. Wanting to please in your first day, you begin studying the background data supplied by the Supervisor. 4D Leisure, a division of Wave of the Future Company, manufactures two large-screen tv fashions: the Zenith, which has been produced since 2008 and sells for $1,700, and the Pinnacle, a brand new mannequin launched in early 2008, which sells for $2,200. Primarily based on the next revenue assertion for the yr ended November 30, 2014, senior administration at Wave of the Future have determined to pay attention 4D Entertainment’s advertising assets on the Pinnacle mannequin and start to section out the Zenith mannequin. Further Info: 4D Leisure Earnings Assertion For the Yr Ended November 30, 2014 Zenith Pinnacle Complete Gross sales $30,600,000 $four,400,000 $35,000,000 COGS 19,890,000 three,zero80,000 22,970,000 Gross Margin 10,710,000 1,320,000 12,zero30,000 Promoting and Admin Expense eight,032,500 925,000 eight,957,500 Working Earnings $2,677,500 $395,000 $three,zero72,500 Items Bought 18,000 2,000 Working Earnings per Unit Bought $148.75 $197.50 Unit prices for Zenith and Pinnacle are as follows: Zenith Pinnacle Direct Materials $540.00 $1,089.00 Direct Labor Zenith (2.5 hours x $18 per hr) 45.00 Pinnacle ( hours x $18 per hr) 126.00 Machine prices* Zenith (eight hours x $25 per hr) 200.00 Pinnacle (5 hours x $25 per hr) 125.00 Different Manufacturing Overhead** 320.00 200.00 Complete $1,105.00 $1,540.00 *Machine prices embody leasing of the machine, repairs, and upkeep. ** Different manufacturing overhead is allotted on the idea of machine hours at a charge of $40 per machine hour. 4D’s controller, Tina Wesley, is advocating the usage of activity-based costing (ABC) and exercise primarily based administration (ABM), and has gathered the following details about the company’s manufacturing overhead prices for the yr ended November 30, 2014. Items of Price Driver Complete Exercise Prices Zenith Pinnacle Soldering $1,872,400 1,296,000 214,000 Shipments 1,480,000 1,500 500 High quality Management 1,749,600 54,000 18,000 Buy Orders 582,400 16,640 four,160 Machine Energy 61,600 144,000 10,000 Machine Set-up 414,000 360 100 Complete Manufacturing Overhead $6,160,000 Soldering is predicated on the variety of solder factors, shipments primarily based on the variety of shipments, high quality management primarily based on the variety of inspections, buy orders primarily based on the variety of PO’s, machine energy primarily based on machine hours, machine setups primarily based on the variety of setups. After finishing her evaluation, Wesley confirmed the outcomes to Donald Warden, the 4D Leisure Division President. Warden didn't like what he noticed. “Should you present headquarters this evaluation, they'll ask us to section out the Pinnacle line, which we've simply launched. This complete costing factor has been a significant downside for us. First Zenith was not worthwhile and now Pinnacle. “Trying on the ABC evaluation, I see two issues. We do many extra actions than those you have got listed. Should you had included all actions, perhaps your conclusions would have been completely different. Second, you used variety of setups and variety of inspections as allocation bases. The numbers would have been completely different had you used setup hours and inspection hours as an alternative. I do know that measurement issues precluded you from utilizing these different value allocation bases, however at the very least you should make some changes to our present numbers to compensate for these points. I do know you are able to do higher. We can’t afford to section out both product.” Wesley knew her numbers had been pretty correct. On a restricted pattern, she had calculated the profitability of Zenith and Pinnacle utilizing completely different allocation bases. The set of actions and exercise charges she had chosen resulted in numbers that approximated carefully these primarily based on extra detailed analyses. She was assured that headquarters, understanding that Pinnacle was launched solely not too long ago, wouldn't ask 4D Leisure to section it out. She was additionally conscious that a sizable portion of Warden’s bonus was primarily based on division gross sales. Phasing out both product would adversely have an effect on the bonus. Nonetheless, she felt some strain from Warden to do one thing. 4D Leisure is not sure of the methods to correctly replicate data for his or her guardian firm. The supervisor would really like the next questions addressed as quickly as doable: REQUIRED 1. Utilizing activity-based costing (ABC), calculate the profitability of the Zenith and Pinnacle fashions. 2. Clarify briefly why these numbers differ from the profitability of the Zenith and Pinnacle fashions calculated utilizing 4D Entertainment’s present costing system. three. Touch upon Warden’s issues about the accuracy and limitations of ABC. four. How may 4D Leisure discover the ABC data useful in managing its enterprise? 5. What ought to Tiny Wesley do? Case 2 You're a Advisor for the skilled service agency, BUSI 2083 LLP. Your agency makes a speciality of offering all kinds of inner enterprise options for various shoppers. A shopper enterprise companion throughout the agency notices your availability at three:00pm on a Friday afternoon and pulls you right into a assembly with one among his excessive profile shoppers. Background Darkish and Daring Inc. manufactures a line of single-cup brewing machines for dwelling and workplace use that brew a cup of espresso, tea, or scorching chocolate in lower than a minute. The machines use specifically packaged parts of espresso, tea, or scorching chocolate that may be bought on-line instantly from Darkish and Daring or at Second Cup espresso retailers who're licensed to distribute the company’s merchandise. The attraction of the brewing machines is twofold. First, they provide a excessive stage of comfort. Using prepackaged espresso servings means no grinding of espresso beans and no mess. Additionally, the brewing machines have a water reservoir that for some fashions is giant sufficient to make as much as 20 cups of espresso. Second, the style of every cup of espresso, tea, and scorching chocolate could be very constant. The brewers’ pressurized system makes use of the identical quantity of water for every cup and the hermetic seal used within the particular person parts retains the product contemporary. Further Info The corporate has three fashions of brewers that supply completely different options, reminiscent of the dimensions of the water reservoir, the variety of brewing sizes, and the varieties of filtering gadgets used within the machine. Information from the latest fiscal yr for the three fashions is proven under. Mannequin House Brewer Workplace Brewer European Deluxe Gross sales quantity (items) 12,000 30,000 6,000 Unit promoting worth $150 $200 $300 Variable value per unit 120 140 180 Contribution margin per unit $30 $60 $120 Mounted prices are $1,500,000 per yr. The corporate has no work in course of or completed items inventories. The corporate is dealing with elevated ranges of competitors from producers utilizing comparable brewing applied sciences and believes there is no such thing as a room for any will increase in unit promoting costs. Darkish and Daring Inc. is not sure of the methods to take in an effort to improve profitability. The engagement companion would really like the next questions on his desk by Monday morning: Required: 1. Calculate the company’s total break-even level in gross sales dollars. 2. Calculate the gross sales dollars required for every product on the total break-even stage of gross sales calculated in (1) above. three. Calculate the company’s total break-even level in whole items. four. What influence would doubling the quantity of Workplace Brewer items bought subsequent yr have on the general break-even level in gross sales dollars? Assume that there will probably be no modifications to the House Brewer or European Deluxe unit gross sales, that unit promoting costs and variable prices will stay the identical for every mannequin, and that whole mounted prices will probably be unchanged. 5. The corporate is contemplating a brand new promoting marketing campaign to boost total shopper consciousness of the product choices. The whole value of the year-long marketing campaign could be $150,000. By how a lot would gross sales want to extend total for the corporate to have the ability to justify the brand new marketing campaign? Assume no change to the present product combine. 6. Suppose that as an alternative of being designed to extend whole gross sales quantity, the brand new $150,000 promoting marketing campaign will give attention to getting prospects who would have bought the Workplace Brewer mannequin to purchase the European Deluxe mannequin as an alternative. To justify the price of the brand new promoting, what number of prospects should buy the European Deluxe mannequin as an alternative of the Workplace Fundamental mannequin? Assume that the brand new promoting marketing campaign may have no influence on gross sales of the House Brewer mannequin. 7. The corporate is contemplating including a new product to its line of brewers focused on the workplace use market (each the Workplace Brewer and European Deluxe are at present concentrating on workplace customers). The new brewer, the Workplace Plus, would promote for $250 per unit and would have variable unit prices of $160. Introducing the brand new mannequin would improve mounted prices by $102,000 yearly and would scale back annual unit gross sales of the Workplace Brewer and European Deluxe fashions by 10% every. Assuming no change to the gross sales of the House Brewer mannequin, what number of items of the Workplace Plus would should be bought to justify its addition to the product line subsequent yr? Case three  Background You're a Advisor for the skilled service agency, BUSI 2083 LLP. Your agency makes a speciality of offering all kinds of inner enterprise options for various shoppers. One of many companions in your follow would like to offer again to the neighborhood by serving to a non-for-profit firm, Guardian Angel, put together a grasp finances with out charging them service charges. She asks you to take the lead on this engagement with the hope that a profitable consequence could result in your promotion to Senior Advisor. You're taking the background information from the companion and get began. Guardian Angel is a non-for-profit group that helps give avenue youth a second probability by offering them with enterprise clothes and educating them work associated abilities. The corporate is preparing for a fundraiser by promoting crystal angle wing key chains. The data under about Guardian Angel’s operations has been assembled to help finances preparation. The corporate is getting ready its grasp finances for the primary quarter of 2014. The finances will element every month’s exercise and the exercise for the quarter in whole. The grasp finances will probably be primarily based on the following data: Further Info a. Promoting worth is $60 per unit in 2013 and won't change for the first two quarters of 2014. Precise and estimated gross sales are as follows: Precise 2013 Estimated 2014 November: 10,000 items January: 11,000 items December: 12,000 items February: 10,000 items March: 13,000 items April: 11,000 items Could: 10,000 items b. The corporate produces sufficient items every month to fulfill that month’s gross sales plus a desired stock stage equal to 20% of subsequent month’s estimated gross sales. Completed Items stock on the finish of 2011 consisted of two,200 items at a variable value of $33 every. c. The corporate purchases sufficient uncooked supplies every month for the present month’s manufacturing requirement and 25% of subsequent month’s manufacturing necessities. Every unit of product requires 5 kilograms of uncooked materials at $zero.60 per kilogram. There have been 13,500 kilograms of uncooked supplies in stock on the finish of 2013. Guardian Angel pays 40% of uncooked materials purchases within the month of buy and pays the remaining 60% within the following month. d. Every unit of completed product requires 1.25 labor-hours. The common wage charge is $16 per hour. e. Variable manufacturing overhead is 50% of the direct labor value. f. Credit score gross sales are 60% of whole gross sales. The corporate collects 50% of the credit score gross sales throughout the first month following the month of sale and 50% throughout the second month. g. Mounted overhead value (per thirty days): Manufacturing facility supervisor’s wage $75,000 Manufacturing facility insurance coverage 1,400 Manufacturing facility hire eight,000 Depreciation of manufacturing unit gear 1,200 h. Complete mounted promoting and administrative bills are as follows: Promoting $300 Depreciation 9,000 Insurance coverage 250 Salaries four,000 Different 14,550 i. Variable promoting and administrative bills encompass $four for delivery and gross sales commissions of 10% of gross sales. j. The corporate goes to accumulate property to be used within the gross sales workplace at a price of $300,000, which will probably be paid on the finish of January 2014. The month-to-month depreciation expense on the extra capital property will probably be $6,000. ok. The stability sheet as of December 31, 2013, is as follows: Belongings Money $80,000 Accounts receivable 612,000 Stock: uncooked supplies $eight,100 Completed items 72,600 80,700 Plant and gear 1,000,000 Much less: gathered depreciation (100,000) 900,000 Complete Belongings $1,672,700 Liabilities and Fairness Accounts payable $24,000 6% lengthy time period notes payable 900,000 Widespread shares 735,000 Retained earnings 13,700 Complete liabilities and fairness $1,672,700 Further data: o All money funds besides purchases of uncooked supplies are made month-to-month as incurred. o All mortgage repayments and borrowings, when applicable, happen on the finish of every month. o All curiosity on borrowed funds is paid on the finish of every month on the charge of 6% per yr. o Mortgage repayments and borrowings, when applicable, could also be made in any quantity. o A minimal money stability of $30,000 is required on the finish of every month. Having a greater grasp of the consumer and data required in an effort to put together a grasp finances, you get to work on fixing the client’s wants: Required: 1. Put together the next budgets for the first three months of 2014: a. Gross sales finances b.Manufacturing finances c. Uncooked supplies purchases finances d.Direct labor and manufacturing overhead finances e.Promoting and administrative finances f. Budgeted revenue assertion (utilizing variable costing). Ignore revenue taxes. g.Money finances Case four Background You will have not too long ago been promoted to Senior Advisor for the skilled service agency, BUSI 2083 LLP thanks partially to the laborious work in main the engagement to your consumer Guardian Angel. Your agency makes a speciality of offering a vast number of inner enterprise options for various shoppers. After a weekend of celebrations out of your promotion, a Senior Supervisor calls you into her workplace very first thing Monday morning to assist with a producing consumer who is making a tricky choice about closing a plant: Low Rider (LR) manufactures seats for vehicles, vans, vans, and boats. The corporate has a lot of vegetation, together with the Waterloo Cowl Plant, which makes seat covers. Invoice Rice is the plant supervisor on the Waterloo Cowl Plant but in addition serves because the regional manufacturing supervisor for the corporate. His finances because the regional supervisor is charged to the Waterloo plant. Further Info Rice has simply heard that LR has acquired a bid from an outdoor vendor to provide the equal of your complete annual output of the Waterloo Cowl Plant for $42 million. Rice was astonished on the low outdoors bid as a result of the finances for the plant’s working prices for the approaching yr was set at $48.6 million. If this bid is accepted, the Waterloo operation will probably be closed down. The finances for the Waterloo Cowl Plant’s working prices for the approaching yr is offered under. Supplies $16,000,000 Labor: Direct $13,400,000 Supervisor 800,000 Oblique plant three,800,000 18,000,000 Overhead: Depreciation - gear 2,600,000 Depreciation - constructing four,200,000 Pension expense three,200,000 Plant supervisor and workers* 1,200,000 Company bills** three,400,000 14,600,000 Complete budgeted prices $48,600,000 *Bills for Rice and his regional workers ** Mounted company bills allotted to vegetation and different working items primarily based on whole budgeted wage and wage prices. The next are further information concerning the plant’s operations: a. As a result of plant’s dedication to make use of high-quality materials in all of its merchandise, the Buying Division was instructed to put blanket buy orders with main suppliers to make sure the receipt of adequate supplies for the approaching yr. If these orders are cancelled as a consequence of the plant closing, termination fees would quantity to 25% of the price of direct supplies. b. Roughly 350 staff will lose their jobs if the plant is closed. This contains all the direct laborers and supervisors, administration and workers, and the plumbers, electricians, and different expert employees categorized as oblique plant employees. A few of these employees would have issue discovering new jobs. Practically all of the manufacturing employees would have issue matching the plant’s base pay of $12.50 per hour, which is the very best within the space. A clause within the plant’s contract with the union could assist some staff; the corporate should present employment help and job coaching to its former staff for 12 months after a plant closing. The estimated value to manage this service could be $1.6 million. c. Some staff would in all probability select early retirement as a result of LR has a superb pension plan. In actual fact, $1.four million of the annual pension expenditures would proceed whether or not the plant is open or not. d. Rice and his regional workers wouldn't be affected by the closing of the Waterloo plant. They'd nonetheless be answerable for operating three different space vegetation. e. If the plant was closed, the corporate would understand about $four million salvage worth for the gear within the plant. If the plant stays open, there are not any plans to make any vital investments in new gear or buildings. The outdated gear is enough for the job and may final indefinitely. Required: 1. With out regard to prices, establish the benefits to LR of constant to acquire covers from its personal Waterloo Cowl Plant. 2. LR plans to arrange a monetary evaluation that will probably be utilized in deciding whether or not or to not shut the three. Waterloo Cowl Plant. Administration has requested you to establish: a. The annual budgeted prices which are related to the choice concerning closing the plant (present the greenback quantities). b. The annual budgeted prices which are not related to the choice concerning closing the plant and clarify why they are usually not related (once more present the greenback quantities). c. Any non-recurring prices that might come up as a result of closing of the plant and clarify how they might have an effect on the choice (once more present any greenback quantities). four. Trying on the knowledge you ready in (2) above, ought to the plant be closed? Present computations and clarify your reply. 5. Determine any revenues or prices not particularly talked about in the issue that AI ought to think about earlier than making a choice.