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Seligram, Inc. : Electronic Testing Operations 1. What caused the existing system at ETO to fail? 2. Calculate the reported cost of the five components listed in Exhibit 6 using: a. The existing system. b. The system proposed by the accounting manager. c. The system proposed by the consultant. 3. Which system is preferable? Why? 4. Would you recommend any changes to the system you prefer? Why? 5. Would you treat the new machine as a separate cost center or as a part of the main test room?

Bridgeton Industries: Automotive Component & Fabrication Plant 1. The official overhead allocation rate used in the 1987 model year strategy study at the Automotive Component and Fabrication Plant (ACF) was 435% of direct labor cost. Calculate the overhead allocation rate using the 1987 model year budget. Why do you get different numbers? 2. Calculate the overhead allocation rate for each of the model years 1988 through 1990. Are the changes since 1987 in overhead allocation rates significant? Why have these changes occurred? . Consider two products in the same product line: Product 1Product 2 Expected Selling Price $62 $54 Standard Material Cost 16 27 Standard Labor Cost 6 3 Calculate the expected gross margins as a percentage of selling price on each product based on the 1988 and 1990 model year budgets, assuming selling price remains constant and material/labor costs do not change from standard. 4. Are the product costs reported by the cost system appropriate for use in the strategic analysis? 5.

Assume that the selling prices, volumes, and material costs for the 1991 model year will not change for fuel tanks and doors produced by the ACF of Bridgeton Industries. Assume also that if manifolds are produced, their selling prices, volume, and material costs will not change either. a. Prepare an estimated model year budget for the ACF in 1991 (1) if no additional products are dropped. (2) if the manifold product line is dropped. Explain any additional assumptions you make in preparing your estimated model year budgets. b. What will be the overhead allocation rate under the two scenarios? . Would you outsource manifolds from the ACF in 1991? Why, or why not? What more information would you want before reaching a final decision? Destin Brass Products Co. 1. Use the Overhead Cost Activity Analysis in Exhibit 5 and other data on manufacturing costs to estimate product costs for valves, pumps, and flow controllers. 2. Compare the estimated costs you calculate to existing standard unit costs (Exhibit 3) and the revised unit costs (Exhibit 4). What causes the different product costing methods to produce such different results? 3.

What are the strategic implications of your analysis? Could the production process for flow controllers be changed in such a way to allow Destin Brass Products to reduce the unit cost of flow controllers? How would the change in the lot size for flow controller production affect unit costs? Has Destin Brass Products adopted the most profitable distribution system in the flow controller market? What actions would you recommend to managers at Destin Brass Products Company? 4. Assume that the interest in a new basis for cost accounting at Destin Brass Products remains high.

In the following month, quantities produced and sold, activities, and costs were all at standard. How much higher or lower would the net income reported under the activity-transaction-based system be than the net income that will be reported under the present, more traditional system? Why? Salem Telephone Company 1. “Revenue hours” represent the key activity that drives costs at Salem Data Services. Which expenses in Exhibit 2 are variable with respect to revenue hours? Which expenses are fixed with respect to revenue hours? 2.

For each expense that is variable with respect to revenue hours, calculate the cost per revenue hour. 3. Create a contribution margin income statement for Salem Data Services. Assume that inter-company usage is 205 hours. Assume commercial usage is at the March level. 4. Assuming the intracompany demand for service will average 205 hours per month, what level of commercial revenue hours of computer use would be necessary to break even each month. Since the intracompany demand is known to be 205 hours, the contribution from these sales is assured to cover a portion of the fixed costs.

Thus, to determine the level of commercial revenue hours required to break even, the contribution from commercial sales only needs to cover the fixed costs remaining after subtracting the fixed costs already covered by the contribution from intracompany sales. 5. Estimate the effect on income of each of the options Flores has suggested if Wu estimates them as follows: • Increasing the price to commercial customers to $1,000 per hour (this would reduce external demand by 30%). • Reducing the price to commercial customers to $600 per hour (this would increase external demand by 30%). Increased promotion would increase revenue hours by up to 30%. Wu is unsure how much promotion this would take. (How much could be spent and still leave Salem Data Services with no reported loss each month if commercial hours were increased 30%? ). 6. Based on your analysis above, is Salem Data Services really a problem to Salem Telephone Company? What should Flores do about Salem Data Services? 7. Can you suggest changes in the accounting system that would result in more useful information for Flores and Wu? Superior Manufacturing Company 1.

Based on the 2004 statement of profit and loss data (Exhibits 1 and 2), do you agree with Waters’ decision to keep product 103? 2. On January 1, 2006, should the company reduce the price of product 101? To what price? 3. What is Superior’s’s most profitable product? 4. What appears to have caused the return to profitable operations in the first six months of 2005? How useful was the data in Exhibit 4 for the purpose of this analysis? 5. Why is it important that Superior has an effective cost system? What is your overall appraisal of the company’s cost system and its use in reports to management?

List the strengths and weaknesses of this system and its related reports for the purposes management uses the system’s output. What recommendations, if any, would you make to Waters regarding the company’s cost accounting system and its related reports? Cafes Monte Bianco: Building a Profit Plan 1. Use a profit plan model to evaluate the attractiveness of switching all production to private brand coffee. Estimate key accounting variables relating to profitability and cash flow for this alternative. 2. Based on your analysis, what recommendations would you make to Giacomo Salvetti? . What assumptions did you make to complete your analysis? How critical are these assumptions to your conclusions? 4. Prepare a list of additional assumptions that you would ask for to improve the quality of your analysis. 5. Analyze the profitability of a mixed strategy where the company would sell Grade “A” coffee with an advertising level of 7% and the rest of the production would be devoted to private brand coffee. Compagnie du Froid, S. A. 1. How would you explain the difference between the Italian region’s expected and actual profit? ) What was the impact of the change in sales volume? b) What was the impact of the change in the prices charged for ice-cream and specialties? c) What was the impact of the changes in the cost of raw materials, labor, and fixed costs? d) How much of the changes in the cost of raw material and labor are due to changes in the prices of the raw materials and wages of labor, and how much are due to manufacturing efficiencies? 2. How would you evaluate the performance of the manager of the Italian Region? 3.

How would you evaluate the performance of the French and Spanish managers? How would you account for the ice-cream transfer from France to Spain? 4. What problems is Jacques Trumen facing? 5. What would you recommend to him? Polysar Limited 1. Prepare a presentation for the Polysar Board of directors to review the performance of the NASA Rubber Division. Pay particular attention to questions that may be raised concerning the accuracy and meaning of the volume variance. 2. What is the best sales and production strategy for EROW Division?

NASA Division? Rubber Group in total? 3. What changes, if any, would you recommend be made in the management accounting performance system to improve the reporting and evaluation of the Rubber Group performance? The Super Project 1. What are the relevant cash flows for General Foods to use in evaluating the Super Project? In particular, how should management deal with issues such as; a) Test marketing expenses? b) Overhead expenses? c) Erosion of Jell-O contribution margin? d) Allocation of charges for the use of excess agglomerator capacity? 2.

How attractive is the investment as measured by various capital budgeting techniques (i. e. accounting rate of return, payback period, internal rate of return, net present value)? How useful are each of these measures of investment attractiveness? (Assume that General Foods uses 10% as the discount rate to evaluate capital investments) 3. How attractive is the Super project in strategic and competitive terms? What potential risks and benefits does General Foods incur by either accepting or rejecting the project? 4. Should General Foods proceed with the Super project?

Why, or why not? Vyaderm Pharmaceuticals 1. Using data from the case Exhibit 8, calculate the following items: a) 2000 EVA for the North American Dermatology Division. b) 2000 EVA bonus payout for a manager earning $200,000, assuming that the manager’s bonus is based 100% on the Division’s EVA? c) 2001 EVA and estimated bonus payout for the same manager, assuming that Vyaderm profits fall back to historical levels and the EVA improvement goal remains constant. 2. Based on your analysis, what would you recommend to Mr. Vedrine?

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