Problem:
EEC currently uses a basic standard cost system. Management knows very little about other concepts of costing and the benefits of having multiple costing methods. Your superior has asked that you and your team put together a presentation to management explaining various costing concepts as it relates to EEC.
As an EEC corporate business financial analyst, you must have an expert understanding of the various costing methods. Analyze and become an expert in at full costing/absorption costing concept within the group. Then write a paper to include the following:
- the definition of the concept
- how and when the concept could be used by EEC
- how the application of the concept differs from the other concepts
- its advantages and disadvantages
- Where and how EEC could apply each concept.
- The benefit EEC could gain from using of this costing methods.
| Eddison Electronic Company |
| Journal Entries 2005 |
| |
|
"000" Omitted |
| |
Activity |
|
|
|
| 1 |
Sales not on account |
$29,440 |
|
|
| 2 |
Sales on account |
28,060 |
|
|
| 3 |
Selling Expense |
3,220 |
|
|
| 4 |
Administrative Expense |
6,210 |
|
|
| 5 |
Supplies Factory |
3,450 |
|
|
| 6 |
Insurance Factory |
920 |
|
|
| 7 |
Indirect Labor |
6,900 |
|
|
| 8 |
Factory Salaries |
288 |
|
|
| 9 |
Factory Property Tax |
173 |
|
|
| 10 |
Maintenance Expense Factory |
2,001 |
|
|
| 11 |
Depreciation Expense Factory |
3,726 |
|
|
| 12 |
Utilities Factory |
828 |
|
|
| 13 |
Purchases of Raw Materials |
17,250 |
|
|
| 14 |
Direct Labor Factory |
3,450 |
|
|
| 15 |
Raw Material Inventory, January 1 |
2,070 |
|
|
| 16 |
Raw Material Inventory, December 31 |
1,380 |
|
|
| 17 |
Work in Process Inventory, January 1 |
4,140 |
|
|
| 18 |
Work in Process Inventory, December 31 |
2,300 |
|
|
| 19 |
Finished Goods Inventory, January 1 |
5,980 |
|
|
| 20 |
Finished Goods Inventory, December 31 |
4,830 |
|
|
| 21 |
Bad Debt Expense |
276 |
|
|
| 22 |
Accounts Receivable, net |
9,430 |
|
|
| 23 |
Prepaid Expenses |
840 |
|
|
| 24 |
Land |
2,760 |
|
|
| 25 |
Plant and Equipment |
37,950 |
|
|
| 26 |
Cash 1/1/05 |
4,646 |
|
|
| 27 |
Accounts Payable |
14,410 |
|
|
| 28 |
Interest Expense |
28 |
|
|
| 29 |
Notes Payable, 10% |
2,070 |
|
|
| 30 |
Bonds Payable 8% |
8,510 |
|
|
| 31 |
Stockholders' Equity |
31,510 |
|
|
| 32 |
Retained Earnings |
6,670 |
|
|
| 33 |
Income tax rate |
30% |
|
|
| Eddison Electronics Company |
| 1.5GB Chip Project - USA |
| |
Plan |
Actual
2005 |
Difference |
| Investment in Equipment |
$5,000,000 |
$5,000,000 |
$0 |
| |
|
|
|
| Income |
|
|
|
| Sales |
$5,250,000 |
$6,000,000 |
$750,000 |
| Variable Expenses |
2,500,000 |
2,800,000 |
$300,000 |
| Contribution Margin |
$2,750,000 |
$3,200,000 |
$450,000 |
| Less Fixed Expenses: |
|
|
|
| Costs |
900,000 |
950,000 |
$50,000 |
| Depreciation |
500,000 |
500,000 |
$0 |
| Net Operating Income |
$1,350,000 |
$1,750,000 |
$400,000 |
| |
|
|
|
| Cash Flow |
|
|
|
| Sales |
$5,250,000 |
$6,000,000 |
$750,000 |
| Less Variable Expenses |
2,500,000 |
2,800,000 |
300,000 |
| Contribution Margin |
2,750,000 |
3,200,000 |
450,000 |
| Less Costs |
900,000 |
950,000 |
$50,000 |
| Net Annual Cash Inflow |
$1,850,000 |
$2,250,000 |
$400,000 |