Managerial Analysis
In the course of routine checking of all journal entries prior to preparing year-end reports, Diane Riser discovered several strange entries. She recalled that the president's son Ron had come in to help out during an especially busy time and that he had recorded some journal entries. She was relieved that there were only a few of his entries, and even more relieved that he had included rather lengthy explanations.
The entries Ron made were:
1.
Work in Process Inventory ; 25,000
Cash 25,000
(This is for materials put into process. I don't find the record that we paid for these, so I'm crediting Cash, because I know we'll have to pay for them sooner or later.)
2.
Manufacturing Overhead 12,000
Cash 12,000
(This is for bonuses paid to salespeople. I know they're part of overhead, and I can't find an account called "Non-factory Overhead" or "Other Overhead" so I'm putting it in Manufacturing Overhead. I have the check stubs, so I know we paid these.)
3.
Wages Expense 120,000
Cash 120,000
(This is for the factory workers' wages. I have a note that payroll taxes are $15,000. I still think that's part of wages expense, and that we'll have to pay it all in cash metier or later, so I credited Cash for the wages and the taxes.)
4.
Work in Process Inventory 3,000
Raw Materials Inventory 3,000
(This is for the glue used in the factory. I know we used this to make the products, even though we didn't use very much on any one of the products. I got it out of inventory, so I credited an inventory aocount.)
Instructions
(a) How should Ron have recorded each of the four events?
(b) If the entry was not corrected, which finantial statements (income statement or balance sheet) would be affected? What balances would be overstated or understated?
Decision making across the organization
Part -2:
BYP2-1 Pine Products Company uses a job order cost system. For a number of months there has been an ongoing rift between the sales department and the production department concerning a special-order product,TG1.TC-1 is a seasonal product that is manufactured in batches of 1,000 units. TC-1 is sold at cost plus a markup of 40% of cost.
The sales department is unhappy because fluctuating unit production costs significantly affect selling prices. Sales personnel complain that this has caused excessive customer complaints and the loss of considerable orders for TC-1.
The production department maintains that each job order most be fully existed on the basis of the costs incurred during the period in which the goods arc produced. Production personnel maintain that the only real solution to the problem is for the sales department to increase sales in the slack periods.
Regina Newell, president of the company, asks you as the company accountant to collect quarterly data for the past year on TC-1. From the cost accounting system, you accumulate the following product& quantity and cost data.
|
Costs
|
|
Quarter
|
|
|
1
|
2
|
3
|
4
|
|
Direct materials
|
$100,000
|
$220,000
|
$ 80,000
|
$200,000
|
|
Direct labor
|
60,000
|
132,000
|
48,000
|
120,000
|
|
Manufacturing overhead
|
105,000
|
123,000
|
97,000
|
125,000
|
| Total |
$265,000
|
$475,000
|
$225,000
|
$445,000
|
|
Production in batches
|
5
|
11
|
4
|
10
|
|
Unit cost (per batch)
|
$ 53,000
|
$ 43,182
|
$ 56,250
|
$ 44,500
|
Instructions
With the class divided into groups, answer the following questions.
(a) What manufacturing cost element is responsible for the fluctuating unit costs? Why?
(b) What is your recommended solution to the problem of fluctuating unit cost? (e) Restate the quarterly data on the basis of your recommended solution.
Part -3:
BYP3-3 The May 10,2004, edition of the Wall Street Journal includes an article by Evan Ram-stud titled "A Tight Squeeze" (page R9).
Instructions
Read the article and answer the following questions
(a) What is Preview's profit margin on computer monitors? Why is the profit margin to thin on computer Tonitors?
(b) What are sortie of the steps that Proview International has taken to control costs?
(c) Why does the company continue to build tube-based monitors even as many consumers are moving away from them?
(d) Mr. Wang's final comment is,"Every aspect of the business is important, but the most impor¬tant is cost." Why does he feel this way?