Question 1
?These statements can?t be right,? said Ben Yoder, president of Rayco, Inc. ?Our sales in the second quarter were up by 25% over the first quarter, yet these income statements shows a precipitous drop in net operating income for the second quarter. Those accounting people have fouled something up.? Mr. Yoder was referring to the following statements (absorption costing basis): The Income Statement is Attached After studying the statements briefly, Mr. Yoder called in the controller to see if the mistakes in the second quarter could be located before the figures were released to the press. The controller stated, ?I?m sorry to say that those figures are correct, Ben. I agree that sales went up during the second quarter, but the problem is in production. You see, we budgeted to produce 15,000 units each quarter, but a strike on the west coast among some of our suppliers forced us to cut production in the second quarter back to only 9,000 units. That?s what caused the drop in net operating income.? Mr. Yoder was confused by the controller?s explanation. He replied, ?This doesn?t make sense. I ask you to explain why net operating income dropped when sales went up and you talk about production! So what if we had to cut back production? We still were able to increase sales by 25%. If sales go up, then net operating income should go up. If your statements can?t show a simple thing like that, then it?s time for some changes in your department!? Budgeted production and sales for the year, along with actual production and sales for the first two quarters, are attached. The company?s plant is heavily automated, and fixed manufacturing overhead amounts to $180,000 each quarter. Variable manufacturing costs are $8 per unit. The fixed manufacturing overhead is applied to units of product at a rate of $12 per unit. Any underapplied or overapplied overhead is closed directly to costs of goods sold for the quarter. The company had 4,000 units in inventory to start first quarter and uses the FIFO inventory flow assumption. Variable selling and administrative expenses are $5 per unit. Questions: 1. What characteristics of absorption costing caused the drop in net operating income for the second quarter and what could the controller have said to explain the problem? 2. Prepare a contribution format variable costing income statement for each quarter. 3. Reconcile the absorption costing and the variable costing net operating income figures for each quarter. 4. Identify and discuss the advantages and disadvantages of using the variable costing method for internal reporting purposes. 5. Assume that the company had introduced Lean Production at the beginning of the second quarter, resulting in zero ending inventory. (Sales and production during the first quarter remain the same). a. How many units would have been produced during the second quarter under Lean Production? b. Starting with the third quarter, would you expect any differences between the net operating income reported under absorption costing and under variable costing? Explain why there would or would not be any difference.
Question 2
On December 31, 2010, Dow Steel Corporation had 680,000 shares of common stock and 300,000 shares of 8%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 6% common stock dividend on May 15 and paid cash dividends of $400,000 and $75,000 to common and preferred shareholders, respectively, on December 15, 2011. On February 28, 2011, Dow sold 68,000 common shares. In keeping with its long-term share repurchase plan, 2,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2011, was $2,050,000. The income tax rate is 40%. As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the current and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices follows: Date Granted Options Granted Share Price (adjusted for the stock dividend) December 31, 2009 4,000 $ 33 December 31, 2010 9,000 $ 24 December 31, 2011 7,500 $ 31 ________________________________________ The market price of the common stock averaged $32 per share during 2011. Dow's basic earnings per share $
Question 3
1. (35 points) The United States Post Office provides an array of services which according to recent reports to Congress has resulted in billions in annual losses. A special committee has identified potential services that could be reduced or eliminated as follows: a. Reduce days of delivery from six to five days i.e. eliminate Saturday delivery for residential and commercial customers b. Eliminate special delivery services such as express mail and certified mail c. Change the pricing structure for bulk (aka junk mail) to discourage use and encourage digital distribution to save costs on transportation, storage and labor d. Consider eliminating other services such as passport and Post Office Box (POB) and any other non mail processing and delivery services Use the above information to develop a framework for a recommendation for the USPS to continue or discontinue two of the services above. Your discussion should consider a make or buy decision or product line discontinuation decision or outsourcing decision or any combination with identification of the relevant costs to be considered. Your response should outline the quantitative factors such as relevant/avoidable/differential costs as well as the qualitative factors that should be considered in your decision. Provide an opinion assuming you had the appropriate information on what the USPS should do regarding future services.
Question 4
Problem 6-2B Pepco Co. estblishes a petty cash find for payments of small amounts. The following transactions involving the petty cash fund occurred in January (the last month of the company's fiscal year). Jan. 3 A company check for $150 is written and made payable to the petty cashier to establish the petty cash fund. Jan. 14 A company check is written to replenish the fund for the following expenditures made since January 3. a. Purchased office supplies for $16.29 that are immediately used up. b. Paid $17.60 COD shipping charges on merchandise purchased for resale, terms FOB ship c. Paid $36.57 to All-Tech for minor repairs to a computer. d. Paid $14.82 for items classified as miscellaneous expenses. e. Counted $62.28 remaining in the petty cash box. Jan. 15 Prepared a company check for $25 to increase the fund to $175. Jan. 31 The petty cashier reports that $17.35 remains in the fund. A company check is written to replenish the fund for the following expenditures made since January 14. f. Paid $40 to the Smart Shopper for an advertisement in January's newsletter. g. Paid $38.19 for postage expenses h. Paid $58 to Take-You-There for delivery of merchandise, terms FOB destination. Jan 31 The company decides that the January 15 increase in the fund was too little. It increases the fund by another $75, leaving a total of $250. * Prepare journal entries to establish the fund on January 3, to replenish it on January 14 and January 31, and to reflect any increase or decrease in the fund balance on January 15 and 31.
Question 5
From the e-Activity, evaluate the use and applicability of Radio Frequency Identification Devises (RFID) in industry today. Choose a company and provide at least two examples of how these devices can be used to improve productivity in its operations. ?From the case study, assess the benefits and risks associated with this type of technology that should be considered by Mr. Bracket. Identify at least two possible risks that the company might face and suggest ways to mitigate them. From the e-Activity, examine some of the steps that are involved in designing goods and services. Select two services or two products that are currently on the market. Use Exhibit 6.1 from Chapter 6 of the text to compare and contrast each step, and determine the similarities and areas where they differ. ?From the e-Activity, suggest at least two changes to specific areas of the process design phase that may lead to improvement in operations. Provide a rationale to support your suggestion. Compare and contrast the service positioning matrix and the product process matrix in terms of their differences and similarities. ?Provide at least one example currently used in business for each of the matrixes and evaluate their benefits and limitations within the industry you chose. ?Evaluate how each matrix is unique in the way it addresses the needs of the customer.
