Case 12-32

While there is an expense to change the system, it will allow ETO to better account for actual costs. The original cost system assumes that the allocation base of direct labor hours accounts for all overhead. This would be appropriate if direct labor constitutes a significant part of the product costs and there was a high correlation between direct labor and changes to overhead. However, this is not the case for ETO. Their system does not allocate machine hours or actual costs variation between products; rather it spreads all costs equally. This results in product cost distortion and all customers end up sharing equal costs despite the different cost in product testing.

This memo is intend to present appropriate treatment of the ARO estimation problem experienced by the Lack of Information (LOI) based on the findings from interviews with all 50 of the warehouse managers and on-site visits at each of the 50 locations of its warehouses countrywide. The onsite observations search for any evidence of damages in both the on-site property like the roof, walls, floors and general conditions. The interview with the managers obtains information about the characteristics of the warehouses that are not readily observable. The information obtained is very important in the preparation of the fiscal

3.3 How is the standard price used in the accounting system? (Think about what you did in your cost/managerial accounting class.)

For this task I will be discussing the effects of un-monitoring cost and budgets, and seeing how business could suffer if they are not look after responsibly. I will show disadvantages of not using this method properly.

Shakespeare Inc., a private publishing company issued its F/S on March 20, 2012. There were several accruals and events that the management of Shakespeare is considering to determine if they should be recognized or disclosed in Dec 31, 2011 F/S. In my opinion, the important things to focus on subsequent events are the period they effect and if their influence is material or not, so that in conclusion, the F/S are fairly presented.

We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Dow Chemical Company and subsidiaries at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note U to the consolidated financial statements, the Company is involved in litigation related to an agreement to acquire Rohm and Haas Company. The Company has disclosed that it is reasonably possible that the ultimate resolution of the litigation could have a material adverse impact on the Company’s consolidated financial statements. As discussed in Note A to the consolidated financial statements, effective December 31, 2006, the Company changed its method of accounting for defined benefit pension and other postretirement plans to conform to Statement of Financial Accounting Standards No. 158. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company 's internal control over

The variance overhead variance is unfavourable for leather jackets indicating NLJ spent more on variable overhead to produce leather jackets than budgeted. This was because new specialized sewing machines had to be purchased to meet the increased production demand of leather jackets.

2. What would have been Martin’s return for years 2000, 2001, and 2002 if his portfolio had remained with its initial holdings?

The EITF lays out six factors in which if any are met, the proceeds are considered debt. The first is whether or not then transaction takes the likeness of a sale. The case could be made that because PEI is receiving a percentage of an existing drug, it is in essence a sale. The second factor deals with Pharmagen’s future involvement in the future cash flows. Obviously since Pharmagen will retain the intellectual property rights they will be actively involved in the future cash flows. Because only one of the factors needed to be met, the funding received takes on the appearance of debt and none of the other factors need be examined. Accordingly FASB says the amounts recorded as debt should be amortized under the interest method (ASC 470-10-35-3). As stated earlier this method deals with sales of future revenues which implies the completion of the drug is probable. Due to the large amount of risk associated with the industry, this probably will not be the best accounting option.

To effectively plan overhead costs for a product the management must aim to eliminate activities that do not add any value to the product in question. The process of costing is very important in that it supplies information on evaluation and control to various aspects of a business enterprise. Variance measures price and quantity differences that occur in any budgeted and actual prices and quantities. There exist a difference between fixed overhead spending variance and variable overhead spending variance in that the fixed overhead spending variance does not include estimation error while variable spending variable does.

Rob’s goal is to keep margins consistent. As an example, he explained that if a customer wanted to upgrade from 10 seats to 30, an additional $200 in manufacturing costs would be added to

First, the materials efficiency variance was noted as unfavorable because 1,000 more units were used than budgeted. Since materials efficiency variances result from a variety of causes, including materials quality, spoilage, training, and equipment (Benge, n.d.). The next area to investigate are the labor variances which showed the cost, while favorable, was a difference of $1.00 per hour. Further, the efficiency was unfavorable, indicating that production required an additional 3,000 hours over budget, which could be the result of staff training, faulty equipment, or low-quality materials (Direct labor efficiency variance - explanation, formula, example, reasons. 2016). Since there appears to be a lower cost of labor than anticipated, but higher materials and hourly utilization rate, it is possible that new lower cost staff were hired resulting in slower production rates and elevated materials utilization. As such, the production manager should be consulted to investigate the cause of these variances and to put proper corrective actions into place (Miller-Nobles et al.,

Standard costing of inventory and cost of goods sold will be adjusted depending on the effect it has on the year-end reporting period. If variances in an interim period exist, FASB does not require an adjustment to inventory and COGS if the variance is absorbed in the year-end reporting. In contrast, if an interim period variance is not absorbed when year-end is reported, FASB tells us that the interim period should be reported in the same manner as the annual reporting.

Recordkeeping. A standard cost system reduces recordkeeping costs and facilities inventory control (i.e., items need be maintained in physical quantities only).

Standard costing and variance analysis may still be useful even where the final product or service is not standardised. In addition, the use of demanding performance levels in standard cost may help to encourage continuous improvement.