Destin Brass

If the cost system reported sales volume and/or price we would be able to conduct an activity analysis to determine an appropriate cost function to determine the best cost driver for each product.

In using the ABC system, Valves and Pumps are matching the company’s target of 35% of gross margin apart from Flow Controllers. With the use of TAC, the gross margin on pump sales is 19.5% that well below the company's target gross margin of 35%. This indicates that the current overhead cost allocation practice did not reflect the real costs incurred on the products. The lower actual gross profit obtained was mainly due to wrong cost allocation on the pump product.

2. What is the effect of the depreciation accounting method change on the reported income in 1984? How will this change affect profits in future years?

Wilkerson’s competitors have cut prices on their pumps, in order to maintain market share, Wilkerson also cut the price of their pumps. This dropped Wilkerson’s GM by about 15%. At the same time, Wilkerson was able to increase the price of their flow controllers by 10% without a drop in demand.

3. Briefly describe how the current production cost assignment system works. What are the consumption ratios (activity percentages) for assigning manufacturing overhead to each product at present?

In order to meet customer demands for higher product quality, to comply with federally-mandated environmental regulations, and to reduce production costs, HCC must spend $2,000,000 within the next three years to upgrade equipment. The upgrade is expected to result in production efficiencies that will lower material and labor costs by reducing defective products, process waste, in-process inventory, and production man-hours through simplified work processes. It has been over a decade since significant modifications were made to the production facilities. Those changes were mostly technical in nature and did not substantially alter work processes or reduce overall employment. The average productivity gain in the industry for the past five years has been 3% per year. Financing for the loan to purchase the equipment

b. The inventory write down recorded, as an expense by the company is $4.4 million. It is measured at lower of cost and net realizable value. Cost is measured by weighted average using standard cost method or

3.) The estimated product costs for valves, pumps, and flow controllers using ABC for overhead activities (primarily Ex. 1 & 4) and direct cost data from the Exhibits are:

Recently, our raw material and machining costs have increased on some of our manufactured products. Even though we continue to work to embrace the LEAN principles, we have no choice but to pass on some of our costs to our customers through a rate adjustment. This adjustment can be found in the table below. Excellent workmanship over a number of years has made these nozzles a great

1.    Currently product Axe is charged $3,635,223 depreciation on the income statement of Andrews. Andrews plans to make investment that will increase this depreciation to take advantage of changes in the tax code. Will this?a.    Decrease net cash from operations on the cash flow statementb.    Increase net cash from operations on the cash flow statementc.    Just impact the balance sheet.d.    Have no impact on the net cash from operations as depreciation appears in both cash flow and income statementAnswer

Based on the decision of accrual vs. cash basis, describe when revenue would be recognized on the sale of inventory, and how the accrual reporting differs from cash basis.

Abby Conroy was tasked with calculating an effective quote for Breeland Ltd., she chose the activity based accounting costing system since it more accurately captures the related costs. A special order was placed by Breeland Ltd. with Ace Fertilizer Company. The did not plan to order more of this product in the future. Based on Ace’s policy, the special order included disposal costs for any used materials in the event no other orders existed for the unused materials at the time the Breeland contract was signed. Abby correctly calculated the total direct material and labor costs and accurately arrived at the indirect costs using the ABC method and used cost activity pools that make sense for the company and

To develop a strategy for WMC’s Detroit plant that is no longer viable because of underinvestment, labor issues and product-process mismatch. This has lead to negative return on assets, high burden rate (6.00) and low sales figures. The report investigates the issues causing the situation. A recommendation to address the Detroit plant will be made based on the findings.

3. Compute the line cost-to-revenue ratio as reported for quarter 1, 1999 through quarter 1, 2002 from the information in Exhibit 1. Refer to Exhibits 2 and 3, and estimate the revised line cost-to-revenue ratio for each quarter after adjusting for a) the release of accruals, b) the line costs that were capitalized, c) other line cost adjustments not discussed in the case, and d) ‘improper’ and ‘questionable’ adjustments to revenue. What do you observe? Q1 99 Q2 99 Q3 99 Q4 99 Q1 00 Q2 00 Q3 00 Q4 00 Q1 01 Q2 01 Q3 01 Q4 01

At the end of the year, overhead applied was $35,000,000. Actual overhead was $34,200,000. Closing over/under applied overhead into cost of goods sold would cause net income to increase/decrease by?