Plum Electronics

1400 Words May 19th, 2015 6 Pages
ABC case study: Plum Electronics
Plum Electronics, a division of Berry Corporation, manufactures two large-screen television models: the Mammoth, which has been produced since 2009 and sells for $990, and the Maximum, a newer model introduced in early 2011 that sells for $1,254. Based on the following income statement for the year ended November 30, 2013, senior management at Berry have decided to concentrate Plum’s marketing resources on the Maximum model and to begin to phase out the Mammoth model because Maximum generates a much bigger operating income per unit.
Plum Electronics Income Statement for the Fiscal Year Ended November 30, 2013

Mammoth
Maximum
Total
Revenues
$21,780,000
$5,016,000
$26,796,000
Cost of goods sold
13,794,000
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He is also aware that a sizable portion of Clark’s bonus is based on division revenues. Phasing out either product would adversely affect his bonus. Still, he feels some pressure from Clark to do something.
(Adapted from Managerial Accounting: Making Decisions and Motivating Performance, p248)
Questions:
1. What type of organization is Plum Electronics? Manufacturing, merchandising or service?
2. What are their products?
3. What type of costing system are they currently using and what are the current cost allocation bases used for indirect costs?
4. What is the costing issue currently facing the company?
5. What is the alternate costing system that is being proposed? Describe the alternate system in detail.
6. What are the advantages of the alternate costing system?
7. What is the potential ethical dilemma facing the management accountant in this scenario?

Answers:
1. What type of organization is Plum Electronics? Manufacturing, merchandising or service?
Plum Electronics is a manufacturing firm.

2. What are their products?
Plum manufactures large-screen televisions; they have two models: the Mammoth and the Maximum.

3. What type of costing system are they currently using and what are the current cost allocation bases used for indirect costs?
Plum’s simple costing system allocates all manufacturing overhead on the basis of machine-hours, an output unit-level cost driver. Consequently, the more
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