company manufactures clothes in a number of towns and cities in the United Kingdom. These are then distributed to a network of retail outlets throughout the country. The company is owned by two other companies that take an active interest in the profitability of the clothing manufacturing and retailing sides of the business. Other UK clothing businesses now source their products from overseas as manufacturing costs in the UK are extremely high and reduce ma
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A company manufactures clothes in a number of towns and cities in the United Kingdom. These are then distributed to a network of retail outlets throughout the country. The company is owned by two other companies that take an active interest in the profitability of the clothing manufacturing and retailing sides of the business. Other UK clothing businesses now source their products from overseas as
4) Based on the case, evaluate what could the creditors, as a stakeholder, expect from manufacturing companies when manufacturing costs are increasing and reducing margins for the sale of products?
5) Closing the manufacturing business is the worst scenario that the Board could face, evaluate how could the investors, as a stakeholder, be affected to the imminent closure?
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- Mossfort, Inc., has a division in Canada that makes long-lasting exterior wood stain. Mossfort has another U.S. division, the Retail Division, that operates a chain of home improvement stores. The Retail Division would like to buy the unique, long-lasting wood stain from the Canadian division, since this type of stain is not currently available. The Exterior Stain Division incurs manufacturing costs of 13.45 for one gallon of stain. If the Retail Division purchases the stain from the Canadian division, the shipping costs will be 1.40 per gallon, but sales commissions of 0.75 per gallon will be avoided with an internal transfer. The Retail Division plans to sell the stain for 32.80 per gallon. Normally, the Retail Division earns a gross margin of 35 percent above cost of goods sold. Required: 1. Which Section 482 method should be used to calculate the allowable transfer price? 2. Calculate the appropriate transfer price per gallon. (Round to the nearest cent.)Posavek is a wholesale supplier of building supplies building contractors, hardware stores, and home-improvement centers in the Boston metropolitan area. Over the years, Posavek has expanded its operations to serve customers across the nation and now employs over 200 people as technical representatives, buyers, warehouse workers, and sales and office staff. Most recently, Posavek has experienced fierce competition from the large online discount stores. In addition, the company is suffering from operational inefficiencies related to its archaic information system. Posavek revenue cycle procedures are described in the following paragraphs. Revenue Cycle Posaveks sales department representatives receive orders via traditional mail, e-mail, telephone, and the occasional walk-in customer. Because Posavek is a wholesaler, the vast majority of its business is conducted on a credit basis. The process begins in the sales department, where the sales clerk enters the customers order into the centralized computer sales order system. The computer and file server are housed in Posaveks small data processing department. If the customer has done business with Posavek in the past, his or her data are already on file. If the customer is a first-time buyer, however, the clerk creates a new record in the customer account file. The system then creates a record of the transaction in the open sales order file. When the order is entered, an electronic copy of it is sent to the customers e-mail address as confirmation. A clerk in the warehouse department periodically reviews the open sales order file from a terminal and prints two copies of a stock release document for each new sale, which he uses to pick the items sold from the shelves. The warehouse clerk sends one copy of the stock release to the sales department and the second copy, along with the goods, to the shipping department. The warehouse clerk then updates the inventory subsidiary file to reflect the items and quantities shipped. Upon receipt of the stock release document, the sales clerk accesses the open sales order file from a terminal, closes the sales order, and files the stock release document in the sales department. The sales order system automatically posts these transactions to the sales, inventory control, and cost-of-goods-sold accounts in the general ledger file. Upon receipt of the goods and the stock release, the shipping department clerk prepares the goods for shipment to the customer. The clerk prepares three copies of the bill of lading. Two of these go with the goods to the carrier and the third, along with the stock release document, is filed in the shipping department. The billing department clerk reviews the closed sales orders from a terminal and prepares two copies of the sales invoice. One copy is mailed to the customer, and the other is filed in the billing department. The clerk then creates a new record in the accounts receivable subsidiary file. The sales order system automatically updates the accounts receivable control account in the general ledger file. CASH RECEIPTS PROCEDURES Mail room clerks open customer cash receipts, reviews the check and remittance advices for completeness, and prepares two copies of a remittance list. One copy is sent with the checks to the cash receipts department. The second copy of the remittance advices are sent to the billing department. When the cash receipts clerk receives the checks and remittance list, he verifies the checks received against those on the remittance list and signs the checks For Deposit Only. Once the checks are endorsed, he records the receipts in the cash receipts journal from his terminal. The clerk then fills out a deposit slip and deposits the checks in the bank. Upon receipt of the remittances, the billing department clerk records the amounts in the accounts receivable subsidiary ledger from the department terminal. The system automatically updates the AR control account in the general ledger Posavek has hired your public accounting firm to review its sales order procedures for internal control compliance and to make recommendations for changes. Required a. Create a data flow diagram of the current system. b. Create a system flowchart of the existing system. c. Analyze the physical internal control weaknesses in the system. d. (Optional) Prepare a system flowchart of a redesigned computer-based system that resolves the control weaknesses that you identified. Explain your solution.Bangor Ltd is a well-established company which produces wooden garden furniture sets in its two divisions A and B.Division A produces the items of furniture and then transfers them to Division B, who varnish them and sell them to a well-known national retailer for £400 per set of a table and 4 chairs. For the last number of years, the managers of the 2 divisions have communicated well and have been happy with the transfer pricing arrangements, which was set at £200 per set of furniture. However, the manager of Division A has recently left Bangor Ltd., for a competitor and the newly appointed manager of division A is not happy with the transfer price of £200 and believes it should be £250 per unit. He is arguing that the overall profit for the company will also be increased by doing this however, Frankie, the manager of Division B disputes this and is arguing that the transfer price will remain the same.Frankie is also arguing that the profits of the 2 divisions are not the only…
- Becky Knauer recently resigned from her position as controller for Shamalay Automotive, a small, struggling foreign car dealer in Upper Saddle River, New Jersey. Becky has just started a new job as controller for Mueller Imports, a much larger dealer for the same car manufacturer. Demand for this particular make of car is exploding, and the manufacturer cannot produce enough to satisfy demand. The manufacturer’s regional sales managers are each given a certain number of cars. Each sales manager then decides how to divide the cars among the independently owned dealerships in the region. Because of high demand for these cars, dealerships all want to receive as many cars as they can from the regional sales manager. Becky’s former employer, Shamalay Automotive, receives only about 25 cars each month. Consequently, Shamalay is not very profitable. Becky is surprised to learn that her new employer, Mueller Imports, receives more than 200 cars each month. Becky soon gets another surprise.…Wheels, Inc. manufactures bicycles sold through retail bicycle shops in the southeastern United States. The company has two salespeople that do more than just sell the products—they manage relationships with the bicycle shops to enable them to better meet consumers’ needs. The company’s sales reps visit the shops several times per year, often for hours at a time. The owner of Wheels is considering expanding to the rest of the country and would like to have distribution through 1,000 bicycle shops. To do so, however, the company would have to hire more salespeople. Each salesperson earns $40,000 plus 2 percent commission on all sales annually. Another alternative is to use the services of sales agents instead of its own sales force. Sales agents would be paid 5 percent of sales. At what level of sales would it be more cost efficient for Wheels to use to sales agents compared with its own sales force? To determine this, consider the fixed and variable costs for each alternative. What are…Wheels, Inc. manufactures bicycles sold through retail bicycle shops in the southeastern United States. The company has two salespeople that do more than just sell the products—they manage relationships with the bicycle shops to enable them to better meet consumers’ needs. The company’s sales reps visit the shops several times per year, often for hours at a time. The owner of Wheels is considering expanding to the rest of the country and would like to have distribution through 1,000 bicycle shops. To do so, however, the company would have to hire more salespeople. Each salesperson earns $40,000 plus 2 percent commission on all sales annually. Another alternative is to use the services of sales agents instead of its own sales force. Sales agents would be paid 5 percent of sales. Determine the number of salespeople Wheels needs if it has 1,000 bicycle shop accounts that need to be called on four times per year. Each sales call lasts approximately 2.5 hours, and each sales rep has…
- Toy Creations Ltd, a small and medium enterprise, specialises in children’s toys with its products being categorised into three major groups: Plushies, Dolls and Animals. The market for Plushies is expected to expand in the future but Toy Creations is currently struggling to maintain its market share due to the intense price competition in the industry. The market for Animals is assessed to be least price-sensitive among allproducts. The company currently uses the step-down method to allocate its Material Handling and Quality Assurance (QA) costs to the three product groups, and prices all products using a cost-plus basis. The Material Handling and QA department costs are allocated based on the amount of purchases and number of labour hours respectively. The following information is available for the cost allocation exercise. Material Handling QA Plushies Dolls Animals Cost before allocation (incl. salaries) $2,500,000 $2,000,000 $1,800,000 $4,300,000 $3,250,000 Purchases…Wheels, Inc. is a manufacturer of bicycles sold through retail bicycle shops in the southeastern United States. The company has two salespeople who do more than just sell the products-they manage relationships with the bicycle shops to enable them to better meet consumers' needs. The company's sales reps visit the shops several times per year, often for hours at a time. The owner of Wheels is considering expanding to the rest of the country and would like to have distribution through 4000 bicycle shops. To do so, however, the company would have to hire more salespeople. Each salesperson earns $40000 plus 2 percent commission on all sales. Another alternative is to use the services of sales agents instead of its own salesforce. Sales agents would be paid 4 percent of sales. Each sales call lasts approximately 1.7 hours, and each sales rep has approximately 1360 hours per year to devote to customers. Wheels needs 10 salespeople if it has 4,000 bicycle shop accounts that need to be…Wheels, Inc. is a manufacturer of bicycles sold through retail bicycle shops in the southeastern United States. The company has two salespeople that do more than just sell the products—they manage relationships with the bicycle shops to enable them to better meet consumers’ needs. The company’s sales reps visit the shops several times per year, often for hours at a time. The owner of Wheels is considering expanding to the rest of the country and would like to have distribution through 1,000 bicycle shops. To do so, however, the company would have to hire more salespeople. Each salesperson earns $40,000 plus 2 percent commission on all sales. Another alternative is to use the services of sales agents instead of its own sales force. Sales agents would be paid 5 percent of sales. Refer to Appendix 2 to answer this question. Determine the number of salespeople Wheels needs if it has 1,000 bicycle shop accounts that need to be called on four times per year. Each sales call lasts…
- Large, diversified companies often will sell products/components from one division to another division rather than purchase from an outside supplier. Transfer price is the term used to describe the amount one division pays to another division within the same company to purchase a component part. Therefore, if are the Boat Hull Manufacturing Company and we produce boat parts at the manufacturing facility in Virginia. The managerial accountant reported that Boat Hull Manufacturing manufactures parts to repair the container ships that import products from China. The main part that Boat Hull Manufacturing produces is the T24 part. The Port Department produces the T24 part at the Boat Hull Manufacturing facility in Virginia. The managerial accountant reported that the Deport Department could also produce the T24 part because there is excess capacity at the facility. The managerial accountant reported the current market price of the T24 part is $420 and reported the following…Marketing: Wheels, Inc. manufactures bicycles sold through retail bicycle shops in the southeastern United States. The company has two salespeople that do more than just sell the products dash– they manage relationships with the bicycle shops to enable them to better meet consumers' needs. The company's sales reps visit the shops several times per year, often for hours at a time. The owner of Wheels is considering expanding to the rest of the country and would like to have distribution through 600 bicycle shops. To do so, however, the company would have to hire more salespeople. Each salesperson earns $40,000 plus 2 percent commission on all sales annually. Another alternative is to use the services of sales agents instead of its own sales force. Sales agents would be paid 5 percent of sales. Determine the number of salespeople Wheels needs if it has 600 bicycle shop accounts that need to be called on five times per year. Each sales call lasts approximately 3 hours and each sales…KarlAuto Corporation manufactures automobiles, vans, and trucks. Among the various KarlAuto plants around the United States is the Bloomington plant, where vinyl covers and upholstery fabric are sewn. These are used to cover interior seating and other surfaces of KarlAuto products. Pam Teegin is the plant manager for the Bloomington cover plantthe first KarlAuto plant in the region. As other area plants were opened, Teegin, in recognition of her management ability, was given the responsibility to manage them. Teegin functions as a regional manager, although the budget for her and her staff is charged to the Bloomington plant. Teegin has just received a report indicating that KarlAuto could purchase the entire annual output of the Bloomington cover plant from outside suppliers for 32 million. Teegin was astonished at the low outside price, because the budget for the Bloomington plants operating costs was set at 56.45 million. Teegin believes that the Bloomington plant will have to close down operations in order to realize the 24.45 million in annual cost savings. The budget (in thousands) for the Bloomington plants operating costs for the coming year follows: Additional facts regarding the plants operations are as follows: Due to the Bloomington plants commitment to use high-quality fabrics in all of its products, the Purchasing Department was instructed to place blanket orders with major suppliers to ensure the receipt of sufficient materials for the coming year. If these orders are canceled as a consequence of the plant closing, termination charges would amount to 18 percent of the cost of direct materials. Approximately 600 plant employees will lose their jobs if the plant is closed. This includes all direct laborers and supervisors as well as the plumbers, electricians, and other skilled workers classified as indirect plant workers. Some would be able to find new jobs, but many others would have difficulty. All employees would have difficulty matching the Bloomington plants base pay of 29.40 per hour, the highest in the area. A clause in the Bloomington plants contract with the union may help some employees; the company must provide employment assistance to its former employees for 12 months after a plant closing. The estimated cost to administer this service would be 1 million for the year. Some employees would probably elect early retirement because the company has an excellent pension plan. In fact, 4.6 million of next years pension expense would continue whether or not the plant is open. Teegin and her staff would not be affected by the closing of the Bloomington plant. They would still be responsible for administering three other area plants. Equipment depreciation for the plant is considered to be a variable cost and the units-of-production method is used to depreciate equipment; the Bloomington plant is the only KarlAuto plant to use this depreciation method. However, it uses the customary straight-line method to depreciate its building. Required: 1. Prepare a quantitative analysis to help in deciding whether or not to close the Bloomington plant. Explain how you treated the nonrecurring relevant costs. 2. Consider the analysis in Requirement 1, and add to it the qualitative factors that you believe are important to the decision. What is your decision? Would you close the plant? Explain. (CMA adapted)
