Megaphone Corporation produces a molded plastic casing, M&M101, for many cell phones currently on the market. Summary data from its 2017 income statement are as follows: Revenues $5,000,000 Variable costs 3,250,000 Fixed costs 1,890,000 Operating income $ (140,000) Joshua Kirby, Megaphone’s president, is very concerned about Megaphone Corporation’s poor profitability. He asks Leroy Gibbs, production manager, and Tony DiNunzo, controller, to see if there are ways to reduce costs. After 2 weeks, Leroy returns with a proposal to reduce variable costs to 55% of revenues by reducing the costs Megaphone currently incurs for safe disposal of wasted plastic. Tony is concerned that this would expose the company to potential environmental liabilities. He tells Leroy, “We would need to estimate some of these potential environmental costs and include them in our analysis.” “You can’t do that,” Leroy replies. “We are not violating any laws. There is some possibility that we may have to incur environmental costs in the future, but if we bring it up now, this proposal will not go through because our senior management always assumes these costs to be larger than they turn out to be. The market is very tough, and we are in danger of shutting down the company and costing all of us our jobs. The only reason our competitors are making money is because they are doing exactly what I am proposing.” 1. Calculate Megaphone Corporation’s breakeven revenues for 2017. 2. Calculate Megaphone Corporation’s breakeven revenues if variable costs are 55% of revenues. 3. Calculate Megaphone Corporation’s operating income for 2017 if variable costs had been 55% of revenues. 4. Given Leroy Gibbs’s comments, what should Tony DiNunzo do?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Ethics, CVP analysis. Megaphone Corporation produces a molded plastic casing, M&M101, for
many cell phones currently on the market. Summary data from its 2017 income statement are as follows:
Revenues $5,000,000
Variable costs 3,250,000
Fixed costs 1,890,000
Operating income $ (140,000)
Joshua Kirby, Megaphone’s president, is very concerned about Megaphone Corporation’s poor profitability.
He asks Leroy Gibbs, production manager, and Tony DiNunzo, controller, to see if there are ways to
reduce costs.
After 2 weeks, Leroy returns with a proposal to reduce variable costs to 55% of revenues by reducing
the costs Megaphone currently incurs for safe disposal of wasted plastic. Tony is concerned that this would
expose the company to
of these potential environmental costs and include them in our analysis.” “You can’t do that,” Leroy replies.
“We are not violating any laws. There is some possibility that we may have to incur environmental costs
in the future, but if we bring it up now, this proposal will not go through because our senior management
always assumes these costs to be larger than they turn out to be. The market is very tough, and we are in
danger of shutting down the company and costing all of us our jobs. The only reason our competitors are
making money is because they are doing exactly what I am proposing.”
1. Calculate Megaphone Corporation’s breakeven revenues for 2017.
2. Calculate Megaphone Corporation’s breakeven revenues if variable costs are 55% of revenues.
3. Calculate Megaphone Corporation’s operating income for 2017 if variable costs had been 55% of revenues.
4. Given Leroy Gibbs’s comments, what should Tony DiNunzo do?
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