VishuSubject: accounting Required A Required BPrepare a report of the differential costs and revenues if the yard cleanup service is discontinued.Note: Enter loss amount with minus sign.Sales revenueCostsKendall & FloydAnnual Income StatementBefore DroppingServiceEquipment leasesLaborUtilitiesRentOther costsManager's salaryTotal costsOperating profit (loss)$$$360,000After DroppingService210,00050,00017,80034,50020,00070,000402,300 $(42,300)0 Kendall & Floyd provides landscaping services in Eastvale. Sara Kendall, the owner, is concerned about the recent losses the companyhas incurred and is considering dropping its yard cleanup services, which she feels are marginal to the company's business. Sheestimates that doing so will result in lost revenues of $57,500 per year (including the lost tree business from customers who use thecompany for both services). The present manager will continue to supervise the tree services with no reduction in salary. Without theyard cleanup business, Sara estimates that the company will save 10 percent of the equipment leases, labor, and other costs. She alsoexpects to save 12 percent on rent and utilities. The income statement before dropping the yard cleanup service follows.Required:a. Prepare a report of the differential costs and revenues if the yard cleanup service is discontinued.b. Should Sara discontinue the yard cleanup service?

Relevant CostIn Management accounting the term of Relevant cost is really matter. Relevant cost is…

Required A Required B Prepare a report of the differential costs and revenues if the yard cleanup service is discontinued. Note: Enter loss amount with minus sign. Sales revenue Costs Kendall & Floyd Annual Income Statement Before Dropping Service Equipment leases Labor Utilities Rent Other costs Manager's salary Total costs Operating profit (loss) $ $ $ 360,000 After Dropping Service 210,000 50,000 17,800 34,500 20,000 70,000 402,300 $ (42,300) 0

Required A Required B Prepare a report of the differential costs and revenues if the yard cleanup service is discontinued. Note: Enter loss amount with minus sign. Sales revenue Costs Kendall & Floyd Annual Income Statement Before Dropping Service Equipment leases Labor Utilities Rent Other costs Manager's salary Total costs Operating profit (loss) $ $ $ 360,000 After Dropping Service 210,000 50,000 17,800 34,500 20,000 70,000 402,300 $ (42,300) 0

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter13: The Balanced Scorecard: Strategic-based Control

Section: Chapter Questions

Problem 13E: Bannister Company, an electronics firm, buys circuit boards and manually inserts various electronic...

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At the beginning of the last quarter of 20x1, Youngston, Inc., a consumer products firm, hired Maria Carrillo to take over one of its divisions. The division manufactured small home appliances and was struggling to survive in a very competitive market. Maria immediately requested a projected income statement for 20x1. In response, the controller provided the following statement: After some investigation, Maria soon realized that the products being produced had a serious problem with quality. She once again requested a special study by the controllers office to supply a report on the level of quality costs. By the middle of November, Maria received the following report from the controller: Maria was surprised at the level of quality costs. They represented 30 percent of sales, which was certainly excessive. She knew that the division had to produce high-quality products to survive. The number of defective units produced needed to be reduced dramatically. Thus, Maria decided to pursue a quality-driven turnaround strategy. Revenue growth and cost reduction could both be achieved if quality could be improved. By growing revenues and decreasing costs, profitability could be increased. After meeting with the managers of production, marketing, purchasing, and human resources, Maria made the following decisions, effective immediately (end of November 20x1): a. More will be invested in employee training. Workers will be trained to detect quality problems and empowered to make improvements. Workers will be allowed a bonus of 10 percent of any cost savings produced by their suggested improvements. b. Two design engineers will be hired immediately, with expectations of hiring one or two more within a year. These engineers will be in charge of redesigning processes and products with the objective of improving quality. They will also be given the responsibility of working with selected suppliers to help improve the quality of their products and processes. Design engineers were considered a strategic necessity. c. Implement a new process: evaluation and selection of suppliers. This new process has the objective of selecting a group of suppliers that are willing and capable of providing nondefective components. d. Effective immediately, the division will begin inspecting purchased components. According to production, many of the quality problems are caused by defective components purchased from outside suppliers. Incoming inspection is viewed as a transitional activity. Once the division has developed a group of suppliers capable of delivering nondefective components, this activity will be eliminated. e. Within three years, the goal is to produce products with a defect rate less than 0.10 percent. By reducing the defect rate to this level, marketing is confident that market share will increase by at least 50 percent (as a consequence of increased customer satisfaction). Products with better quality will help establish an improved product image and reputation, allowing the division to capture new customers and increase market share. f. Accounting will be given the charge to install a quality information reporting system. Daily reports on operational quality data (e.g., percentage of defective units), weekly updates of trend graphs (posted throughout the division), and quarterly cost reports are the types of information required. g. To help direct the improvements in quality activities, kaizen costing is to be implemented. For example, for the year 20x1, a kaizen standard of 6 percent of the selling price per unit was set for rework costs, a 25 percent reduction from the current actual cost. To ensure that the quality improvements were directed and translated into concrete financial outcomes, Maria also began to implement a Balanced Scorecard for the division. By the end of 20x2, progress was being made. Sales had increased to 26,000,000, and the kaizen improvements were meeting or beating expectations. For example, rework costs had dropped to 1,500,000. At the end of 20x3, two years after the turnaround quality strategy was implemented, Maria received the following quality cost report: Maria also received an income statement for 20x3: Maria was pleased with the outcomes. Revenues had grown, and costs had been reduced by at least as much as she had projected for the two-year period. Growth next year should be even greater as she was beginning to observe a favorable effect from the higher-quality products. Also, further quality cost reductions should materialize as incoming inspections were showing much higher-quality purchased components. Required: 1. Identify the strategic objectives, classified by the Balanced Scorecard perspective. Next, suggest measures for each objective. 2. Using the results from Requirement 1, describe Marias strategy using a series of if-then statements. Next, prepare a strategy map. 3. Explain how you would evaluate the success of the quality-driven turnaround strategy. What additional information would you like to have for this evaluation? 4. Explain why Maria felt that the Balanced Scorecard would increase the likelihood that the turnaround strategy would actually produce good financial outcomes. 5. Advise Maria on how to encourage her employees to align their actions and behavior with the turnaround strategy.
Wright Plastic Products is a small company that specialized in the production of plastic dinner plates until several years ago. Although profits for the company had been good, they have been declining in recent years because of increased competition. Many competitors offer a full range of plastic products, and management felt that this created a competitive disadvantage. The output of the companys plants was exclusively devoted to plastic dinner plates. Three years ago, management made a decision to add additional product lines. They determined that existing idle capacity in each plant could easily be adapted to produce other plastic products. Each plant would produce one additional product line. For example, the Atlanta plant would add a line of plastic cups. Moreover, the variable cost of producing a package of cups (one dozen) was virtually identical to that of a package of plastic plates. (Variable costs referred to here are those that change in total as the units produced change. The costs include direct materials, direct labor, and unit-based variable overhead such as power and other machine costs.) Since the fixed expenses would not change, the new product was forecast to increase profits significantly (for the Atlanta plant). Two years after the addition of the new product line, the profits of the Atlanta plant (as well as other plants) had not improvedin fact, they had dropped. Upon investigation, the president of the company discovered that profits had not increased as expected because the so-called fixed cost pool had increased dramatically. The president interviewed the manager of each support department at the Atlanta plant. Typical responses from four of those managers are given next. Materials handling: The additional batches caused by the cups increased the demand for materials handling. We had to add one forklift and hire additional materials handling labor. Inspection: Inspecting cups is more complicated than plastic plates. We only inspect a sample drawn from every batch, but you need to understand that the number of batches has increased with this new product line. We had to hire more inspection labor. Purchasing: The new line increased the number of purchase orders. We had to use more resources to handle this increased volume. Accounting: There were more transactions to process than before. We had to increase our staff. Required: 1. Explain why the results of adding the new product line were not accurately projected. 2. Could this problem have been avoided with an activity-based cost management system? If so, would you recommend that the company adopt this type of system? Explain and discuss the differences between an activity-based cost management system and a traditional cost management system.
Feinan Sports, Inc., manufactures sporting equipment, including weight-lifting gloves. A national sporting goods chain recently submitted a special order for 4,600 pairs of weight-lifting gloves. Feinan Sports was not operating at capacity and could use the extra business. Unfortunately, the orders offering price of 12.80 per pair was below the cost to produce them. The controller was opposed to taking a loss on the deal. However, the personnel manager argued in favor of accepting the order even though a loss would be incurred; it would avoid the problem of layoffs and would help maintain the community image of the company. The full cost to produce a pair of weight-lifting gloves is presented below. No variable selling or administrative expenses would be associated with the order. Non-unit-level activity costs are a small percentage of total costs and are therefore not considered. Required: 1. Assume that the company would accept the order only if it increased total profits. Should the company accept or reject the order? Provide supporting computations. 2. Suppose that Feinan Sports has negotiated with the potential customer, and has determined that it can substitute cheaper materials, reducing direct materials cost by 0.95 per unit. In addition, the companys engineers have found a way to reduce direct labor cost by 0.50 per unit. Should the company accept or reject the order? Provide supporting computations. 3. Consider the personnel managers concerns. Discuss the merits of accepting the order even if it decreases total profits.
KC Services provides landscaping services in Edison. Kate Chen, the owner, is concerned about the recent losses the company has incurred and is considering dropping its lawn services, which she feels are marginal to the company’s business. She estimates that doing so will result in lost revenues of $59,000 per year (including the lost tree business from customers who use the company for both services). The present manager will continue to supervise the tree services with no reduction in salary. Without the lawn business, Kate estimates that the company will save 14 percent of the equipment leases, labor, and other costs. She also expects to save 15 percent on rent and utilities. Required: a. Prepare a report of the differential costs and revenues if the lawn service is discontinued. (Enter loss amount with minus sign.) KC SERVICES Annual Income Statement…
The accounting firm of Pie and Lowell is examining its client base to determine how profitable its regular clients are. Its analysis indicates that Chico, Incorporated paid $116,000 in fees last year, but cost the firm $124,000 ($106,000 in billable labor, supplies, and copying, and $18,000 in allocated common fixed costs). If Pie and Lowell dropped Chico, Incorporated as a client, and all common fixed costs are unavoidable, how would profit be affected? Multiple Choice Options Increase $8,000 Decrease $10,000 $0 Decrease $116,000
Velstrom Ltd is considering outsourcing one of its products rather than producing it in its factory. The business allocates part of the total rental charge of the factory, based on floor area, on the section responsible for making the product. The section bears a charge of £20,000 per year. If the section were closed, the floor space released would be used for warehousing and, as a result, the business would give up the tenancy of an existing warehouse for which it is paying £25,000 a year. SO what is the answer
Velstrom Ltd is considering outsourcing one of its products rather than producing it in its factory. The business allocates part of the total rental charge of the factory, based on floor area, on the section responsible for making the product. The section bears a charge of £20,000 per year. If the section were closed, the floor space released would be used for warehousing and, as a result, the business would give up the tenancy of an existing warehouse for which it is paying £25,000 a year. A business has approached Velstrom Ltd to offer £22,000 a year to sublet the released factory space. What will be the relevant benefit of releasing the factory space?
Comfy Corporation manufactures furniture in several divisions, including the patio furniture division. The manager of the patio furniture division plans to retire in two years. The manager receives a bonus based on the division’s ROI, which is currently 7%. One of the machines that the patio furniture division uses to manufacture the furniture is rather old, and the manager must decide whether to replace it. The new machine would cost $35,000 and would last 10 years. It would have no salvage value. The old machine is fully depreciated and has no trade-in value. Comfy uses straight-line depreciation for all assets. The new machine, being new and more efficient, would save the company $5,000 per year in cash operating costs. The only difference between cash flow and net income is depreciation. The internal rate of return of the project is approximately 7%. Comfy Corporation’s weighted-average cost of capital is 5%. Comfy is not subject to any income taxes. Q. Assume that “investment” is…
Comfy Corporation manufactures furniture in several divisions, including the patio furniture division. The manager of the patio furniture division plans to retire in two years. The manager receives a bonus based on the division’s ROI, which is currently 7%. One of the machines that the patio furniture division uses to manufacture the furniture is rather old, and the manager must decide whether to replace it. The new machine would cost $35,000 and would last 10 years. It would have no salvage value. The old machine is fully depreciated and has no trade-in value. Comfy uses straight-line depreciation for all assets. The new machine, being new and more efficient, would save the company $5,000 per year in cash operating costs. The only difference between cash flow and net income is depreciation. The internal rate of return of the project is approximately 7%. Comfy Corporation’s weighted-average cost of capital is 5%. Comfy is not subject to any income taxes. Q. What can Comfy do to entice…
Comfy Corporation manufactures furniture in several divisions, including the patio furniture division. The manager of the patio furniture division plans to retire in two years. The manager receives a bonus based on the division’s ROI, which is currently 7%. One of the machines that the patio furniture division uses to manufacture the furniture is rather old, and the manager must decide whether to replace it. The new machine would cost $35,000 and would last 10 years. It would have no salvage value. The old machine is fully depreciated and has no trade-in value. Comfy uses straight-line depreciation for all assets. The new machine, being new and more efficient, would save the company $5,000 per year in cash operating costs. The only difference between cash flow and net income is depreciation. The internal rate of return of the project is approximately 7%. Comfy Corporation’s weighted-average cost of capital is 5%. Comfy is not subject to any income taxes. Q. Should Comfy Corporation…
Infinity Designs, an interior design company, has experienced a drop in business due to an increase in interest rates and a corresponding slowdown in remodeling projects. To stimulate business, the company is considering exhibiting at the Home and Garden Expo. The exhibit will cost the company $12,000 for space. At the show, Infinity Designs will present a slide show on a PC, pass out brochures that are printed previously, (the company printed more than needed), and show its portfolio of previous jobs. The company estimates that revenue will increase by $36,000 over the next year as a result of the exhibit. For the previous year, profit was as follows: Revenue $201,000 Less: Design supplies (variable cost) $17,000 Salary of Samantha Spade (owner) 80,000 Salary of Kim Bridesdale (full time employee) 55,000 Rent 18,000 Utilities 6,000 Depreciation of office equipment 3,600 Printing of…
A Company is seeking financial advice as to whether to replace its old equipment. Some of its printing machines have reached the end of their useful working life and they are considering whether to replace them with the latest computer-based equipment. Such equipment will be costly, but the firm expects to be able to reduce its staffing levels to compensate. There are two options currently under review. Under the first option, the firm will purchase a standard piece of equipment at a cost of £10,000 payable now. Over the next five years, however, the firm expects to be able to reduce its staffing costs by £3,500 per year, in the first three years, and then by £3,000 in year 4 and £2,500 in year 5. At the end of the five years, the equipment would have reached the end of its life and would need replacing. Under the second option, the firm would purchase a slightly more sophisticated piece of equipment for an initial cost of £12,000. In the first two years, staff cost savings is…