I-Asgn4 - LESSON 4 Assignment Question 1(20 marks Computer...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
LESSON 4 Assignment Question 1 (20 marks) Computer question Before you attempt this question, you should work through Computer illustration 4-1 in the Lesson Notes. “Wow! Is that B-10 model ever a loser! I say the time has come to cut back its production and shift our resources toward the new C-20 model,” said Rory Moncur, executive vice- president of Hammer Products, Inc. “Just look at this statement I’ve received from accounting. The C-20 is generating twice as much in profits as the B-10, and it has only about one-fifth as much in sales. I’m convinced that our future depends on the C-20.” The year-end statement to which Rory was referring follows: HAMMER PRODUCTS, INC. Income Statement Total Product Model B-10 C-20 Sales Cost of goods sold € 14,500,000 (9,000,000 ) €12,000,000 (7,200,000 ) €2,500,000 (1,800,000 ) Gross margin 5,500,000 4,800,000 700,000 Less: Selling and administrative expenses (4,900,000 ) (4,600,000 ) (300,000 ) Net income 600,000 200,000 400,000 Number of units produced and sold Net income per unit 60,000 €3,33 10,000 €40.00 “The numbers sure look that way,” replied Connie Collins, the company’s sales manager. “But why isn’t the competition more excited about the C-20? I know we have only been producing the model for three years, but I’m surprised that more of our competitors haven’t recognized what a cash cow it is.” “I think it’s our new automated plant,” replied Rory. “Now it takes only one direct labour-hour to produce a unit of the B-10 and one-and-a-half direct labour-hours to produce a unit of the C-20. That’s considerably less than it used to take us.” “I agree that automation is wonderful,” replied Connie. “I suppose that’s how we’re able to hold down the price of the C-20. Borst Company in Germany tried to bring out a C-20 but discovered they couldn’t touch our price. But Borst is killing us on the B-10 by undercutting our price with some of the best customers. I suppose they’ll pick up all of our B-10 business if we move out of that market. But who cares? We don’t even have to advertise the C-20; it just seems to sell itself.” Management Accounting Fundamentals Assignment 4 1
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
“My only concern about automation is how our manufacturing overhead rate has shot up,” said Rory. “Our total manufacturing overhead cost is €3,600,000. That comes out to be a hefty amount per direct labour-hour, but Fred down in accounting has been using labour-hours as the base for computing overhead rates for years and doesn’t want to change. I don’t suppose it matters so long as costs get assigned to products.” “I’ve never understood that debit and credit stuff,” replied Connie. “But I think you’ve got a problem in production. I had lunch with Joanne yesterday and she complained about how complex the C-20 is to produce. Apparently, they have to do a lot of setups, special soldering, and other work on the C-20 just to keep production moving. And they have to inspect every single unit.” “It’ll have to wait,” said Rory. “I’m writing a proposal to the board of directors to phase out the B-10. We’ve got to bring our bottom line up or we’ll all be looking for jobs.”
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern