Sprecks reputation has been built on quality timely

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Spreck’s reputation has been built on quality, timely delivery, and cutting edge products. The company’s business is fast-paced as its products tend to have a short life. Each product is in development for about a year followed by a year of strong demand. The products then experience reduced sales as new products and technologies become available. Marc Elvar has recently been hired by Spreck as a member of the finance department with primary responsibility for cash budgeting and cash management. During his orientation with Spreck’s CFO, the CFO said, “The thing that fascinates me about this business is that change is its central ingredient. One of our key variables is a reliable stream of new products; in fact, it is the only way to deal with the threat of product obsolescence. Our products go through only the first two stages of the product life cycle as they rarely reach the other stages. Of course, this situation affects our cash flow. We have not been managing our cash well, so we are looking forward to having you improve our cash forecasting and management.” In addition, Elvar has been asked to analyze the company’s pricing tactics. REQUIRED: 1. a. Define product life cycle. b. Identify the four stages of the product life cycle. c. Identify and explain the characteristics of each stage of the product life cycle. 2. Explain why pricing decisions might be different over the last three stages of the product life cycle. 3. Identify and explain two factors affecting the cash inflows and two factors affecting cash outflows at Spreck Technologies. 4. Identify and explain three actions that Elvar could take to improve Spreck Technologies’ cash management processes.
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487 Answer to Part 1 Practice Questions Answer: Question 1.1-Barton Industries 1. Production was less than budget, and fixed overhead costs were under-applied. This caused an unfavorable volume variance that was charged to cost of goods sold. 2. Barton’s operating income using variable costing: Sales $11,200 Variable cost of goods sold: 600,000 units (inventory) @$5.00 $3,000 400,000 units (production) @$5.50 2,200 5,200 Contribution margin $ 6,000 Fixed costs of operations: Factory overhead $3,300 Selling and administrative 1,500 4,800 Operating income $ 1,200 3. Reconciliation: Variable costing income $1,200 Absorption costing income 885 Difference $ 315 Beginning inventory reduction: 600,000 units @$3.00 $1,800 Ending inventory: 450,000 units @$3.30 1,485 Difference $ 315 4. Advantages of variable costing for internal reporting: Aids in reporting and forecasting contribution margin. Because fixed costs are period costs, they are more predictable and controllable. Profits vary directly with sales volume and are unaffected by inventory changes. Aids CVP analysis/can determine breakeven point. Disadvantages of using variable costing for internal reporting: Fixed costs may be overlooked as part of the decision-making process. Lacks acceptability for external reporting.
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