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Max Williams was worried about his company, Bullwinkle Bottling's recent financial performance. Bullwinkle Bottling showed declining profits over the...

"Problem 3: Prepare a new Monthly Report on Cola Bottling Line, but with your revised indirect cost number of each products." There are three managerial accounting problems that need to be solved at the very bottom of the attached assignment. I will post the assignment three separate times, once for each problem. Please solve only for the problem above.

Page | 1 Max Williams was worried about his company, Bullwinkle Bottling’s recent financial performance. Bullwinkle Bottling showed declining profits over the past several years despite an increase in revenues. With profits declining and revenues increasing, Williams knew there must be a problem with costs. Max sent an e-mail to his executive team under the subject heading, “How do we get Bullwinkle Bottling back on track?” Meeting in Max’s spacious office, the team began brainstorming solutions to the declining profits problem. A summary of the executive team’s comments were: Some members of the team wanted to add products These were the marketing team members Some wanted to fire the least efficient workers These were finance and accounting team members Some people want to install a new computer system It should be obvious who team these member were from Max listened patiently. When all participants had made their cases, Max said, “We made money when we were a smaller, simpler company. We have grown, added new product lines and added new products to old product lines. Now we are going downhill. What’s wrong with this picture?” Max continued, “Here, look at this report. This is last month’s report on the cola bottling line. What do you see here?” He handed copies of the following report to the team members assembled in the office. Diet Regular Orange Root Beer Total Sales 75,000 $ 60,000 $ 13,950 $ 1,650 $ 150,600 $ Less: Materials 25,000 20,000 4,680 550 50,230 Direct labor 10,000 8,000 1,800 200 20,000 Fringe benefits on direct labor 4,000 3,200 720 80 8,000 Indirect costs (@260% of direct labor) 26,000 20,800 4,680 520 52,000 Cost of goods sold 65,000 52,000 11,880 1,350 130,230 Gross Profit 10,000 8,000 2,070 300 20,370 Gross profit margin 13.33% 13.33% 14.84% 18.18% 13.53% Volume 50,000 40,000 9,000 1,000 100,000 Unit price 1.50 $ 1.50 $ 1.55 $ 1.65 $ 1.51 $ Unit cost 1.30 $ 1.30 $ 1.32 $ 1.35 $ 1.30 $ Monthly Report on Cola Bottling Line Max asked, “Do you see any problems here? Should we drop any of these products? Should we re-price any of these products?” The room was silent for a moment and then everybody started talking at once. Nobody could see any problems based on the data in the report, but they all made suggestions to Max ranging from “add another cola product” to “cut costs across the board” to “we need a new computer system so that managers can get this information more quickly.” A not-so-patient Max stopped the discussion abruptly and adjourned the meeting.
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Page | 2 He then turned to the quietest person in the room- his son, Danny- and said, “I am suspicious of these cost data, Danny. Here we are assigning indirect costs to these products using a 260 percentage rate. I really wonder whether that rate is accurate for all products. I want you to dig into the indirect cost data, figure out what drives those costs and see whether you can give me more accurate cost numbers for these products.” Danny first learned from production that the process required four activities: 1. Setting up production runs 2. Managing production run 3. Managing products 4. Operation of machinery – no labor required. Next, he went to the accounting records to get a breakdown of indirect costs. Here is what he found: Indirect labor 20,000 Fringe benefits on indirect labor 8,000 Information technology 10,000 Machinery depreciation 8,000 Machinery maintenance 4,000 Energy 2,000 Total 52,000 Then, he began a series of interviews with department heads to see how to assign these costs to cost pools. He found that 40% of indirect labor was for scheduling or for handling production runs, including purchasing, preparing the production run, releasing materials for the production run and performing a first-time inspection of the run. Another 50% of indirect labor was used to set up machinery to produce a particular product. The remaining 10% of indirect labor was spent maintaining records for each of the four products, monitoring the supply of raw materials required for each product, and improving the production processes for each product. This 10% of indirect labor was assigned to the cost driver “number of products.” Interviews with people in the information technology department indicated that $10,000 was allocated to the cola bottling line. Eighty percent of this $10,000 information technology cost was for scheduling production runs. Twenty percent of the cost was for recordkeeping for each of the four products. Fringe benefits were 40% of labor costs. The rest of the overhead was used to supply machine capacity of 10,000 hours of productive time. Danny then found the following cost driver volumes from interviews with production personnel. Setups 560 labor-hours for setups Production runs 110 production runs Number of products 4 products Machine-hour capacity 10,000 hours
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