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CASE TWO ========== BANNER MANUFACTURING INC. In your second interview with Mr. Bnner, you presented your well prepared financial analysis of the...

I don't understand why there are so many numbers or what exactly is suppose to be done.
CASE TWO ========== BANNER MANUFACTURING INC. In your second interview with Mr. Bnner, you presented your well prepared financial analysis of the Banner Manufacturing Company along with a cash flow statement. Mr. Banner was indeed very impressed with your personality and knowledge and consequently offered you a position as a general manager for his company. With a great deal of confidence and enthusiasm, you began your work last week. After several days of hard work, you become familiar with the general operations of the Company. In addition, you found a copy of comparative financial statements for the first 12 months of the operations (previous year). However, you were not able to find reliable and useful information about the unit cost of the Company's products. OPERATING DATA Banner Company makes two products, X and Y. The manufacturing operations take place in two producing departments, cutting and assembly. The Company also has two service departments, general factory and maintenance. These service departments provide services to the cutting and assembly departments. The general factory department handles all purchases and takes care of the administrating matters. The maintenance department performs all the maintenance works for the cutting and the assembly departments. The Company uses material "A" for both products X and Y. Material "B" is used only for product Y. Due to the standardization and simplification of production, unskilled workers have been used in the past year. The Company can assign worker to either producing departments with minor training. The material and labor requirements for the products are presented in appendix C. All sales of the Company are on credit. Approximately, half of the customers take advantage of the cash discount and pay with in the one month discount period. PLANNING FOR SUCCESS Having gathered the above information, you are very anxious to utilize your intelligence and knowledge to improve the operations of the Banner Company. You have realized that first you need to determine the behavior of the Company's various costs and related cost drivers in order to improve planning, cost control, and decision making. REQUIREMENTS ------------- Determine the cost equations for factory overhead, advertising expense, salary & commissions, bad debt expense, sales discount, and purchasing expense by using a good cost driver (s) and a simple or multiple regression model with the data presented in appendix D. (Data in appendix D are transposed for your convenience and called TRASPOSED DATA).
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CASE 2 APPENDIX C BANNER MANUFACTURING INC. OPERATING DATA PRODUCT X PRODUCT Y -------- ----------- PRICE $44 $46 DIRECT MATERIALS QUANTITY RATE UNIT COST QUANTITY RATE UNIT COST ------------------------ -------- ----------- -------- --------- ---------- DIR. MAT.(A) 10 LBS./[email protected] $1 $10 6 LBS/[email protected] $1 $6 DIR. MAT.(B) 0 LBS./[email protected] $2 $0 3 LBS/[email protected] $2 $6 DIRECT LABOR ------------------------ CUTTING DEPT. 1 HR/UNIT @ $4 $4 1 HR/UNIT @ $4 $4 ASSEMBLY DEPT. 1 HR/UNIT @ $4 $4 1.50 HR/UNIT @ $4 $6 |:: CASE 2 APPENDIX D product x JAN FEB MAR APR MAY JUN JULY AUG SEP OCT NOV DEC TOTAL ----------- --------------- -------- -------- ---------- -------- -------- ----------- -------- -------- -------- -------- --------------- QUT.SOLD 13,050 12,650 12,250 11,850 11,450 11,050 10,650 10,250 9,850 9,450 9,050 8,650 130,200 ----------- --------------- -------- -------- ---------- ---------------- -------- ----------- -------- -------- -------- -------- --------------- QUT. PRODUCED 13,050 12,650 12,250 11,850 11,450 11,050 10,650 10,250 9,850 9,450 9,050 9,150 130,700 ----------- --------------- -------- -------- ---------- -------- -------- ----------- -------- -------- -------- -------- --------------- SALES 574,200 556,600 539,000 521,400 503,800 486,200 468,600 451,000 433,400 415,800 398,200 380,600 5,728,800 SALES DISCOUNT 2,871 2,783 2,695 2,607 2,519 2,431 2,343 2,255 2,167 2,079 1,991 1,903 28,644 ----------- --------------- -------- -------- ---------- -------- -------- ----------- -------- -------- -------- -------- --------------- NET SALES 571,329 553,817 536,305 518,793 501,281 483,769 466,257 448,745 431,233 413,721 396,209 378,697 5,700,156 =========== =============== ======== ======== ========== ======== ======== =========== ======== ======== ======== ======== =============== PRODUCT Y JAN FEB MAR APR MAY JUN JULY AUG SEP OCT NOV DEC TOTAL ----------- --------------- -------- -------- ---------- -------- -------- ----------- -------- -------- -------- -------- --------------- QUT.SOLD 16,000 16,100 16,200 16,300 16,400 16,500 16,600 16,700 16,800 16,900 17,000 17,100 198,600 ----------- --------------- -------- -------- ---------- -------- -------- ----------- -------- -------- -------- -------- --------------- QUT.PRODUCED 16,000 16,100 16,200 16,300 16,400 16,500 16,600 16,700 16,800 16,900 17,000 19,100 200,600 ----------- --------------- -------- -------- ---------- -------- -------- ----------- -------- -------- -------- -------- --------------- SALES 736,000 740,600 745,200 749,800 754,400 759,000 763,600 768,200 772,800 777,400 782,000 786,600 9,135,600 SALES DISCOUNT 3,680 3,703 3,726 3,749 3,772 3,795 3,818 3,841 3,864 3,887 3,910 3,933 45,678 ----------- --------------- -------- -------- ---------- -------- -------- ----------- -------- -------- -------- -------- --------------- NET SALES 732,320 736,897 741,474 746,051 750,628 755,205 759,782 764,359 768,936 773,513 778,090 782,667 9,089,922 =========== =============== ======== ======== ========== ======== ======== =========== ======== ======== ======== ======== =============== PRODUCT X&Y -------- GROSS SALES 1,310,200 1,297,200 ### ### 1,258,200 ### ### 1,219,200 ### ### ### ### 14,864,400 SALES DISCOUNT 6,551 6,486 6,421 6,356 6,291 6,226 6,161 6,096 6,031 5,966 5,901 5,836 74,322 ----------- --------------- -------- -------- ---------- -------- -------- ----------- -------- -------- -------- -------- --------------- NET SALES 1,303,649 1,290,714 ### ### 1,251,909 ### ### 1,213,104 ### ### ### ### 14,790,078 =========== =============== ======== ======== ========== ======== ======== =========== ======== ======== ======== ======== =============== |:: BANNER MANUFACTURING INC. COMPARATIVE INCOME STATEMENTS FOR YEAR01/01/2000 JAN FEB MAR APR MAY JUN JULY AUG SEP OCT NOV DEC TOTAL NET SALES 1,303,649 1,290,714 ### ### 1,251,909 ### ### 1,213,104 ### ### ### ### 14,790,078 =========== =============== ======== ======== ========== ======== ======== =========== ======== ======== ======== ======== =============== DM(PROD.X) 130,500 126,500 122,500 118,500 114,500 110,500 106,500 102,500 98,500 94,500 90,500 91,500 1,307,000 DM(PROD.Y) 192,000 193,200 194,400 195,600 196,800 198,000 199,200 200,400 201,600 202,800 204,000 229,200 2,407,200 ----------- --------------- -------- -------- ---------- -------- -------- ----------- -------- -------- -------- -------- --------------- TOTAL DM 322,500 319,700 316,900 314,100 311,300 308,500 305,700 302,900 300,100 297,300 294,500 320,700 3,714,200 =========== =============== ======== ======== ========== ======== ======== =========== ======== ======== ======== ======== =============== DL(PROD.X) 104,400 101,200 98,000 94,800 91,600 88,400 85,200 82,000 78,800 75,600 72,400 73,200 1,045,600 DL(PROD.Y) 160,000 161,000 162,000 163,000 164,000 165,000 166,000 167,000 168,000 169,000 170,000 191,000 2,006,000 ----------- --------------- -------- -------- ---------- -------- -------- ----------- -------- -------- -------- -------- --------------- TOTAL DL 264,400 262,200 260,000 257,800 255,600 253,400 251,200 249,000 246,800 244,600 242,400 264,200 3,051,600 =========== =============== ======== ======== ========== ======== ======== =========== ======== ======== ======== ======== =============== TOTAL OH 231,250 229,850 228,450 227,050 225,650 274,250 222,850 221,450 220,050 218,650 217,250 230,350 2,747,100 ----------- --------------- -------- -------- ---------- -------- -------- ----------- -------- -------- -------- -------- --------------- MFG.COST 818,150 811,750 805,350 798,950 792,550 836,150 779,750 773,350 766,950 760,550 754,150 815,250 9,512,900 BEG. INVENTORY 0 0 0 0 0 0 0 0 0 0 0 0 0 END. INVENTORY. 0 0 0 0 0 0 0 0 0 0 0 (73,077) (73,077) ----------- --------------- -------- -------- ---------- -------- -------- ----------- -------- -------- -------- -------- --------------- COST OF GOODS SOLD 818,150 811,750 805,350 798,950 792,550 836,150 779,750 773,350 766,950 760,550 754,150 742,173 9,439,823 ----------- --------------- -------- -------- ---------- -------- -------- ----------- -------- -------- -------- -------- --------------- GROSS PROFIT 485,499 478,964 472,429 465,894 459,359 402,824 446,289 439,754 433,219 426,684 420,149 419,191 5,350,255 =========== =============== ======== ======== ========== ======== ======== =========== ======== ======== ======== ======== =============== ADVERTISING 131,020 131,020 129,720 128,420 127,120 125,820 124,520 123,220 121,920 120,620 119,320 118,020 1,500,740 SALARY & COM. 171,020 169,720 168,420 167,120 165,820 164,520 163,220 161,920 160,620 159,320 158,020 156,720 1,966,440 BAD BEBT EXP. 39,306 38,916 38,526 38,136 37,746 37,356 36,966 36,576 36,186 35,796 35,406 35,016 445,932 INTEREST EXP. 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 120,000 PURCHASING EXP. 24,378 0 0 23,748 0 0 23,118 0 0 23,213 0 0 94,455 ----------- --------------- -------- -------- ---------- -------- -------- ----------- -------- -------- -------- -------- --------------- TOTAL S.G.&A. 375,724 349,656 346,666 367,424 340,686 337,696 357,824 331,716 328,726 348,949 322,746 319,756 4,127,567 =========== =============== ======== ======== ========== ======== ======== =========== ======== ======== ======== ======== =============== INCOME 109,776 129,308 125,763 98,471 118,673 65,128 88,466 108,038 104,493 77,736 97,403 99,435 1,222,688 =========== =============== ======== ======== ========== ======== ======== =========== ======== ======== ======== ======== =============== NOTE: INCLUDED IN THE OVERHEAD OF JUNE IS $50,000 EQUIPMENT INSTALLATION COST (ONE TIME COST) FOR THE CUTTING DEPARTMEMT, WHICH SHOULD HAVE BEEN CAPITALIZED. |:: ~~~~~~~~~~~ ~~~~~~~~~~~~~~~ ~~~~~~~~ ~~~~~~~~ ~~~~~~~~~~ ~~~~~~~~ ~~~~~~~~ ~~~~~~~~~~~ ~~~~~~~~ ~~~~~~~~ ~~~~~~~~ ~~~~~~~~ ~~~~~~~~~~~~~~~ 109,776 129,308 125,763 98,471 118,673 65,128 88,466 108,038 104,493 77,736 97,403 99,435 1,222,688 @@@@@@@@@@@@@@@@@@@@@@@@ @@@@@@@@@@ @@@@@@@@@@@@@@ @@@@@@@@ @@@@@@@@ @@@@@@@@@@ @@@@@@@@ @@@@@@@@ @@@@@@@@@@ @@@@@@@@ @@@@@@@@ @@@@@@@@ @@@@@@@@ @@@@@@@@@@@@@@
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