Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Accounting Basics Expert

Alberta Gauge Company, Ltd., a small manufacturing company in Calgary, Alberta, manufactures three types of electrical gauges used in a variety of machinery. For many years the company has been profitable and has operated at capacity. However, in the last two years, prices on all gauges were reduced and selling expenses increased to meet competition and keep the plant operating at capacity. Second-quarter results for the current year, which follow, typify recent experience.

ALBERTA GAUGE COMPANY, LTD.
Income Statement
Second Quarter
(in thousands)
Q-Gauge E-Gauge R-Gauge Total
Sales .................................................................................. $1,600 $900 $ 900 $3,400
Cost of goods sold .............................................................. 1,048 770 950 2,768
Gross margin ...................................................................... $ 552 $130 $ (50) $ 632
Selling and administrative expenses ..................................... 370 185 135 690
Income before taxes ............................................................ $ 182 $ (55) $(185) $ (58)

Alice Carlo, the company's president, is concerned about the results of the pricing, selling, and
production prices. After reviewing the second-quarter results, she asked her management staff to
consider the following three suggestions:
• Discontinue the R-gauge line immediately. R-gauges would not be returned to the product line
unless the problems with the gauge can be identified and resolved.
• Increase quarterly sales promotion by $100,000 on the Q-gauge product line in order to increase
sales volume by 15 percent.
• Cut production on the E-gauge line by 50 percent, and cut the traceable advertising and promotion
for this line to $20,000 each quarter.
Jason Sperry, the controller, suggested a more careful study of the financial relationships to determine
the possible effects on the company's operating results of the president's proposed course of
action. The president agreed and assigned JoAnn Brower, the assistant controller, to prepare an analysis.
Brower has gathered the following information.
• All three gauges are manufactured with common equipment and facilities.
• The selling and administrative expense is allocated to the three gauge lines based on average sales
volume over the past three years.
• Special selling expenses (primarily advertising, promotion, and shipping) are incurred for each
gauge as follows:
Quarterly Advertising
and Promotion Shipping Expenses
Q-gauge ............................................................................... $210,000 $10 per unit
E-gauge ............................................................................... 100,000 4 per unit
R-gauge ............................................................................... 40,000 10 per unit
• The unit manufacturing costs for the three products are as follows:
Q-Gauge E-Gauge R-Gauge
Direct material ................................................................................. $ 31 $17 $ 50
Direct labor ...................................................................................... 40 20 60
Variable manufacturing overhead ...................................................... 45 30 60
Fixed manufacturing overhead .......................................................... 15 10 20
Total ................................................................................................ $131 $77 $190
• The unit sales prices for the three products are as follows:
Q-gauge ................................................................................ $200
E-gauge ................................................................................ 90
R-gauge ................................................................................ 180
• The company is manufacturing at capacity and is selling all the gauges it produces.

Required:
1. JoAnn Brower says that Alberta Gauge Company's product-line income statement for the second quarter is not suitable for analyzing proposals and making decisions such as the ones suggested by Alice Carlo. prepare a memo to Alberta Gauge's president that addresses the following points.
a. describe why the product-line income statement as presented is not suitable for analysis and decision making.
b. Describe an alternative income-statement format that would be more suitable for analysis and decision making, and describe why it is better.
2. Use the operating data presented for Alberta Gauge Company and assume that the president's proposed course of action had been implemented at the beginning of the second quarter. Then evaluate the president's proposal by specifically responding to the following points.
a. Are each of the three suggestions cost-effective? Support your discussion with an analysis that shows the net impact on income before taxes for each of the three suggestions.
b. Was the president correct in proposing that the R-gauge line be eliminated? describe your answer.
c. Was the president correct in promoting the Q-gauge line rather than the E-gauge line? describe your answer.
d. Does the proposed course of action make effective use of the company's capacity? describe your answer.
3. Are there any qualitative factors that Alberta Gauge Company's management should consider before it drops the R-gauge line? describe your answer.

 

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M941721

Have any Question? 


Related Questions in Accounting Basics

What is ubit and what are some exceptions to the rule why

What is UBIT and what are some exceptions to the rule? Why do you think these exceptions exist? What is the significance of the "regularly carried on" test as it relates to UBIT? Required: Half to one page only 2 referen ...

1 is a trial balance that gives you the balances to use to

1) is a Trial Balance that gives you the balances to use to prepare the financial statements; 2) is a Template that you can use, note there are drop down choices - but, you can definitely use your own on Excel or similar ...

Question 1 which of the following results in an increase in

Question 1. Which of the following results in an increase in the equity in investee income account when applying the equity method? Unrealized gain on intercompany inventory transfers for the prior year Amortizations of ...

Discussionpart 1 please respond the following question no

Discussion Part 1 please respond the following question no less then 350 words (original work, no plagiarism, 1 reference "learning experience and application of knowledge" please respond to the following: • Assume you h ...

Please be sure to show all of your work and calculations1

Please be sure to show all of your work and calculations. 1. From the below information, calculate the final balance to be carried forward in your check stubs as of the end of October. Oct. 1 beginning balance $1,200.50 ...

Discussion questions 1 and 2dq 1accounting cyclefinancial

Discussion Questions 1 and 2 DQ #1:Accounting Cycle Financial statements are a product of the accounting cycle. Think about two different companies: a manufacturing company, and a retail company. Why would different comp ...

Write a paper about internal controlsassignmentcontent

Write a paper about internal controls Assignment Content Page - Introduction - Definition of internal controls(Books) - Components of internal control system(Books) - Examples of internal controls(Books or research paper ...

To write a reply post to given answer minimum 350

To write a REPLY POST to GIVEN ANSWER. Minimum 350 words. You can agree or disagree with given answer. It should be your own opinion. Question: Michael Wilson is a new production manager. After a great deal of effort, in ...

Accounting discussionbulldiscuss the advantages of

Accounting Discussion • Discuss the advantages of understanding accounting as it relates to your current or future position. (Consider careers in management, sales, business operations, finance, and business ownership.)

Company annual report studychoose any company and make a

COMPANY ANNUAL REPORT STUDY Choose any company and make a report on financial report of company: David Jones Introduction (about 100 words) Conceptual framework (200 words) Critical analysis (200 words) Ethics (not more ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen