Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Managerial Accounting Expert

Background:

Performance Drinks, LLC is owned by Dave N. Port.  Performance Drinks produces a variety of sports centered drinks.  They started operations in 1993 shortly after Mr. Port graduated with his M.B.A. from Davenport University.  Company saw early success as sports and fitness nutritional products gained new popularity in the 1990’s.  Financially company is sound and has been wise in controlling their growth over the years.  However, within the last 18 months Mr. Port has noticed a drop in overall company profitability.  This is especially troubling considering that the company has continued to experience top-line growth.  Mr. Port and his management team have been considering developing a new product line.  However, those plans have been put on hold until they can figure out why their profits are shrinking.

Performance Drinks makes four different kinds of sports drinks. Those drinks are as follows:

• Basic

• Hydration

• Intensity

• Post-Workout

Each of these drinks contains a slightly varied nutritional profile and is targeted for different users and uses.  The Basic drink has the least nutritional benefit and is targeted for general consumption.  The Hydration product targets endurance athletes and specializes in hydration replacement.  The Intensity product was designed with energy enhancement in mind. It serves the needs of extreme athletes who need long durations of sustained energy.  At last, the Post-Workout product is a nutritional replacement product that is generally used following exertion.

You are the Controller for Performance Drinks.  You feel as though you have a good handle on the financial reporting and the overall company performance.  However, admittedly, your accounting information system has been designed to serve the needs of external users from an aggregate perspective.  To that end you utilize absorption costing exclusively within the organization.  You recall studying the concept of Activity Based Management (ABM) and Activity Based Costing (ABC) while taking a managerial accounting course.  You wonder if applying those ideas to your business would help to uncover the mystery of the disappearing profits.

You recall from your Management Accounting class that product costs are comprised of:

• Direct Materials

• Direct Labor

• Manufacturing Overhead

You don’t suspect that anything strange is going with your direct costs.  You do wonder, however, if a more thorough understanding of your indirect costs may be in order.  Over a series of weeks you talk with a variety of employees, representing a multitude of functional areas, from within the company.  During those conversations you take careful note on what activities might be consuming resources and how those activities might be measured.  You sharpen your pencil and begin to unpack what you’ve learned.  You start with reviewing last month’s Product-Level Profit Report.  That report is following:

2426_monthly profit report.jpg


Since your primary area of focus is on the indirect costs you compile the following report which further details your overhead charges:

2070_monthly cost report.jpg


Overhead Activities:

Using traditional costing methods, which support your absorption costing system, you base overhead allocation on direct labor cost.  Furthermore, “fringe benefits” are a function of direct labor cost.

As a result of your many meetings to discuss company overhead you determine that the majority of your indirect costs are related to four primary activities.  Those activities are equipment set-ups, production runs, production management and machine-hour capacity.  “Production Management” refers to a number of items that are correlated to the number of products the company produces.  Ultimately you determine that your key activities have the following usage patterns, as they pertain to the monthly overhead costs:

749_Monthly overhead cost.jpg

Upon reviewing budget data from the last budget cycle you discover that the monthly number of set-ups was estimated to be 85.  The number of production runs was estimated to be 250.  That monthly machine-hour capacity is presently at 20,000 machine-hours.  Lastly, Performance Drinks produces a total of four products.

After talking with the Plant Manger you create the following usage data relative to products and activities:

1864_Product and activity.jpg

Requirements:

1. Based on all of the date provided, compute the cost driver rates for each of the four activities.

2. find out the per unit product costs for each of the four products.Claculate this cost using ABC allocation for overhead.  Show the computation for each per unit product cost in detail.

3. Prepare a “Monthly Profit Report”, like the one provided above of this packet.  Make this report using the results of your ABC overhead allocation.

4. Make a written “Management Report” that describes the management team what Activity Based Costing is, how it was used to generate Monthly Profit Report (from requirement #3).  Describe why the profit for each product is different when comparing the Traditional report with the ABC report.  describe what the company might consider doing, based on all of this information, to stop the erosion of company profits.  Defend your recommendations with data.

Additional Consideration:

Mr. Port wonders what would happen to costs if plant capacity was shifted from 20,000 machine-hours a month to 40,000 machine-hours per month.

Requirements:

5. find out the new cost per unit for each of the products considering the increase in capacity.  Show the computation for each per unit product cost in detail.

6. What is the cost of the unused capacity if it is assumed that the company has 40,000 machine-hours of capacity but it using 20,000 machine-hours?  Amend your “Management Report” to include a discussion on how to best use the additional capacity.

Clarification on format and data:

Clear communication and professional is more important.  Defending your answer with data is important.

• You would create one professional report.  In that report you must clearly label all of your answers.  Make your answers easy to read and find.

As it pertains to requirement #4, include the “Management Report” inside your overall report.  You would then have one Word document as your final product. You would also have one Excel file.

• Use the following naming structure for your files: last name_first initial_case2.docx.  Of course your Excel file will have an .xls suffix.

• Double space your report.

• Your report should have a title page. Use APA 6th edition for guidance on title pages.

Managerial Accounting, Accounting

  • Category:- Managerial Accounting
  • Reference No.:- M91569

Have any Question? 


Related Questions in Managerial Accounting

Free cash flow you are considering an investment in cruise

Free Cash Flow: You are considering an investment in Cruise, Inc. and want to evaluate the firm's free cash flow. From the income statement, you see that Cruise earned an EBIT of $206 million, paid taxes of $47 million, ...

Exercise- estimating cost behaviorhigh-low methodjonathan

Exercise- Estimating Cost Behavior;High-Low Method Jonathan Macintosh is a highly successful Pennsylvania orchardman who has formed his own company to produce and package applesauce. Apples can be stored for several mont ...

Individual research paper instructions1write a 8-10-page

INDIVIDUAL RESEARCH PAPER INSTRUCTIONS 1. Write a 8-10-page, double-spaced research paper that adheres to APA format. 2. It must include references from at least 6 different sources, a title page, and a reference page. 3 ...

Tri-county cable services inc is organized with three

Tri-County Cable Services, Inc., is organized with three segments: Metro, Suburban, and Outlying. Data for these segments for the year just ended follow. Metro Suburban Outlying Service revenue $ 1,050,000 $ 850,000 $ 45 ...

The facts and figures relating to irrigation corporation

The facts and figures relating to Irrigation Corporation are as follows. Irrigation Corporation produces plastic garden sprinklers. The company is preparing its budget for 2016. The first step is to plan for the first qu ...

Venus brewery is a craft brewery that produces a special

Venus Brewery is a craft brewery that produces a special light beer for ladies. The beer are processed sequentially in two departments (Department X and Department Y) before the final products are transferred to the fini ...

Which career is for you please respond to the

"Which Career is for You?" Please respond to the following: • Compare and contrast the key responsibilities of certified management accountants and certified public accountants. Select the career path that you plan to pu ...

Dillon jones and kline ltd is studying the acquisition of

Dillon, Jones, and Kline, Ltd. is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow. Model A: Variable costs, ...

Problem 1 master budgetomega inc has developed the

Problem 1: Master Budget Omega, Inc. has developed the following sales forecast for the first six months of the coming year Month Sales (in units) January 30,000 February 50,000 March 70,000 April 80,000 May 60,000 June ...

Accounting for managers- assignmentfinancial statement

Accounting for Managers- Assignment Financial Statement Analysis The following information relates to Harris Corporation. Account Current year Prior year Net sales (all credit) $520,125 $499,500 Cost of goods sold $375,9 ...

  • 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

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

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