Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Accounting Basics Expert

FASTPACK Manufacturing produces filament packaging tape. In 2009, FASTPACK produced and sold 15 million rolls of tape. The company has recently expanded its capacity, so it now can produce up to 30 million rolls per year. FASTPACK's accounting records show the following results from 2009:
Sale price per roll $ 3.00
Variable manufacturing costs per roll $ 2.00
Variable marketing and administrative costs per roll $ 0.50
Total fixed manufacturing overhead costs $ 8,400,000.00
Total fixed marketing and administrative costs $ 1,100,000.00
Sales 15 million rolls
Production 15 million rolls


There were no beginning or ending inventories in 2009.
In January 2010, FASTPACK hired a new president, Kevin McDaniel. McDaniel has a one-year contract that specifies he will be paid 10% of FASTPACK's 2010 absorption costing operating income, instead of a salary. In 2010, McDaniel must make two major decisions:
*** Should FASTPACK undertake a major advertising campaign? This campaign would raise sales to 24 million rolls. This is the maximum level of sales FASTPACK can expect to make in the near future. The ad campaign would add an additional $2.3 million in fixed marketing and administrative costs. Without the campaign, sales will be 15 million rolls.
*** How many rolls of tape will FASTPACK produce?
At the end of the year, FASTPACK Manufacturing's Board of Directors will evaluate McDaniel's performance and decide whether to offer him a contract for the following year.


Requirements:
Within your group, form two subgroups. The first subgroup assumes the role of Kevin McDaniel, FASTPACK Manufacturing's new president. The second subgroup assumes the role of FASTPACK Manufacturing's Board of Directors. McDaniel will meet with the Board of Directors shortly after the end of 2010 to decide whether he will remain at FASTPACK. Most of your effort should be devoted to advance preparation for this meeting. Each subgroup should meet separately to prepare for the meeting between the Board and McDaniel.
(Hint : Keep computations other than per-unit amounts in millions)
Kevin McDaniel should:
1. compute FASTPACK Manufacturing's 2009 operating income.
2. decide whether to adopt the advertising campaign. Prepare a memo to the Board of Directors describeing this decision. Give this memo to the Board of Directors as soon as possible (before the joint meeting).
3. assume FASTPACK adopts the advertising campaign. Decide how many rolls of tape to produce in 2010.
4. (given the response to requirement 3) prepare an absorption costing income statement for the year ended December 31, 2010, ending with operating income before bonus. Then compute the bonus separately. The variable cost per unit and the total fixed costs (with the exception of the advertising campaign) remain the same as in 2009. Give this income statement and bonus computation to the Board of Directors as sson as possible (before the meeting with the Board).
5. decide whether he wishes to remain at FASTPACK for another year. He currently has an offer from another company. The contract with the other company is identical to the one he currently has with FASTPACK - he will be paid 10% of absorption costing operating income instead of a salary.

The Board of Directors should:
1. compute FASTPACK's 2009 operating income.
2. determine whether FASTPACK should adapt the advertising campaign.
3. determine how many rolls of tape FASTPACK should produce in 2010.
4. evaluate MCDaniel's performance, based on his decisions and the information he provided the Board. (Hint: You may want to prepare a variable costing income statement.)
5. evaluate the contract's bonus provision. Is the Board satisfied with this provision? If so, describe why. If not, recommend how it should e changed.

After McDaniel has given the Board his memo and income statement, and after the Board has had a chance to evaluate McDaniel's performance, McDaniel and the Board should meet. The purpose of the meeting is to decide whether it is in their mutual interest for McDaniel to remain with FASTPACK, and if so, the terms of the contract FASTPACK will offer McDaniel.

 

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M946430

Have any Question? 


Related Questions in Accounting Basics

Problem 1abc stock has a share price of 150 today all

Problem 1 ABC stock has a share price of $150 today. All rates of interest are 3% per annum on a continuously compounded basis. A one-year European call option on one share of stock struck at $147 is worth $15. Finally, ...

Assignment question 1 -impulse pty ltd impulse is an

Assignment Question 1 - Impulse Pty Ltd (Impulse) is an entertainment system manufacturer that was established in 2005. Your audit firm King & Queen have been the auditor of Impulse since its formation. The audit report ...

Westerville company reported the following results from

Westerville Company reported the following results from last year % 2013 operations: Sales $ 1,000,000 Variable expenses 300,000 -------------------------------------- Contribution margin 700,000 Fixed expenses 500,000 - ...

Accounting individual assignmentpart 1 - royal oak taxation

ACCOUNTING INDIVIDUAL ASSIGNMENT PART 1 - Royal Oak Taxation Advisory Service has the following transactions for the month of December 2016: Dec. 1 Commenced business by depositing $50 000 in a bank account in the name o ...

Question 1jian rarimbal and dan are considering setting up

Question 1: Jian, Rarimbal and Dan are considering setting up a company providing 2 hour hot air balloon trips for groups of 10 tourists at a time. The trips will include some food and drink for the tourists. They have d ...

Cost benefit1 a cost-benefit analysis is a process by which

Cost Benefit 1. A cost-benefit analysis is a process by which business decisions are analyzed. The benefits of a given situation or business-related action are summed, and then the costs associated with taking that actio ...

Audit report modificationsthe final paper will be based on

Audit Report Modifications The final paper will be based on Appendix 6C Illustrative Audit Case: Keystone Computers at pages 237-244 in your text. Write, in outline format but in complete sentences, a 6 to 10 page audit ...

Accounting systems and assurance assessment internal

Accounting Systems and Assurance Assessment: Internal Control and information quality Accounting students learn how to process, analyse and use accounting information. It is also necessary to learn what contributes to th ...

Exercise 1for roche inc variable manufacturing overhead

Exercise 1 For Roche Inc., variable manufacturing overhead costs are expected to be $20,780 in the first quarter of 2017, with $4,150 increments in each of the remaining three quarters. Fixed overhead costs are estimated ...

Assignmentfactsthe w company civil engineers consists of

ASSIGNMENT Facts: The W Company Civil Engineers consists of two divisions. The divisions are Water and Waste Water. The company sells engineering services to various customers. The following are the bill rates for the va ...

  • 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