ABC Manufacturing Company has recently opened a plant in Bermuda in order to take advantage of certain
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Question:
ABC Manufacturing Company has recently opened a plant in Bermuda in order to take advantage of certain tax benefits. In order to quality for these tax benefits, the company
s direct manufacturing labor costs must be at least of total manufacturing costs for the period.
ABC Manufacturing normally classifies direct manufacturing wages as direct manufacturing labor, but classifies fringe benefits, overtime premiums, idle time, vacation time and sick leave as indirect manufacturing labor part of manufacturing overhead
During the first period of operations in Bermuda, ABC incurs a total of $ in manufacturing costs. Of that, $ is direct manufacturing labor wages, $ is overtime premium, $ is fringe benefits, $ is vacation time and sick leave, and $ is idle time.
Required
Based on ABC Manufacturing Companys normal cost classification practices, is the company likely to quality for the tax benefit? Show your calculations. Points
Bob Ryan, the manager of the new Bermuda plant, is concerned that he will not get a bonus this year because the plant will not get the tax benefit. Describe TWO specific adjustments to ABC Manufacturing normal cost classification practices that Bob Ryan might ask the plant controller to make to ensure that ABC gets the tax benefit? Be very specific in your response Provide a specific rationale that Bob Ryan might use to justify each of the adjustments you described above. Points
Indicate whether the plant controller should make EACH of the TWO adjustments you described in part above. Support your opinion with appropriate and logical arguments. Points
Situation : CVP Analysis Points
Aranguez Corporation produces a molded plastic casing, LXA for desktop computers. Summary data from its income statement are as follows:
Revenues $
Variable costs
Fixed costs
Operating income $
Jane Dall, Aranguezs president, is very concerned about Aranguez Corporations poor profitability. She asks Giselle James, production manager, and Lester Saline, controller, to see if there are ways to reduce costs.
After two weeks, James returns with a proposal to reduce variable costs to of revenues by reducing the costs Aranguez currently incurs for safe disposal of waste plastic. Saline is concerned that this would expose the company to potential environmental liabilities. He tells James, We would need to estimate some of these potential environmental costs and include them in our analysis.You cannot do that, James replies. We are not violating any laws. There is some possibility that we may have to incur environmental costs in the future, but if we bring it up now, this proposal will not go through because our senior management always assumes these costs to be larger than they turn out to be The market is very tough, and we are in danger of shutting down the company. We dont want all our colleagues to lose their jobs. The only reason our competitors are making money is because they are doing exactly what I am proposing.
Required
Calculate Aranguez Corporations breakeven revenues for
Calculate Aranguez Corporations breakeven revenues for if variable costs were of revenues.
Calculate Aranguez Corporations margin of safety as a percent of sales assuming that variable costs have been reduced to of sales.
Given Giselle James comments, what should Lester Saline do Be sure to refer to the Institute of Management Accountants Ethical Guidance which is presented on pages of the course text. Make sure you include the following in your answer:
a Who are the stakeholders in this situation?
b How do each of the four concepts described in the Guidelines apply to this situation?
c Ultimately, what should Lester Saline do in this scenario?
Situation : Constrained Resources
Brown Lumber Inc. produces two products, A and B The pertinent perunit data follow:
A B
Sales Price $ $
Costs:
Direct Materials
Direct labor
Variable factory overhead based on DLHs
Fixed factory overhead based on DLHs
Marketing expenses all variable
Total Costs
Operating Income $ $
There is insufficient labor capacity in the plant to meet the combined demand for both products. Both products are produced through the same production departments. The fixed factory overhead rate is $ per DLH Assume that there are no avoidable fixed factory overhead costs.
Required:
Calculate the RELEVANT unit contribution margin for each of the two products.
Determine which product should be produced in priority, given the labor constraint and explain why.
Related Book For
Cost Accounting A Managerial Emphasis
ISBN: 978-0133392883
6th Canadian edition
Authors: Horngren, Srikant Datar, George Foster, Madhav Rajan, Christ
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