Home Content X Question 5 - Wk 5 - Apply: Te X C Chegg Search X Course Hero X + X -> C https://ezto.mheducation.com/ext/map/index.html?_con=con&external_browser=08launchUrl=https%253A%252F%252FIms.mheducation.com%252F.. Wk 5 - Apply: Test [due Day 7] Saved Help Save & Exit Submit Howard Rockness was worried. His company, Rockness Bottling, showed declining profits over the past several years despite an increase in revenues. With profits declining and revenues increasing, Rockness knew there must be a problem with costs. 5 Rockness sent an e-mail to his executive team under the subject heading, "How do we get Rockness Bottling back on track?" Meeting in Rockness's spacious office, the team began brainstorming solutions to the declining profits problem. Some members of the team wanted to add products. (These were marketing people.) Some wanted to fire the least efficient workers. (These were finance people.) Some wanted to empower the workers. (These people worked in the human resources department.) And some people wanted to install a new computer system. (It should be obvious who these people were.) Rockness listened patiently. When all participants had made their cases, Rockness said, "We made money when we were a smaller, simpler company. We have grown, added new product lines, and added new products to old product lines. Now we are going downhill. What's wrong with this picture?" Rockness continued, "Here, look at this report. This is last month's report on the cola bottling line. What do you see here?" He handed copies of the following report to the people assembled in his office. Monthly Report on Cola Bottling Line Diet Regular Cherry Grape Total Sales $119, 090 $81, 600 $22, 750 $ 5,550 $228,900 Less: Materials 41, 090 32, 000 9,360 3,050 85, 410 Direct labor 16, 090 10, 900 2, 600 400 29, 000 Fringe benefits on direct labor 6,406 4, 000 1, 040 160 11, 600 Indirect costs (@260% of direct labor) 41, 600 26,006 6,760 1, 040 75, 400 Gross margin $ 14, 090 9 , 600 $ 2,990 900 27, 490 Return on sales (see note [a]) 11. 8% 11.8% 13 . 1% 16.2% 12. 0% Volume 70,090 48, 000 13, 000 3,000 134, 000 Unit price 1.70 $ 1.70 $ 1.75 $ 1.85 1.71 to + Unit cost 1.50 $ 1.50 $ 1.52 $ 1.55 1.50 ar Mc Graw Hill O 11:14 AM A 1/9/2022 2Home Content X Question 5 - Wk 5 - Apply: Te X C Chegg Search X Course Hero X + X -> C https://ezto.mheducation.com/ext/map/index.html?_con=con&external_browser=08launchUrl=https%253A%252F%252FIms.mheducation.com%252F.. Wk 5 - Apply: Test [due Day 7] i Saved Help Save & Exit Submit Monthly Report on Cola Bottling Line Diet Regular Cherry Grape Total 5 Sales $119, 606 $81, 600 $22, 750 $ 5,550 $228,900 Less : Materials 41, 006 32, 000 9,360 3,056 85, 410 Direct labor 16, 090 10, 000 2, 606 400 29, 000 Fringe benefits on direct labor 6,400 4,000 1, 040 160 11, 606 Indirect costs (@260% of direct labor) 41, 600 26,000 6,760 1, 040 75, 400 Gross margin $ 14, 000 $ 9,600 $ 2,990 900 $ 27,490 Return on sales ( see note [a]) 11 . 8% 11. 8% 13 . 1% 16. 2% 12. 0% Volume 70, 090 48 , 000 13, 090 3,090 134 , 000 Unit price 1.70 $ 1.70 $ 1.75 $ 1.85 1.71 Unit cost 1.50 $ 1.50 $ 1.52 $ 1.55 1.50 Return on sales before considering selling, general and administrative expenses. Rockness asked, "Do you see any problems here? Should we drop any of these products? Should we reprice any of these products?" The room was silent for a moment, and then everybody started talking at once. Nobody could see any problems based on the data in the report, but they all made suggestions to Rockness ranging from "add another cola product" to "cut costs across the board" to "we need a new computer system so that managers can get this information more quickly." A not-so-patient Rockness stopped the discussion abruptly and adjourned the meeting. He then turned to the quietest person in the room-his son, Rocky-and said, "I am suspicious of these cost data, Rocky. Here we are assigning indirect costs to these products using a 260 percent rate. I really wonder whether that rate is accurate for all products. I want you to dig into the indirect cost data, figure out what drives those costs, and see whether you can give me more accurate cost numbers for these products." Rocky first learned from production that the process required four activities: (1) setting up production runs, (2) managing production runs, and (3) managing products. The fourth activity did not require labor; it was simply the operation of machinery. Next, he went to the accounting records to get a breakdown of indirect costs. Here is what he found: Mc Graw Hill 11:15 AM A 1/9/2022 2E] l Q;- Home x l E Content x B QuestionS-WkS-Applyfle x CheggSearch x l u CourseHem x | + or x 6 G Iii httpsWeztomheducation.comfextfrnapfindexihlml?,con=con&externalibrowser=0&launchUrl =http5%ZS3A%252F%252Flms.rnheducation.con'i%252F.H {'5 {'2 : Wk 5 Apply: Test [due Day 7] 0 Saved Help Save& Exit Submit Rocky rst learned from production that the process required four activities: [1} setting up production runs, (2) managing production runs, and (3) managing products. The fourth activity did not require labon it was simply the operation of machinery. Next, he wentto the accounting records to get a breakdown of indirect costs, Here is what he found: Indirect labor $ 29,666 Fringe benefits on indirect labor 11,698 Information technology 17,600 Machinery depreciation 18,888 Machinery maintenance 4,300 Energy 2,435 Total $ 75,4-33 Then, he began a series of interviews with department heads to see now to assign these costs to cost pools. He found that 40 percent of indirect labor was for scheduling or for handling production runs including purchasing, preparing the production run releasing materials forthe production run, and performing a first-time inspection of the run. Another 50 percent of indirect labor was used to set up machinery to produce a particular product The remaining 10 percent of indirect labor was spent maintaining records for each of the four productsv monitoring the supply of raw materials required for each product, and improving the production processes for each product, This i0 percerlt of indirect labor was assigned to the cost driver "number of products," Interviews with people in the information technology department indicated that $11600 was allocated to the cola bottling line, 80 percent of this $17,600 information technology cost was for scheduling production runs. 20 percent of the cost was for record keeping for each of the four products, Fringe benefits were 40 percent of labor costs, The rest of the overhead was used to supply machine capacity of 26,800 hours of productive time. n......;.... z...._4iu__ z_n_...;.__ ___L _l_:..__.._I..._.__.._.._ ;_.__.r_..._ ..;.u_ ._ .__..._.:_._ ._ _..__..__l Mc am\".