Product 129 Standard Production Cost Selling Price $2.54 3.05 $4.34 Unit Margin $1.80 2.84 Margin Percent...

 

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Product 129 Standard Production Cost Selling Price $2.54 3.05 $4.34 Unit Margin $1.80 2.84 Margin Percent 41.5 243 5.89 48.2 Thus, product 243 would appear to be the more desirable one to sell. But on the proposed basis, the numbers were as follows: Product Standard Production Cost 129 $1.38 Selling Price $4.34 Unit Margin $2.96 Margin Percent 68.2 243 2.37 5.89 3.52 59.8 According to Silver, these numbers made it clear that product 129 was the more profitable. At this point, the treasurer spoke up. If we use this new approach, the next thing we know you marketing types will be selling at your usual markup over variable costs. How are going to pay the fixed costs then? Besides, in my 38 years of experi- ence, it's the lack of control over long-run costs that can bankrupt a company. I'm opposed to any proposal that causes us to take a myopic view of costs. The president also had some concerns, having further considered the proposal. In the first place, if I add together the June and July pretax profit under each of these methods, I get almost $117,000 with the present method, but only $99,000 under the proposed method. While I'd be happy to lower our reported profits from the standpoints of relations with our employee union and income taxes, I don't think its a good idea as far as our owners and bankers are concerned. And I share Jamie's [the treas- urer's] concern about controlling long-run costs. I think we should defer a decision on this matter until we fully understand all of the implications. Assignment 1. 2. Explain the reasons for the $29,287 difference in July ($65,099 - $35,812) between income before taxes un- der the two different methods. Be very specific in listing the elements that caused the difference. Critique the various pros and cons of the variable costing proposal that were presented in the meeting. What arguments would you add? 3. Assess Mr. Silver's arguments concerning products 129 and 243. If he could emphasize only one product, which one should it be? Why? 4. Should Landau adopt variable costing for its monthly income statements? Why or why not? Product 129 Standard Production Cost Selling Price $2.54 3.05 $4.34 Unit Margin $1.80 2.84 Margin Percent 41.5 243 5.89 48.2 Thus, product 243 would appear to be the more desirable one to sell. But on the proposed basis, the numbers were as follows: Product Standard Production Cost 129 $1.38 Selling Price $4.34 Unit Margin $2.96 Margin Percent 68.2 243 2.37 5.89 3.52 59.8 According to Silver, these numbers made it clear that product 129 was the more profitable. At this point, the treasurer spoke up. If we use this new approach, the next thing we know you marketing types will be selling at your usual markup over variable costs. How are going to pay the fixed costs then? Besides, in my 38 years of experi- ence, it's the lack of control over long-run costs that can bankrupt a company. I'm opposed to any proposal that causes us to take a myopic view of costs. The president also had some concerns, having further considered the proposal. In the first place, if I add together the June and July pretax profit under each of these methods, I get almost $117,000 with the present method, but only $99,000 under the proposed method. While I'd be happy to lower our reported profits from the standpoints of relations with our employee union and income taxes, I don't think its a good idea as far as our owners and bankers are concerned. And I share Jamie's [the treas- urer's] concern about controlling long-run costs. I think we should defer a decision on this matter until we fully understand all of the implications. Assignment 1. 2. Explain the reasons for the $29,287 difference in July ($65,099 - $35,812) between income before taxes un- der the two different methods. Be very specific in listing the elements that caused the difference. Critique the various pros and cons of the variable costing proposal that were presented in the meeting. What arguments would you add? 3. Assess Mr. Silver's arguments concerning products 129 and 243. If he could emphasize only one product, which one should it be? Why? 4. Should Landau adopt variable costing for its monthly income statements? Why or why not?

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Answer 1 The difference in income before taxes between the two methods can be attributed to the following elements a Under the present method absorpti... View the full answer