Davenport Acct640

ACCT640
– Managerial Accounting

Fall
2013

all discussions
case study 3

Case
#2 – Performance Drinks: Applying Activity Based Costing

Case
#3 – Performance Drinks -A further study of:

Regression
Analysis

All discussion

Part 1:Post a 400-500 word synopsis on a topic that is related to this
week’s readings in the textbook. Use at least three sources for in your review
of the topic. Your review should be similar to a “literature review
lite” which covers the topic is some detail, but not fully, due to the
constraints in time and also in word limitation.

Review in Turnitin.com and achieve less than a 20% rating before posting to
the course. Be sure to include reference sources. Use APA guidelines.

In the Reflections Forum, in 200 words or more, please comment on the topic
coverage this week that was of most interest to you. Please state how this
knowledge could be applied at your current or a prior position and how you or
your employer could benefit.

Week 2

Part A: Post a 400-500 word synopsis
on a topic that is related to this week’s readings in the textbook. Use at
least three sources for in your review of the topic. Your review should be
similar to a “literature review lite” which covers the topic is some
detail, but not fully, due to the constraints in time and also in word
limitation.

Review in Turnitin.com and achieve
less than a 20% rating before posting to the course. Be sure to include
reference sources. Use APA guidelines.

Part B: Post your answer to the
following problem. If your last name starts with:

A-G; Complete, 3-19

H-M; Complete, 3-20

N-Z; Complete, 3-23

Week 3

Previous item Page 4 of 7 Next item

Review in Turnitin.com and achieve less than a 20% rating before posting to the
course. Be sure to include reference sources. Use APA guidelines.

Part B: Post your answer to the following problem. If your last name
begins with:

A-G; Complete, 5-18

H-M; Complete, 5-19

N-Z; Complete, 5-22

Week 4

Review in Turnitin.com and achieve
less than a 20% rating before posting to the course. Be sure to include
reference sources. Use APA guidelines.

Part B: Post your answer to the
following problem. If your last name begins with:

A-G; Complete, 7-18

H-M; Complete, 7-19

N-Z; Complete, 7-22

Week 5 Discussion

Review in Turnitin.com and achieve
less than a 20% rating before posting to the course. Be sure to include
reference sources. Use APA guidelines.

Part B: Post your answer to the
following problem. If your last name starts with

A-G; Complete, 9-22

H-M; Complete, 9-25

N-Z; Complete, 9-28

Week 6 Discussion

Review in Turnitin.com and achieve less than a 20% rating before posting to the
course. Be sure to include reference sources. Use APA guidelines.

Part B: Post your answer to the following problem. If your last name starts
with:

A-G; Complete, 11-10

H-M; Complete, 11-12

N-Z; Complete, 11-13

In the Reflections Forum, in 200 words or more, please comment on the topic
coverage this week that was of most interest to you. Please state how this knowledge
could be applied at your current or a prior position and how you or your
employer could benefit.

Acct640 case 3

award:
45.16 out of
50.00 points

The
Ramon Company is a manufacturer that is interested in developing a cost formula
to estimate the fixed and variable components of its monthly manufacturing
overhead costs. The company wishes to use machine-hours as its measure of
activity and has gathered the data below for this year and last year:

	Last Year		This Year
Month	Machine- Hours	Overhead Costs		Machine- Hours	Overhead Costs
January	21,000	$	84,000		21,000	$	86,000
February	25,000	$	99,000		24,000	$	93,000
March	22,000	$	89,500		23,000	$	93,000
April	23,000	$	90,000		22,000	$	87,000
May	20,500	$	81,500		20,000	$	80,000
June	19,000	$	75,500		18,000	$	76,500
July	14,000	$	70,500		12,000	$	67,500
August	10,000	$	64,500		13,000	$	71,000
September	12,000	$	69,000		15,000	$	73,500
October	17,000	$	75,000		17,000	$	72,500
November	16,000	$	71,500		15,000	$	71,000
December	19,000	$	78,000		18,000	$	75,000

The
company leases all of its manufacturing equipment. The lease arrangement
calls for a flat monthly fee up to 19,500 machine-hours. If the machine-hours
used exceeds 19,500, then the fee becomes strictly variable with respect to
the total number of machine-hours consumed during the month. Lease expense is
a major element of overhead cost.

Required:

1.	Using the high-low method, estimate a manufacturing overhead cost formula based on the data given above for last year and this year. (Do not round your intermediate calculations. Round the “Variable cost per MH” to 2 decimal places and “Fixed cost” to the nearest dollar amount.)

2.	Prepare a scattergraph using all of the data for the two-year period. (Plot overhead costs on the vertical axis and the machine-hours on the horizontal axis.)

Instructions:
1. On the graph above, use the point tool (Last year – jan) to plot the
Machine- Hours and Overhead costs for the month of January.
2. Repeat the same process for the plotter tools (Last year – Feb to This year
– Dec).
3. To enter exact coordinates, double click on the point and enter the values
of x and y.
4. To remove a point from the graph, drag the point
off an edge of the graph.

4.	Assume that the company consumes 22,500 machine-hours during a month. Using the high-low method, estimate the total overhead cost that would be incurred at this level of activity. Be sure to consider only the data points contained in the relevant range of activity when performing your computations. (Do not round intermediate calculations.)

ACCT640
– Managerial Accounting

Fall
2013

Case
#2 – Performance Drinks: Applying Activity Based Costing

Background:

Performance Drinks, LLC is owned by
Dave N. Port. Performance Drinks
produces a variety of sports centered drinks.
They began operations in 1993 shortly after Mr. Port graduated with his
M.B.A. from Davenport University. The
company saw early success as sports and fitness nutritional products gained new
popularity in the 1990’s. Financially
the 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 different 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. Lastly, 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:

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

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:

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:

Requirements:

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

2.
Compute the per unit product costs for
each of the four products.Compute 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 on page 4 of this packet.
Create this report using the results of your ABC overhead allocation.

4.
Prepare a written “Management Report”
that explains to the management team what Activity Based Costing is, how it was
used to generate the Monthly Profit Report (from requirement #3). Explain why the profit for each product is
different when comparing the Traditional report with the ABC report. Explain 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.
Compute 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 professionalismare important.
Defending your answer with data is important.

·
An electronic copy of this Case (this
document) is available within Blackboard.
Additionally, an Excel file, containing the basic data for the case will
be available within Blackboard.

·
You will create one professional
report. In that report you should clearly
label all of your answers. Make your
answers easy to read and find. Imagine
you were giving this report to your boss.
Further imagine you have to lead your boss and the executive team
through your findings.

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

·
Grading is based on both accuracy (see
rubric) and your ability to communicate your answers professionally and
clearly.

·
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.

·
Put good thought into how you organize
your Excel document. Part of your grade will be based upon the usability and
layout of your Excel file. Imagine that have to give the electronic copy of
your Excel file to your boss, or a peer, to work with. Imagine that you could not coach them at all
on how to use your file. Is your file
organized and labeled so clearly that anyone could use it, easily, without
instructions from you? You want to
strive for that kind of clarity in your work.

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

·
You will physically hand-in your report.
You will also upload to Blackboard both your Word document and your Excel file.

·
Due date: Tuesday, October 8^th
at 6:00 PM EDT

·
Late submissions will result in the
following: 10% reduction in score for
each 24 hour period of being late (up to 3 days). After 3 days late zero credit will be earned.

·
As always please come to me with
learning questions. This project is a learning experience.

Rubric:

This project is
worth 20% (200 points) of your overall course grade. I will convert your scores
to a 200 point scale.

Case
#3 – Performance Drinks -A further study of:

Regression
Analysis

Contribution
Margin Reporting

Cost-Volume-Profit
Analysis

Differential
Analysis

Capital
Budgeting

Written
by:

Tim
Bergsma, CMA, CFE

Assistant
Professor – Accounting

Davenport
University

Donald
W. Maine – College of Business

Background:

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

·
Basic

·
Hydration

·
Intensity

·
Post-Workout

Information Related to Case #2(this section is the same as you received when you were assigned
Case #2):

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:

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

Overhead
Activities:

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:

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

New
Information Pertaining to Case #3:

The financial
reporting to date has been done using absorption costing. That is to say that the manufacturing costs
included direct materials, direct labor, variable manufacturing overhead and
fixed manufacturing overhead. In this
sense the Income Statements have historically reported Gross Margin. Following is a Monthly Income Statement,
based on absorption costing, for Performance Drinks:

You
begin to wonder if there would be any value in repackaging the income statement
in a way that would report Contribution Margin as opposed to Gross Margin. You know that in order to report Contribution
Margin you will need to understand your costs as variable and fixed. Unfortunately the general ledger does not
specifically report costs as variable and fixed. You remember learning that regression
analysis can be used to generate data that can be used to create a total cost
equation. With the total cost equation we
can understand our total cost as the sum of fixed costs and variable
costs. After doing some research your
collect the following data related to overhead and possible causal factors:

Requirement
#1

Using the data above, which
has also been provided electronically in Excel, run the following regression
analyses:

Linear
regression analyzing total overhead cost and units sold
Linear
regression analyzing total overhead cost and machine hours used
Multiple
regression analysis analyzing total overhead cost along with both units
sold and machine hours used

Requirement
#2

Based on the results from the three
regression analyses determine which correlation provides the best estimate of
the total cost equation. Explain why you
selected the correlation that you did.

Requirement
#3

Write out the total cost equation
using the results from the multiple regression test.

Requirement
#4

Create a “Contribution” formatted
income statement using the results from the multiple regression test. Use the following additional information
regarding machine hours, used by each product, which has also been provided in
Excel electronically:

Reference the following sales volumes, by product, for
your cost allocation related to units sold:

Use the following template as a guide for the format
of your “Contribution” Income Statement:

Requirement
#5

Compute the following:

·
Break-even point in units

·
Break-even point in sales dollars

·
Targeted profit point in units (use
$50,000 as your targeted profit point)

·
Margin of Safety

Requirement
#6

A new customer has surfaced. That customer has asked you to consider
producing a special one-time order for them.
This special order would require a modification to the recipe that will
slightly increase the variable cost per unit.
Furthermore, there would be a small fixed cost addition. The details for the order as follows:

Conduct a
differential analysis regarding this special order. Would you accept this order under the
conditions provided? Explain and defend
your position.

Requirement
#7:

Your management team has asked you
to consider investing in a new piece of equipment. The details of that investment opportunity
are following:

The discount
rate for this project is 5%. Compute the
following:

·
Net Present Value

·
Internal Rate of Return

Would you recommend
investing in this new piece of equipment?
Explain and defend your position.

Clarification
on format and data:

Clear
communication and professionalism are important. Defending your answer with data is
important.

·
An electronic copy of this Case (this
document) is available within Blackboard.
Additionally, an Excel file, containing the necessary data for the case
will be available within Blackboard.

·
Create one professional report, in Word,
that contains all of answers. In that
report you should clearly label all of your answers. Make your answers
easy to read and find. Imagine you were giving this report to your
boss. Further imagine you have to lead
your boss and the executive team through your findings. You will then
have one Word document as your
final product. You will also have one Excel file.

·
Grading is based on both accuracy (see
rubric) and your ability to communicate your answers professionally and
clearly.

·
Use the following naming structure for
your files: last name_first initial_case3.docx.
Of course your Excel file will have an .xls suffix.

·
Double space your report.

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

·
You will also u

Davenport Acct640

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