Acct 212: Copy 2 of Fall D 2012 chpter 20

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Problem 20-1A Production cost flow and measurement; journal entries L.O. P1, P2, P3, P4

[The following information applies to the questions displayed below.]

Edison Company manufactures wool blankets and accounts for product costs using process costing. The following information is available regarding its May inventories.

 

  Beginning Inventory   Ending Inventory  
  Raw materials inventory $ 60,000   $ 41,000  
  Goods in process inventory   449,000     521,500  
  Finished goods inventory   610,000     342,001  
 

 

The following additional information describes the company’s production activities for May.

 

       
  Raw materials purchases (on credit) $ 250,000  
  Factory payroll cost (paid in cash)   1,850,300  
  Other overhead cost (Other Accounts credited)   82,000  
  Materials used      
       Direct $ 200,500  
       Indirect   50,000  
  Labor used      
       Direct $ 1,060,300  
       Indirect   790,000  
  Overhead rate as a percent of direct labor   115 %
  Sales (on credit) $ 3,000,000  
 

 

The predetermined overhead rate was computed at the beginning of the year as 115% of direct labor cost.

 

\\\\\ rev: 11_02_2011

references

 

 

1.

value: 2.00 points

 

 

Problem 20-1A Part 1

Required:
1(a) Compute the cost of products transferred from production to finished goods. (Omit the “$” sign in your response.)

 

  Cost of products transferred $

 

1(b) Compute the cost of goods sold. (Omit the “$” sign in your response.)

 

  Cost of goods sold $

rev: 10_31_2011

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2.

value: 5.00 points

 

 

Problem 20-1A Part 2

2(a) Prepare journal entry dated May 31 to record the raw materials purchases. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
May 31      
       
 

 

2(b) Prepare journal entry dated May 31 to record the direct materials usage. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
May 31      
       
 

 

2(c) Prepare journal entry dated May 31 to record the indirect materials usage. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
May 31      
       
 

 

2(d) Prepare journal entry dated May 31 to record the payroll costs. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
May 31      
       
 

 

2(e) Prepare journal entry dated May 31 to record the direct labor costs. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
May 31      
       
 

 

2(f) Prepare journal entry dated May 31 to record the indirect labor costs. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
May 31      
       
 

 

2(g) Prepare journal entry dated May 31 to record the other overhead costs. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
May 31      
       
 

 

2(h) Prepare journal entry dated May 31 to record the overhead applied. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
May 31      
       
 

 

2(i) Prepare journal entry dated May 31 to record the goods transferred from production to finished goods.(Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
May 31      
       
 

 

2(j) Prepare journal entry dated May 31 to record the sale of finished goods. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
May 31      
       
       
       
       

 

 

 

Fairfax Company uses weighted-average process costing to account for its production costs. Direct labor is added evenly throughout the process. Direct materials are added at the beginning of the process. During September, the company transferred 760,000 units of product to finished goods. At the end of September, the goods in process inventory consists of 203,000 units that are 90% complete with respect to labor. Beginning inventory had $438,165 of direct materials and $188,540 of direct labor cost. The direct labor cost added in September is $3,582,260, and the direct materials cost added is $2,932,335.

 

references

 

 

3.

value: 2.00 points

 

 

Problem 20-2A Part 1

Required:
1(a) Determine the equivalent units of production with respect to direct labor.

 

  Equivalent units  

 

1(b) Determine the equivalent units of production with respect to direct materials.

 

  Equivalent units  

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4.

value: 2.00 points

 

 

Problem 20-2A Part 2

2. Compute both the direct labor cost and the direct materials cost per equivalent unit. (Round your answers to 2 decimal place. Omit the “$” sign in your response.)

 

  Per equivalent unit
  Direct labor cost $
  Direct materials cost $
 

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5.

value: 2.00 points

 

 

Problem 20-2A Part 3

3(a) Compute both direct labor cost and direct materials cost assigned to units completed and transferred out. (Due to rounding of cost per unit, the total costs accounted for in the cost summary may not equal to sum of all the costs given in the problem. Round your per unit costs to 2 decimal places and final answers to the nearest dollar amount.)

   

  Cost transferred out
  Direct materials $
  Direct labor $
 

 

3(b) Compute both direct labor cost and direct materials cost assigned to ending goods in process inventory. (Due to rounding of cost per unit, the total costs accounted for in the cost summary may not equal to sum of all the costs given in the problem. Round your per unit costs to 2 decimal places and final answers to the nearest dollar amount.)

 

  Costs of ending goods in process
  Direct materials $
  Direct labor $
 

 

 

 

Problem 20-3A Journalizing in process costing; equivalent units and costs L.O. C2, P1, P2, P3

[The following information applies to the questions displayed below.]

Li Company produces large quantities of a standardized product. The following information is available for its production activities for January.

 

               
  Raw materials         Factory overhead incurred      
  Beginning inventory $ 16,000     Indirect materials used $ 80,500  
  Raw materials purchased (on credit)   280,000     Indirect labor used   40,000  
  Direct materials used   (171,500 )   Other overhead costs   159,920  
               
  Indirect materials used   (80,500 )   Total factory overhead incurred $ 280,420  
           

 

  

 

  
  Ending Inventory $ 44,000          
   

 

  

 

  

 

        
          Factory overhead applied      
  Factory payroll            (140% of direct labor cost)      
  Direct labor used $ 200,300     Total factory overhead applied $ 280,420  
           

 

  

 

  
  Indirect labor used   40,000          
               
  Total payroll cost (paid in cash) $ 240,300          
   

 

  

 

  

 

        
 

 

Additional information about units and costs of production activities follows.

 

 

               
  Units       Costs        
  Beginning goods in process inventory 2,600     Beginning goods in process inventory        
  Started 26,000          Direct materials $ 3,000    
  Ending goods in process inventory 4,900          Direct labor   3,500    
             Factory overhead   4,000    
               
            $ 10,500
  Status of ending goods in process inventory       Direct materials added       171,500
     Materials—Percent complete 90  %   Direct labor added       200,300
     Labor and overhead—Percent complete 75  %   Overhead applied (140% of direct labor)       280,420
               
        Total costs     $ 662,720
             

 

  

 
        Ending goods in process inventory     $ 92,911
 

 

During January, 22,000 units of finished goods are sold for $160 cash each. Cost information regarding finished goods follows.

 

 

       
  Beginning finished goods inventory $ 150,000  
  Cost transferred in   569,809  
  Cost of goods sold   (598,390 )
       
  Ending finished goods inventory $ 121,419  
   

 

  

 

  

 
 

references

 

 

6.

value: 5.00 points

 

 

Problem 20-3A Part 1

Required:
1(a) Prepare journal entry dated January 31 to record the purchase of raw materials. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
Jan. 31      
       
 

 

1(b) Prepare journal entry dated January 31 to record the direct materials usage. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
Jan. 31      
       
 

 

1(c) Prepare journal entry dated January 31 to record the indirect materials usage. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
Jan. 31      
       
 

 

1(d) Prepare journal entry dated January 31 to record the factory payroll costs. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
Jan. 31      
       
 

 

1(e) Prepare journal entry dated January 31 to record the direct labor costs used in production. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
Jan. 31      
       
 

 

1(f) Prepare journal entry dated January 31 to record the indirect labor costs. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
Jan. 31      
       
 

 

1(g) Prepare journal entry dated January 31 to record the other overhead costs—credit Other Accounts.(Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
Jan. 31      
       
 

 

1(h) Prepare journal entry dated January 31 to record the overhead applied. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
Jan. 31      
       
 

 

1(i) Prepare journal entry dated January 31 to record the goods transferred to finished goods. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
Jan. 31      
       
 

 

 

1(j) Prepare journal entries dated January 31 to record the sale of finished goods. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
Jan. 31      
       
       
       
       
 

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7.

value: 5.00 points

 

 

Problem 20-3A Part 2

2. Prepare a process cost summary report for this company, showing costs charged to production, units cost information, equivalent units of production, cost per EUP, and its cost assignment and reconciliation. (Due to rounding of cost per unit, the total costs accounted for in the cost summary may not equal to sum of all the costs given in the problem. Round your cost per EUP answers to 2 decimal places and consider the same in the other calculations. Round other answers to the nearest dollar amount. Omit the “$” sign in your response.)

 

LI COMPANY
Process Cost Summary
For Month Ended January 31
  Costs Charged to Production    
  Costs of beginning goods in process    
  $  
     
     
     
    $
  Costs incurred this period    
  $  
     
     
     
     
     
  Total costs to account for   $
     

 
 

 

Unit cost information
Units to account for   Units accounted for  
       
       
       
  Total units to account for     Total units accounted for  
   

 

    

 
 

 

Equivalent units of production Direct Materials Direct Labor Factory Overhead
   EUP  EUP  EUP
   EUP  EUP  EUP
       
  Equivalent units of production  EUP  EUP  EUP
   

 

  

 

  

 
 

 

Cost per EUP Direct Materials Direct Labor Factory Overhead
  $     $     $    
                   
                   
  Total costs $     $     $    
       EUP      EUP      EUP
                   
  Cost per EUP $    Per EUP $    Per EUP $    Per EUP
   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 
 

 

Cost assignment and reconciliation
  Costs transferred out    
  $  
     
     
     
    $
  Costs of ending goods in process    
  $  
     
     
     
     
     
  Total costs to account for   $
     

 
 

 

 

 

roblem 20-5A Process cost summary, equivalent units, cost estimates L.O. C2, C3, P4

[The following information applies to the questions displayed below.]

Ogden Co. manufactures a single product in one department. All direct materials are added at the beginning of the manufacturing process. Direct labor and overhead are added evenly throughout the process. The company uses monthly reporting periods for its weighted-average process cost accounting. During October, the company completed and transferred 24,600 units of product to finished goods inventory. Its 4,200 units of beginning goods in process consisted of $20,800 of direct materials, $203,300 of direct labor, and $100,040 of factory overhead. It has 3,000 units (100% complete with respect to direct materials and 90% complete with respect to direct labor and overhead) in process at month-end. After entries to record direct materials, direct labor, and overhead for October, the company’s Goods in Process Inventory account follows.

 

  Goods in Process Inventory     Acct. No.133
Date Explanation Debit Credit Balance
Oct.  1   Balance     324,140
31   Direct materials 504,900   829,040
31   Direct labor 1,224,300   2,053,340
31   Applied overhead 963,840   3,017,180
 

references

 

 

8.

value: 5.00 points

 

 

Problem 20-5A Part 1

1. Prepare the company’s process cost summary for October using the weighted-average method. (Due to rounding of cost per unit, the total costs accounted for in the cost summary may not equal to sum of all the costs given in the problem. Round your cost per EUP answers to 2 decimal places and consider the same in the other calculations. Round other answers to the nearest dollar amount. Omit the “$” sign in your response.)

 

OGDEN CO.
Process Cost Summary
For Month Ended October 31
  Costs Charged to Production    
  Costs of beginning goods in process    
  $  
     
     
     
    $
  Costs incurred this period    
  $  
     
     
     
     
     
  Total costs to account for   $
     

 
 

 

Unit cost information
Units to account for   Units accounted for  
       
       
       
  Total units to account for     Total units accounted for  
   

 

    

 
 

 

Equivalent units of production Direct Materials Direct Labor Factory Overhead
   EUP  EUP  EUP
      EUP  EUP  EUP
       
  Equivalent units of production  EUP  EUP  EUP
   

 

  

 

  

 
 

 

Cost per EUP Direct Materials Direct Labor Factory Overhead
  $ $ $
       
       
  Total costs $ $ $
    EUP   EUP   EUP
       
  Cost per EUP $  per EUP $  per EUP $  per EUP
   

 

  

 

  

 
 

 

Cost assignment and reconciliation
  Costs transferred out    
  $  
     
     
     
    $
  Costs of ending goods in process    
  $  
     
     
     
     
     
  Total costs to account for   $
     

 
 

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9.

value: 2.00 points

 

 

Problem 20-5A Part 2

2. Prepare the journal entry dated October 31 to transfer the cost of completed units to finished goods inventory. (Omit the “$” sign in your response.)

 

Date General Journal Debit Credit
Oct. 31      
       
 

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Macroeconomics

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DISCUSSION 2

Basic Economic Models and Comparative Advantage

The Discussions includes the differences between microeconomics and macroeconomics, the two basic economic models of the circular-flow diagram and the production possibility frontier, and comparative advantage, which is the main force behind interdependence in the market economy and the gains from trade.

Read Chapters 2 and 5, and remember to include references and links to the websites that are important contributors to your posts.

The theory of comparative advantage states that there are gains from trade if countries specialize and optimize their opportunity costs.

a. Why is comparative advantage a driving force behind trade behind trade between regions and countries?

b. Why does specialization lead to welfare improvement? Why engaging in trade is better than trying to be self-sufficient?

 

DISCUSSION 3

Supply, Demand, and Government Interventions in Markets

This Discussion topic includes the market forces of supply and demand, supply and demand model, and supply and demand curves.

Read Chapters 3 and 4, and remember to include references and links to the websites that you feel are important contributors to your posts (comments).

Supply and demand is the foundation of the market economy and the basis of the study of economics.

a. Why supply and demand is considered as factors that make market economies work? Why supply and demand drives the market economy? Provide an example of the role of supply and demand in business decision making.

b. What is the difference between a movement along and a shift of the demand and supply curves? What are the factors that lead to shifts in supply and demand curves?

 

DISCUSSION 4

National Income Determination (GDP)

This Discussion focuses on how a nation’s income is measured using the gross domestic product (GDP)/ The specific areas of discussion include the various components of the GDP, the difference between nominal and real GDP, GDP and business cycles, and the limitations of the GDP in measuring economic welfare.

Read chapters 6 and 7, and remember to include references and links to the websites that you feel are important contributors to your posts (comments).

Economists use Gross Domestic Product (GDP) to measure the economic activity and the national income.

1. What are the major components of the USA GDP? Explain the contribution of each component to the GDP with data.

2. What is the difference between real Gross Domestic Product (GDP) and nominal GDP? What is the relationship between the real GDP and the business cycle?

 

DISCUSSION 5

Effects of Unemployment and Inflation

This Discussion focuses on how to measure the cost of living and rate of unemployment in the economy. Specific discussion areas include the various forms of unemployment and how they are measured, debates on measuring unemployment rate, and the imperfections of official unemployment rate. Moreover, consumer price index (CPI), rate of inflation, and their impacts on the cost of living.

Read Chapter 8, and remember to include references and links to the websites that are important contributors to your posts (comments).

There are various forms of unemployment. There are also ongoing debates on the effectiveness of measuring the rate of unemployment and its policy implications.

a. What are the different types of unemployment and how are they related to the condition of the economy during a given period? Is it possible for the number of employed workers to increase while the unemployment rate rises? Explain

b. Does an increase in the minimum wage rate result in a higher unemployment rate? What is your opinion on the relationship between unemployment benefits and labor market participation of the unemployed people?

 

DISCUSSION 6

Long Term Economic Growth

This Discussion focuses on the long term economic growth. The specific discussion areas include measuring economic growth and natural resources.

Read Chapters 9 and 10, and remember to include references and links to the websites that are important contributors to your posts (comments).

The long-run growth is measured as the increase in real GDP per capita and this measure has changed over time and it also varies across countries. A country’s standard of living depends on its ability to produce goods and services (productivity).

a. How do we measure long-term economic growth of a country? What are the key determinants of long-run economic growth?

b. What is the relationship between economic growth and productivity? What is the major source of growth in labor productivity?

 

DISCUSSION 7

How Money Affects the Economy

This Discussion deals with the various forms and uses of money, the roles of the Federal Reserve System, money supply, money demand, and monetary policy instruments.

Read Chapters 14 and 16, and remember to include references and links to the websites that you feel are important contributors to your posts (comments).

The Federal Reserve may increase or decrease money supply depending on the economic condition.

a. What policy instruments does the Fed use for the monetary policy?

b. What are the pros and cons of using expansionary and contractionary monetary policy tools under the following scenarios: depression, recession, inflation, and robust economic growth? Which do you think is more appropriate today?

 

DISCUSSION 8

Aggregate Demand and Aggregate Supply

This Discussion deals with aggregate demand and aggregate supply, and the introduction to basic concepts in open-economy macroeconomics. The specific areas of discussion are the AS-AD model, AS and AD curves, shocks in AS and AD demand, and key concepts in open-economy macroeconomics.

Read chapters 11 and 12, and remember to include references and links to the websites that you feel are important contributors to your posts (comments).

Aggregate supply (AS) and aggregate demand (AD) models, and AS/AD curves are essential to understanding macroeconomic fluctuations (business cycles).

a. Discuss the importance AS-AD models are in explaining the macroeconomic conditions of the economy and business cycles like recessions.

b. What factors shift AS and AD curves? How do you explain macroeconomic fluctuations using AS-AD models and AS/AD curves?

 

DISCUSSION 9

Monetary and Fiscal Policy Applications

This Discussion focuses on the effects of monetary and fiscal policy instruments on the aggregate demand in the economy. The specific areas of discussion include how monetary and fiscal policy instruments are used to change AD, the differences between monetary and fiscal policy, and their respective instruments.

Read chapters 13 and 15, and remember to include references and links to the websites that are important contributors to your posts (comments).

Monetary and fiscal policy instruments are used to affect the aggregate demand (AD) in the economy.

a. What is the difference between contractionary and expansionary monetary policy? What is the difference between contractionary and expansionary fiscal policy? How does each policy affect the AD in the economy?

b. What are the benefits and major problems of the fiscal policy and monetary policy?

 

DISCUSSION 10

Debates in Macroeconomics

This Discussion deals with the debates over macroeconomic policy, which include stabilization policy, monetary policy on rules versus discretion, zero inflation target, public debt, and reforming tax laws.

Read chapters 17 and 18, and remember to include references and links to the websites that are important contributors to your posts (comments).

There are pros and cons of using monetary and fiscal policy tools to stabilize the economy.

1. Explain the main arguments in favor of economic stabilization during recessions. Explain why policy lags could make stabilization policies counterproductive.

2. What are the justifications given in favor of more government involvement in the market economy? What are the reasons given in favor of less government involvement in the market economy?

Jackson County Senior Services

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1.

value:

17.00 points

 

 

Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within the Jackson County area. Three services are provided for seniors—home nursing, Meals On Wheels, and housekeeping. In the home nursing program, nurses visit seniors on a regular basis to check on their general health and to perform tests ordered by their physicians. The Meals On Wheels program delivers a hot meal once a day to each senior enrolled in the program. The housekeeping service provides weekly housecleaning and maintenance services. Data on revenue and expenses for the past year follow:
    Total   Home Nursing   Meals On Wheels   House

keeping

  
  Revenues $ 926,000 $ 267,000 $ 406,000 $ 253,000  
  Variable expenses   471,000   113,000   199,000   159,000  
                   
  Contribution margin   455,000   154,000   207,000   94,000  
                   
  Fixed expenses:                  
    Depreciation   69,000   8,300   40,600   20,100  
    Liability insurance   43,900   20,800   7,600   15,500  
    Program administrators’ salaries   115,300   40,900   38,300   36,100  
    General administrative overhead*   185,200   53,400   81,200   50,600  
                   
  Total fixed expenses   413,400   123,400   167,700   122,300  
                   
  Net operating income (loss) $ 41,600 $ 30,600 $ 39,300 $ -28,300  
   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  
   

 

*Allocated on the basis of program revenues.
     The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organization’s finances and considers the net operating income of $41,600 last year to be too small. (Last year’s results were very similar to the results for previous years and are representative of what would be expected in the future.) She feels that the organization should be building its financial reserves at a more rapid rate in order to prepare for the next inevitable recession. After seeing the above report, Ms. Miyama asked for more information about the financial advisability of discontinuing the housekeeping program.

 

     The depreciation in housekeeping is for a small van that is used to carry the housekeepers and their equipment from job to job. If the program were discontinued, the van would be donated to a charitable organization. Depreciation charges assume zero salvage value. None of the general administrative overhead would be avoided if the housekeeping program were dropped, but the liability insurance and the salary of the program administrator would be avoided.
Required:  

 

1a. What is the impact on net operating income by discontinuing housekeeping program? (Input the amount as a positive value. Omit the “$” sign in your response.)
  (Click to select)IncreaseDecrease in net operating income by $  
1b. Should the housekeeping program be discontinued?
   
   

Yes

 

No
2 Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services.
   
   

Yes

 

No

 

 

 

2.

value:

17.00 points

 

 

Climate-Control, Inc., manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a thermostat to Climate-Control for $33 per unit. To evaluate this offer, Climate-Control, Inc., has gathered the following information relating to its own cost of producing the thermostat internally:

 

    Per Unit   15,800 Units

per year
  Direct materials $ 9 $ 142,200
  Direct labor   11   173,800
  Variable manufacturing overhead   1   15,800
  Fixed manufacturing overhead, traceable   9*   142,200
  Fixed manufacturing overhead, common, but allocated   13   205,400
         
  Total cost $ 43 $ 679,400
   

 

  

 

  

 

  

 
 

 

*40% supervisory salaries; 60% depreciation of special equipment (no resale value).

 

Required:

 

1a. Assuming that the company has no alternative use for the facilities now being used to produce the thermostat, compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to two decimals and your final answers to the nearest dollar amount.Omit the “$” sign in your response.)

 

          Make         Buy
  Total relevant cost (15,800 units) $ $
 

 

1b. Should the outside supplier’s offer be accepted?
   
   

Accept

 

Reject

 

2a. Suppose that if the thermostats were purchased, Climate-Control, Inc., could use the freed capacity to launch a new product. The segment margin of the new product would be $150,720 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to two decimals and your final answers to the nearest dollar amount. Omit the “$” sign in your response.)

 

          Make         Buy
  Total relevant cost (15,800 units) $ $
 

 

2b. Should Climate-Control, Inc., accept the offer to buy the thermostats from the outside supplier for $33 each?
   
   

Reject

 

Accept

 

3.

value:

17.00 points

 

 

Miyamoto Jewelers is considering a special order for 22 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $407 and its unit product cost is $269 as shown below:
       
  Direct materials $ 143  
  Direct labor   90  
  Manufacturing overhead   36  
       
  Unit product cost $ 269  
   

 

  

 

  
   
Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $6 of the overhead is variable with respect to the number of bracelets produced. The customer who is interested in the special bracelet order would like special filigree applied to the bracelets. This filigree would require additional materials costing $5 per bracelet and would also require acquisition of a special tool costing $465 that would have no other use once the special order is completed. This order would have no effect on the company’s regular sales and the order could be fulfilled using the company’s existing capacity without affecting any other order.
Required:

 

a. What effect would accepting this order have on the company’s net operating income if a special price of $367 is offered per bracelet for this order? (Input the amount as a positive value. Omit the “$” sign in your response.)
  Net operating income (Click to select)increaseddecreased by $  
b. Should the special order be accepted at this price?
   
   

No

 

Yes

 

4.

value:

17.00 points

 

 

Sport Luggage Inc. makes high-end hard-sided luggage for sports equipment. Data concerning three of the company’s most popular models appear below.
  Ski

Vault

   Golf

Caddy

   Fishing

Quiver

    
  Selling price per unit $ 250   $ 320   $ 215    
  Variable cost per unit $ 110   $ 210   $ 155    
  Plastic injection molding machine processing    time required to produce one unit 14 minutes 13 minutes 11 minutes  
  Pounds of plastic pellets per unit 9 pounds 10 pounds 14 pounds  
   
Required:
1a. The total time available on the plastic injection molding machine is the constraint in the production process. What is contribution margin per unit of the constrained resources for Ski Vault, Golf Caddy and Fishing Quiver? (Round your answers to 2 decimal places. Omit the “$” sign in your response.)
   Ski Vault Golf Caddy Fishing Quiver
  Contribution margin $  per minute $  per minute $  per minute
 
1b. Which product would be the most profitable use of this constraint?
   
   

Ski Vault

 

Fishing Quiver

 

Golf Caddy
1c. Which product would be the least profitable use of this constraint?
   
   

Ski Vault

 

Fishing Quiver

 

Golf Caddy
2a. A severe shortage of plastic pellets has required the company to cut back its production so much that the plastic injection molding machine is no longer the bottleneck. Instead, the constraint is the total available pounds of plastic pellets. What is contribution margin per unit of the constrained resources for Ski Vault, Golf Caddy and Fishing Quiver? (Round your answers to 2 decimal places. Omit the “$” sign in your response.)
  Ski Vault Golf Caddy Fishing Quiver
  Contribution margin $  per pound $  per pound $  per pound
 
2b. Which product would be the most profitable use of this constraint?
   
   

Ski Vault

 

Fishing Quiver

 

Golf Caddy
2c. Which product would be the least profitable use of this constraint?
   
   

Ski Vault

 

Fishing Quiver

 

Golf Caddy
3 Which product has the largest unit contribution margin?
   
   

Ski Vault

 

Fishing Quiver

 

Golf Caddy

 

5.

value:

17.00 points

 

 

Solex Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $91,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. These sales values are as follows: product X, $52,000; product Y, $93,000; and product Z, $64,000.

 

     Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities. The additional processing costs and the sales value after further processing for each product (on an annual basis) are shown below:
Product Additional

Processing Costs

 Sales Value after

Further Processing

  
X $ 39,000 $ 82,000  
Y $ 39,000 $ 155,000  
Z $ 9,000 $ 81,000  
   
Required:
a. Compute the incremental profit (loss) for each product. (Loss amounts should be indicated with a minus sign. Omit the “$” sign in your response.)
         Product X        Product Y        Product Z
  Incremental profit (loss) $ $ $
 
b. Which product or products should be sold at the split-off point? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
   
   

Product X

 

Product Y

 

Product Z
c. Which product or products should be processed further? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
   
   

Product X

 

Product Y

 

Product Z

 

6.

value:

15.00 points

 

 

Glade Company produces a single product. The costs of producing and selling a single unit of this product at the company’s current activity level of 8,200 units per month are:
         
  Direct materials $ 2.10  
  Direct labor $ 2.00  
  Variable manufacturing overhead $ 0.90  
  Fixed manufacturing overhead $ 4.85  
  Variable selling and administrative expenses $ 1.00  
  Fixed selling and administrative expenses $ 1.00  
   
The normal selling price is $20 per unit. The company’s capacity is 9,300 units per month. An order has been received from a potential customer overseas for 1,100 units at a price of $17.00 per unit. This order would not affect regular sales.
Required:

 

1 If the order is accepted, by how much will monthly profits increase or decrease? (The order would not change the company’s total fixed costs.) (Input the amount as a positive value. Omit the “$” sign in your response.)
  Monthly profits would (Click to select) increase decrease by $  
2 Assume the company has 500 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places. Omit the “$” sign in your response.)
  Relevant cost per unit $  

POM Case Study

/in /by
  •    POM Case Study. Use the questions below to answer for the assignment.  Your paper should be 2-3 pages, double spaced, in APA format.
  1. Is there any difference in potential deception between Coca-Cola’s advertisers and POM Wonderful’s advertising?
  2. Why does the FTC want food and supplement makers’ claims about the health impact of their products to be substantiated with clinical trials?
  3. Do you feel that POM Wonderful—a product with known health attributes—should be subjected to the same scrutiny as drug companies if it wants to make health claims about its product?· POM Case Study. Use the questions below to answer for the assignment.  Your paper should be 2-3 pages, double spaced, in APA format.

    1. Is there any difference in potential deception between Coca-Cola’s advertisers and POM Wonderful’s advertising?

    2. Why does the FTC want food and supplement makers’ claims about the health impact of their products to be substantiated with clinical trials?

    3. Do you feel that POM Wonderful—a product with known health attributes—should be subjected to the same scrutiny as drug companies if it wants to make health claims about its product?

     

     

     

     

    Introduction

    The company POM Wonderful, LLC has become renowned for its hour-glass shaped bottles of pomegranate juice. Founded in 2002, the mission of POM Wonderful “is to introduce and supply consumers with the highest quality and best-tasting pomegranates and pomegranate food products.” The pomegranate has become particularly popular for its exotic sensory appeal and high content of antioxidants.

    The company was founded by billionaire industrial agriculture couple Stewart and Lynda Rae Resnick. Shortly after it was founded, the company’s pomegranate products took off with revenues for the company growing from $12 million to $91 million. POM Wonderful has largely based its success on marketing claims concerning its healthy attributes and its ability to help reduce chances for disease. However, in the past few years it has been challenged by the government regarding the truthfulness of its advertising claims. The Federal Trade Commission (FTC) determined that POM Wonderful had made unsubstantiated claims about its products. Although an appeals court supported the FTC’s findings, it did strike down one aspect of the FTC’s ruling, providing a partial victory to POM Wonderful and other companies that make health claims about their products.

    This case begins by giving some background information on POM Wonderful and the global market of functional food and drinks. This market has shown significant growth during the past decade, as superfruit (exotic fruit) as an ingredient has grown in popularity due to its value of combining health benefits with a good taste profile. We examine POM Wonderful’s brand positioning in the market. Next, this case describes some of POM Wonderful’s advertising claims and why they were challenged by the FTC. It concludes with a discussion of the implications this ruling will have on the advertising claims of POM Wonderful and similar companies

     

    Background

    POM Wonderful, headquartered in Los Angeles, California, produces a line of pomegranate juice and other blended juice beverages, including pomegranate juice mixed with blueberry or cherry, as well as tea of various flavors and 4.3-ounce containers of fresh pomegranate arils (the seed pods of the pomegranate). The pomegranates are grown in the central and southern San Joaquin Valley of Central California, both in the company’s own orchards as well as orchards in the surrounding area. The juice is extracted mechanically from the fruit to create its famous lines of juices.

    POM Wonderful currently has three main product categories:

    · Juices: Pomegranate, POM Blueberry, and POM Cherry.

    · Fresh Fruit: 4.3-ounce containers of fresh pomegranate arils. POM Wonderful is the largest grower of the Wonderful Variety of pomegranates in the country, owning 18,000 acres of orchard and supplying nearly 90 percent of fresh pomegranate fruit in the United States.

    · POM Tea, including Pomegranate Peach Passion White, Pomegranate Lemonade, Pomegranate Sweet, and Pomegranate Honey Green.

    Many have attributed the success of the growth of the exotic fruit segment on rising consumer interest in the health benefits of these fruits, which is partly due to the well-marketed medical evidence of relevant products. POM Wonderful’s advertising campaign is a good example of an organization that uses health food claims to significantly promote its products. As a result, it is able to position its juices as a premium product and price it higher.

     

     

    The Market for Pomegranates

    Due to the importance of a healthy diet, the global market of food and drink products that promote health benefits has been expanding. The rising awareness of health food and drinks has driven relevant products with considerable growth. Because consumers are showing more interest in their health in both the short and long term, healthier foods such as exotic fruits are becoming more popular. A healthier diet can reduce the risk of diseases and obesity.

    Today’s global functional food and drinks market is led by the United States and Japan. It is estimated that functional food and beverages make up 5 percent of the overall food market. Emerging markets including China and India are also embracing western lifestyles and attitudes toward health. The aging of the population is also playing its role in encouraging people to pay more attention to their health from a younger age. The rising attention to fruit and vegetable intake has fueled the growth of juice drinks, especially premium fruit juices.

    The pomegranate has taken off in the American market in recent years, even though it has been used as food, medicine, and a cultural icon for thousands of years in other parts of the world. The popularity of the fruit has exploded in the United States due to its high content of natural polyphenols, noted to be a powerful antioxidant. The medical acclaim it has obtained has been regarded as the biggest drive behind its success. Previous research indicates that polyphenols are powerful antioxidants that are useful in a variety of health problems, including premature aging, cardiovascular conditions, and certain types of cancer.

     

    Pom Wonderful versus Coca-Cola

    POM Wonderful has secured a strong share of the market in the pomegranate beverage area. With the success of any product comes rival brands that attempt to steal market share. As a result, market leaders tend to be aggressive in protecting their market share and ensuring that competing brands are not competing unfairly. This resulted in POM Wonderful challenging promotional claims made by Coca-Cola’s rival product, Minute Maid Pomegranate Blueberry Flavored Blend.

    In 2007 Coca-Cola introduced its pomegranate–blueberry juice blend sold through its Minute Maid division. However, despite its promotion of blueberry and pomegranate, 99.4 percent of the beverage consisted of apple and grape juices. POM Wonderful believed this was deceptive advertising and filed a lawsuit against Coca-Cola. The company claimed Coca-Cola’s promotional claims violated the Lanham Act as the name, label, marketing, and advertising of Coca-Cola’s juice blend misled consumers as to its actual content, thereby causing POM to lose sales. The case was dismissed by the Ninth U.S. Circuit Court of Appeals, claiming that these allegations were the domain of the Food and Drug Administration (FDA) and that competing firms are not authorized to sue one another for false labeling or advertising.

    POM Wonderful appealed, and the case went all the way to the Supreme Court. In 2014 the Supreme Court reversed the decision and decided that competitors can file Lanham Act claims dealing with false promotion on food or beverage labels. Despite this initial victory, a California jury later sided with Coca-Cola. It believed that POM had not proven that Coca-Cola’s claims were misleading. In addition to its failed lawsuit against Coca-Cola, POM Wonderful suffered another blow when it was accused of false advertising by the FTC.

     

     

     

    Pom Wonderful versus the FTC

    On February 23, 2010, the FDA sent POM Wonderful a warning letter claiming that the firm was promoting its juice products in ways similar to drug promotion. For instance, between 2003 and 2010 POM Wonderful claimed that its pomegranate ingredients could help combat erectile dysfunction, prostate cancer, LDL cholesterol, and length and severity of colds, as well as promote a healthy heart and prostate. The FDA determined that to make such claims, POM Wonderful must prove with the scientific rigor of the drug-approval process that POM Wonderful juice could aid in the curing, mitigation, treatment, or prevention of disease.

    In addition, the FTC ruled that POM Wonderful used deceptive advertising because these claims were not substantiated. According to the FTC, POM Wonderful based these claims on evidence that the company distorted and which were eventually refuted. Nevertheless, POM Wonderful had maintained that pomegranate juice lowers the risks of heart disease, erectile dysfunction, and prostate cancer. Its advertisements included phrases such as “Amaze Your Cardiologist” and “Drink to Prostate Health” and were placed in Parade, Fitness, and The New York Times. They were also placed on price tags and websites including pomwonderful.com, pompills.com, and pomegranatetruth.com.

    The FTC found POM Wonderful guilty of violating the Federal Trade Commission Act (FTCA) by making deceptive claims in 36 advertisements and promotions. The FTC also accused the firm of making unsubstantiated efficacy claims—or suggesting that the product works as advertised—as well as establishment claims—claims that a product’s benefits and superiority have been scientifically established. The FTC forbade the company from making any claims that its products were “effective in the diagnosis, cure, mitigation, treatment, or prevention of any disease” unless substantiated by two randomized and controlled human clinical trials. The goal of the FTC is to crack down on food and dietary supplement manufacturers that make misleading claims upon which consumers depend. The FTC desires to adopt the more stringent standards of the FDA in approving new drug products to hold food and dietary supplement makers more accountable for the protection of consumers.

    POM Wonderful appealed the ruling, and the case was taken to the U.S. Court of Appeals for the D.C. Circuit. One of POM Wonderful’s claims is that it would be too burdensome to conduct clinical trials. After examining the case, the court upheld most of the FTC’s ruling. It claimed that POM Wonderful must have substantiation before making its disease-prevention claims.

    However, POM Wonderful did achieve one partial victory. The court determined that the FTC’s requirement of two randomized and controlled human clinical trials was excessive and that one clinical trial was enough because it could provide valuable health information. The court based its decision on the Central Hudson Scrutiny test, which requires “the government, when attempting to restrict commercial speech, to prove that the interest it asserts in regulating the commercial speech is substantial, that the means the government uses to regulate speech directly advance the governmental interest asserted, and that those means are no more extensive than necessary to serve the interest.” The court also ruled that these trials do not necessarily have to meet the same rigorous standards as randomized and controlled human clinical trials and suggested that these stringent criteria might violate POM Wonderful’s First Amendment rights.

    Although it is important that companies maintain truthful and transparent communication, some believe the lawsuit against POM Wonderful was excessive. Research suggests that pomegranates are healthy, full of antioxidants, vitamin K, and potassium. Unlike drugs, which could have a harmful impact and should be studied with multiple human clinical trials, there is no evidence that pomegranate juice is potentially harmful. Therefore, critics say that the standard of going through human clinical trials should not apply to companies like POM Wonderful. There is also some evidence that pomegranates can help prevent heart disease. Nevertheless, the FTC believes it necessary to ensure that consumers are getting truthful information regarding the health claims of the products they consume.

    The decision has important implications for consumers and marketers. For marketers the POM Wonderful decision highlights the type of evidence the FTC will accept in order to make health and nutrition claims on its packaging. It might also impact consumer class-action lawsuits, which can allege that a product’s health claims are misleading if not supported by substantiated studies.

    Conclusion

    A healthy diet is becoming increasingly important for consumers, especially women aged 25–35. As a result, they are taking active steps to ensure they are eating healthy but are also looking for other traits, including convenience, natural ingredients, and sensory appeals in order to achieve their nutritional targets. This has created a market opportunity for POM Wonderful to sell an exotic product at a premium price filled with antioxidants, potassium, and other healthy ingredients. Of course, the market success of any product attracts more competitors to the market segment, either with products made with active ingredients or products with added nutrients to help improve consumer health. POM Wonderful has proactively guarded its market share. Its lawsuit against Coca-Cola’s Minute Maid product also shows it is not willing to cede market share without a fight, particularly if POM Wonderful believes the rival product is making misleading claims about its ingredients.

    On the other hand, the FTC ruled that POM Wonderful was guilty of false advertising with its health-related claims. Because it did not conduct human trials, the claims that pomegranate juice can help fight prostate cancer and prevent heart disease cannot be substantiated, according to the FTC. POM Wonderful tried to appeal to the U.S. Supreme Court, but the Supreme Court refused to hear the case. This ruling will have a broad impact on the food industry, and food companies will need to be more careful with their product labeling. It remains to be seen how it will affect POM Wonderful now that it cannot make these advertising claims without human trials. However, if the interest in pomegranates continues to remain high, then POM Wonderful is likely to get past these challenges and persist in its market success.

    Questions for Discussion

    1. Is there any difference in potential deception between Coca-Cola’s advertisers and POM Wonderful’s advertising?

    2. Why does the FTC want food and supplement makers’ claims about the health impact of their products to be substantiated with clinical trials?

    3. Do you feel that POM Wonderful—a product with known health attributes—should be subjected to the same scrutiny as drug companies if it wants to make health claims about its product?