Cat Memo

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Catawba Industrial Company
Assignment Questions and
Memo Instructions

1.Is the company correct in its practice of not manufacturing standard model compressors on Sundays because of the accounting loss incurred on each unit?

2.The compressor department and its manager are evaluated based on profit. Compute the compressor department profit with and without Sunday production.

3.If Marge McPhee decides to manufacture ten light-weight compressors each week and to sell them at a price of $8,000, how much better or worse off financially would Catawba be?

4.What weekly production plan for standard and light weight compressors would result in the highest financial return for Catawba? That is, how many of each product should Catawba produce each week?

Assume that you have been hired by Marge McPhee to help with the three decisions she must make: (1) whether to produce on Sunday, (2) whether to produce any light-weight compressors, (3) how many of each compressor should be manufactured each week. You will recommend and justify a course of action for each decision. McPhee wants to make the right decision for herself and her division, which is treated as a profit center and evaluated based on profit as computed in Exhibit 2. However, the correct decision model and her best interests (in terms of short term performance measurement) may not agree. As an accountant, you must inform her of this inconsistency and explain it so that she can, in turn, explain it to owners or top management. Be sure to discuss all the assignment questions within your written analysis. You will need to determine the optimal volume and price to choose the correct production schedule. See Table 1.

Memo Instructions

1.The memo is an individual project, so you are expected to work on it yourself without seeking any one’s help other than the instructor. You should bring TWO complete copies of the memo and any exhibits to class. All assignments must be handed in by...
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