I find this a very rich case that makes for a great introduction to my course. To get the most out of it, you need to spend some time thinking about what the company does. Read the case carefully.
1. What does Patten Corporation do? What does it buy? What goods or services does it sell? How does Patten make money?
2. Is Patten profitable or unprofitable? If it is profitable, what does the company do that makes it profitable? If profitable, is it likely to remain profitable? If not profitable, why not? If not profitable, will it ever become profitable? Why or why not? Is it cash flow positive or cash flow negative? If cash positive, why? Is it likely to remain cash positive? If cash negative, why? How long is it likely to remain cash negative? What inferences do you draw from Patten’s profits and cash flows?
3. If you ran Patten Corporation, would you be concerned about the company’s current performance? What issues would keep you awake at night?
4. How does Patten recognize revenues? Do you agree or disagree with this revenue recognition policy? If you disagree, what alternative revenue recognition policy would you propose using? Why is the revenue recognition policy you recommend better than Patten’s current revenue recognition policy?
Bridgeton Industries: Automotive Component & Fabrication Plant
This case is a terrific preview to many of the subjects we will discuss in the course. Read the case and work through the following questions to help you get familiar with the numbers. Pay particular attention to question 6.
1.The overhead allocation rate used in the 1987 model year strategy study at the Automotive Component & Fabrication Plant (ACF) was 435% of direct labor dollar cost. Calculate the overhead allocation rate using the 1987 model year budget. Calculate the overhead allocation rate for each of the model years 1988 through 1990. Are the changes since 1987 in overhead allocation rates significant? Why have these changes occurred?
2.Consider two products in the same product line:
| |Product 1 |Product 2 | |Expected Selling Price |$62 |$54 | |Standard Material Cost |16 |27 | |Standard Labor Cost |6 |3 |
Calculate the expected gross margins as a percentage of selling price on each product based on the 1988 and 1990 model year budgets, assuming selling price and material and labor cost do not change from standard.
4.Are the product costs reported by the cost system appropriate for use in the strategic analysis?
5.Assume that the selling prices, volumes, and material costs for the 1991 model year will not change for fuel tanks and doors produced by the ACF of Bridgeton Industries. Assume also that if manifolds are produced, their selling prices, volume, and material costs will not change either.
6. Prepare an estimated model year budget for the ACF in 1991
(1)if no additional products are dropped; and (2)if the manifold product line is dropped.
Explain any additional assumptions you make in preparing your estimated model year budgets.
b.What will be the overhead allocation rate under the two scenarios?
7. Assume you have been hired as a consultant by Bridgeton Industries to advise the company as to whether or not the company should outsource manifolds. Would you outsource manifolds from the ACF in 1991? Why, or why not?
Siemens Electric Motor Works (A)
1. Calculate the cost of the five orders in Exhibit 4 under the traditional and new systems. Hint: Firs calculate the cost of processing an order and handling a special component.
2. Calculate traditional and new system costs for...