Analyze Performance Measurement; Cost Accounting Standards
Performance Measurement; Cost Accounting Standards; Ethics Callum Company is a diversi- fied manufacturing firm with company headquarters in St. Louis. The three working divisions are the aerospace division, the ceramic merchandise division, and the glass merchandise division.
A lot of the manufacturing exercise of the aerospace division is said to work carried out for the Nationwide Aeronautics and Area Administration (NASA) underneath negotiated contracts. The contracts present that value shall be allotted to the contracts in accordance with the federal authorities’s Cost Accounting Standards (as promulgated by the Cost Accounting Standards Board and administered by the Basic Accounting Workplace).
Callum Company headquarters present basic administrative help and laptop providers to every of the three working divisions. The Cost Accounting Standards present that the price of gen- eral administration could also be allotted to negotiated protection contracts. Additional, the requirements present that in establishments the place laptop providers are supplied by company headquarters, the precise prices (fastened and variable) of working the pc division could also be allotted to the protection division primarily based on an inexpensive measure of laptop utilization.
One other provision of the Cost Accounting Standards offers with the state of affairs through which a protection division acquires noncommercial parts from a sister division. The requirements present that when there is no such thing as a established market value for the element, the element should be transferred to the protection division at value with out a markup for revenue. This provision of the requirements applies to Callum Company as a result of the aerospace division purchases customized ceramic parts from the ceramic merchandise division. There is no such thing as a established market value for these customized parts.
The overall managers of the three divisions are evaluated as revenue heart managers primarily based on the before-tax revenue of the division. The November 2010 efficiency analysis studies for every of the divisions (in hundreds of thousands of ) are proven within the following desk:
|
Aerospace Division |
Ceramic Merchandise Division |
Glass Merchandise Division |
|
| Gross sales |
$23.zero |
$15.zero* |
$55.zero |
| Cost of products bought |
13.zero |
7.zero |
38.zero |
| Gross revenue |
$10.zero |
$ eight.zero |
$17.zero |
| Promoting and administration: Division promoting and administration |
$ 5.zero |
$ 5.zero |
$ eight.zero |
| Company-general administration |
1.zero |
– |
– |
| Company-computing |
1.zero |
– |
– |
| Complete promoting and administration |
$ 7.zero |
$ 5.zero |
$ eight.zero |
| Revenue earlier than taxes |
$ three.zero |
$ three.zero |
$ 9.zero |
* Consists of $three,000,000 of customized ceramic merchandise bought to aerospace division at value and the rest ($12,000,000) bought to the glass merchandise division and outdoors clients at established market costs.
Required
1. Assessment the November efficiency analysis studies for the three working divisions of Callum Company.
a. Determine particular situations the place the federal authorities’s Cost Accounting Standards have influenced Callum’s divisional efficiency reporting.
b. For every particular occasion recognized, talk about whether or not using accounting practices primarily based on Cost Accounting Standards is fascinating for inside reporting and efficiency analysis.
2. Contemplating the accounting practices and reporting strategies presently employed by Callum Company, describe the improper determination making that might outcome for the corporate as an entire if the demand for industrial (nondefense associated) ceramic merchandise is the same as or better than the productive capability of the ceramic merchandise division.
three. And not using a cost for computing providers, the working divisions could not take advantage of value efficient use of the sources of the pc techniques division of Callum Company. Define and talk about strategies for charging the working divisions for using laptop providers that may promote value consciousness by the working divisions and working effectivity by the pc techniques division.
