Discuss instances federal government’s Cost Accounting Standards have influenced Callum’s divisional performance
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) beneath negotiated contracts. The contracts present that value shall be allotted to the contracts in accordance with the federal government’s Cost Accounting Standards (as promulgated by the Cost Accounting Standards Board and administered by the Normal Accounting Workplace).
Callum Company headquarters present common 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 during which a protection division acquires noncommercial elements from a sister division. The requirements present that when there is no such thing as a established market value for the part, the part have to be transferred to the protection division at value with no markup for revenue. This provision of the requirements applies to Callum Company as a result of the aerospace division purchases customized ceramic elements from the ceramic merchandise division. There isn’t any established market value for these customized elements.
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 performance analysis studies for every of the divisions (in tens of millions 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 offered
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
* Contains $three,000,000 of customized ceramic merchandise offered to aerospace division at value and the rest ($12,000,000) offered to the glass merchandise division and outdoors clients at established market costs.
Required
1. Assessment the November performance analysis studies for the three working divisions of Callum Company.
a. Determine particular instances the place the federal government’s Cost Accounting Standards have influenced Callum’s divisional performance reporting.
b. For every particular occasion recognized, focus on whether or not using accounting practices primarily based on Cost Accounting Standards is fascinating for inner reporting and performance analysis.
2. Contemplating the accounting practices and reporting strategies at the moment employed by Callum Company, describe the improper choice making that would consequence for the corporate as a complete if the demand for industrial (nondefense associated) ceramic merchandise is the same as or higher than the productive capability of the ceramic merchandise division.
three. With out a cost for computing providers, the working divisions might not take advantage of value efficient use of the assets of the pc techniques division of Callum Company. Define and focus on strategies for charging the working divisions for using laptop providers that might promote value consciousness by the working divisions and working effectivity by the pc techniques division.
