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Analysis Process

Kyle Everhart, Louie Mendez, Samaly Rodriguez, Sarah Collum,

Svetlana Savina, Valanda Crew

March 13, 2017

Mr. Walsh

ACC/349

Analysis Process

Applying General Ledger Data

Dear, Mr. Beridon we have reviewed your company's general ledger, and it seems we will be able to help guide you on the right path of improving your company's income. First off, we would like to review your contribution income statements and other inventory records to make a decision if it is wise to stop producing sod. There is a possibility that sod could be more profitable but costs are getting distributed wrong, and it may seem that sod does not produce a lot of income. We would recommend applying activity-based costing and using two different methods to review the outcome such as Nonmanufacturing Costs and ABC and Manufacturing Costs and ABC. Since currently, the company is using traditional absorption costing which could cause missing selling, distributing, and servicing specific products. ABC will include manufacturing and nonmanufacturing costs when calculating the entire cost of the product rather than just the manufacturing. Also, we could look at distribution for security wage, controller's salary, and cost of supply used by the manager, this expenses could be used as period expenses rather than products costs.

Production Inquiry

The ABC method will provide cost information that will affect Mr. Beridon’s decision on whether to discontinue the sod portion of his business. There are a few questions that will be posed so that the firm can assist in building a proper analysis. How many trees are grown and how long does it take for them to be ready for sale? How much sod is grown and how long does it take for it to be ready for harvest? What tools or machinery is used for each product and what does it cost to maintain them? What quantity of material is required for each and what does it cost? How many labor hours does each product demand? The answers will help determine how much it cost to produce each product.

Other Information to Gather

Since Activity Based Costing is an accounting method that allows business to assign the cost to certain activities it is important to have the proper data to find the correct cost of an activity or product and how much profit it earns. The data that is required to correctly show these cost and profits can be vast and from many different areas. What is most important though is data that shows cost like utilities, materials, and other elements of each activity that cost money. Without this data, a team could not determine the proper cost per unit or activity. Gathering all data on fixed and variable cost are a must, as well as understanding the data for the material, shipping, and labor cost.

Information Helping Analysis

This additional information could help in this analysis as it will allow the company to make precise decisions. These decisions are best made when more details are provided, and all factors are considered. This information will enable the company to not only deliver realistic options but also identify what is working and what is not. In turn, the company will offer viable, achievable, and cost-effective solutions.

Deciding a Final Recommendation

When deciding on a final recommendation to Mr. Beridon, the firm will see if ABC is the best method of costing for Mr. Beridon and his company. The firm will also look at the advantages and disadvantages of the ABC method. The firm will look at the answers to the questions proposed to Mr. Beridon about his company. The firm will also take into account the revenue coming in and the cost being used through the company and going out of the company.