Who is adept in accounting?

Accounting 231

Summer 2017, Second Session

Case Study Project

This case study project will require students to analyze and communicate potential solutions to a business scenario based upon the managerial accounting concepts learned throughout the class. Students will be expected to correctly identify the problem, to create and analyze managerial accounting information, and to propose solutions using concepts from the class. The case and all necessary information are detailed below.

Students will need to craft responses to the questions and prompts found within the case based on the information provided. A written response in memo format will be prepared and submitted. The memo should be approximately 500 words in length (two pages double-spaced). Any necessary tables or calculations should be attached at the end of the memo or as a separate document, and they are not a part of the word count.

If any resources outside of the class material are used, please cite them. Any standard citation format may be used (MLA, APA, Chicago, etc.) Students are welcome to discuss the case with one another, but each student must write and submit their own memo. Plagiarism will not be tolerated, including using material from sources that have not been cited. Any such violations will result in a zero on this assignment and may be reported to the Office of Student Standards and Accountability per the syllabus.

All submissions must be made through Blackboard. Documents submitted must be in Word, plain text, or Excel format. The project is due at 11:59 P.M. on Saturday, July 29th. Late submissions will be accepted, but one point (2% of the assignment grade) will be deducted for every hour that the assignment is late.

Grading Rubric

Case Information

The Caldwell Copper Company manufactures several different products from raw copper. Its products include copper wire, copper pipes, and copper pots & pans. The Chief Executive Officer, Catherine Caldwell, has noticed that net operating income is down even though sales have increased. You have been hired as a consultant to help Ms. Caldwell figure out what happened and to provide suggestions for improvement. She has provided you with the following information from the companies operations. This information includes an income statement showing the financial results from 2016 and 2015 and a list of standard costs and activity rates for each product line.

Ms. Caldwell would like to know why profits have been down even though sales are up. She tells you that the company increased its advertising budget by 20% in an attempt to generate more sales and that an additional finished goods warehouse was rented for $3,000 per year to store the extra inventory. Glancing at the income statement, Ms. Caldwell is unsure where the problem lies. She is aware that some of the actual expenses differed from what was budgeted and provided the following information of the actual activity and costs. She would like you to confirm where the variances occurred and make some suggestions on how to capitalize on any positive variances and correct and negative ones.

Given the issues experienced in the company’s operations, Ms. Caldwell would like to consider making some changes in the production processes. Specifically, she has looked into increasing the automation, and the company’s bank has extended a line of credit for that purpose in the amount of $1.5 million. Ms. Caldwell has researched the potential costs of the machines that would need to be purchased and estimated the changes in the standard costs if the automation is introduced. The machines would be entirely purchased in the current year, and each piece of equipment would have a useful life of 5 years and a salvage value equal to 5% of the purchase price. The new equipment would significantly reduce the labor requirements and also provide some increases in materials efficiency, but there would be a significant increase in machine hours. Based on current financial conditions, the discount rate for future cash flows is 17%, which accounts for the interest on the line of credit.

Ms. Caldwell would like to know which product lines, if any, she should automate based on the potential cost savings over current standard production costs. In order to understand your recommendation, she will need a short description of the method and a justification of the criterion used to make the decision.

Thinking about these issues and the potential changes, Ms. Caldwell is concerned that the company is not efficiently tracking its overhead costs. In addition to the activities listed previously, there are three primary departments within the company: smelting, shaping, and finishing. The smelting department prepares raw copper for further processing. The shaping department uses machines to mold and forge the copper into the desired shapes. Finally, in the finishing department workers remove scraps and remnants of the manufacturing process and package the goods. The estimated overhead usage by department is listed below along with activity levels within each department both with the automation and without. Based on the preceding activity information and the departmental information, Ms. Caldwell would like for you to suggest a new costing system for the company and to determine the new standard costs for the company based on the current total manufacturing overhead costs of $750,000. Also, given the previous issues, she would like to keep the system relatively simple and so would not like to have more than three overhead rates to keep track of.