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Accounting in the Organization

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Lava Rock Bicycles, headquartered in San Miguel, California builds bikes for novice to mid-level cyclists, triathletes, and world-class athletes interested in cross-training. Lava Rock is beginning its 6th year of business. It continues to grow its product line and target customer market and it recently became a public company by issuing shares of stock in the NASDAQ exchange.

Each bike is made of a frame, a seat, a set of handlebars, gears & shifting system, brake system, aero bars, 2 wheels, and 2 tires. The selling price varies by model and specific components used to build the bike. Variable costs commonly include:

component parts, packaging, etc.
production labor
sales commissions (percentage or per unit basis)
other costs allocated on a per unit basis
Lava Rock produces 3 models of bikes (mid-level triathlon (Kona model), entry-level triathlon (Hilo model), and mid-level road cycle (Paris model)). The mid-level models have a greater profit margin but lower sales volume than the popular entry-level triathlon bike. Its bikes are sold directly by Lava Rocks and through independent distributors (typically bike shops and mail-order companies).

Lava Rock Bicycles tries to produce approximately the same number of bicycles it expects to sell in a given period of time. However, it cannot always accurately predict the market. If it manufactures too few cycles, it loses sales. However, because each cycle model improves each year, when Lava Rock Bicycles manufactures too many bikes, it may not be saleable. Lava Rock Bicycles may have to sell its products at a discount or even at a loss to liquidate its inventory. To reduce inventory costs, management is considering implementing a "Just In Time"(JIT) inventory management.

Goals for the next year are to grow the business to other regions, increase profit margin, and expand its product line.

Phase 1 - Accounting in the Organization

Task 2
Task Type: Individual Project Date Due: 2/18/2005
Points Possible: 150 Project Duration:
Deliverable Length: 2-3 pages

The Vice President of Operations would like to increase profitability, improve customer service, and expand the business. Even though the external accounting department spends 5 days preparing each quarter's financial statements and disclosures, she does not examine those financial statements issued to the company shareholders.

You are to attend an afternoon meeting to discuss why this is the case. You have been assigned the task of examining the pertinent information and proposing two recommnedations for the Vice President. These recommendation are to take effect at the end of the quarter.

Create a presentation outlining your recommendations. Include all your supporting material.

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Solution Preview

(Ps: presentation is attached to the answer in lavarock.ppt )

First of all the decision of The Vice President of Operations is appropriate in this situation

because the financial statements for publicly traded companies are presented in accordance with

Generally Accepted Accounting Principles (GAAP). Application of GAAP can vary from case to

case, and the alert reporter should keep this caution in mind, always questioning the assumptions

behind a company's numbers. GAAP is more like an art form rather then a science for most of

the accountants. External accounting reports involve accountants' favor conservatism,

understating assets and income, and overstating liabilities and expenses. Thus it ...

$2.19