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I.G. Farben, Mammas Manufacturing, North Korean Nuclear

1. I.G. Farben has 600 units in works in progress and 500 units in finished inventory. The following represents a snippet of their balance sheet. How might you improve their management of assets? Pay particular attention to JIT, TQM, process reengineering, and financial strategies. What else could you suggest to enhance the organizational performance?

Current Assets Current Liabilities

Cash & Equivalents 100,000
Accounts Receivable 2,500,000 Accounts Payable 1,000,000
Inventory Notes Payable 20,000,000
-Raw Material 369,000
-Works in Progress 5,440,000
-Finished Goods 7,000,000

2. Given the following raw data from Mammas Manufacturing, construct the cost of goods manufactured

Advertising Expense 120,000
Depreciation: office equipment 5,000
Depreciation: factory equipment 20,000
Direct Labor Cost 10,000
Purchases of Raw Materials 80,000
Supplies: Factory 1,500
Utilities: Factory 14,870
Rent: Factory 24,000
Sales Commission 93,000
Maintenance Factory 2,300
Indirect Labor 24,600

Inventory Start of Period End of Period
Raw Material 4500 12000
Works in Progress 6000 20000
Finished Goods 50,000 10,000
3. The latest annual data for North Korean Nuclear Enterprises is in the following table. Assuming a predetermined overhead rate of 5 per machine hour and a total usage of 10,000 machine hours, compute the amount of under or over applied overhead cost for the year.

Manufacturing overhead
Property Tax: factory 3000
Utilities: factory 4000
Indirect labor 11000
Depreciation: factory 20000
Insurance: factory 6000
Total actual Manufacturing overhead 44000

Other Costs Incurred
Purchases of raw materials 30000
Direct labor 42000

Inventories
Raw materials: start of period 8000
Raw materials: end of period 7000
Work in Progress: start of period 6000
Work in Progress: end of period 8000
4. Ruger has the following cost relationships at sales of 5,000 units at $2.00 per unit.

Administrative expense $1000 + 0.10 per unit

Selling Expense $500 + 0.50 per unit if unit sales are less than 4000
$1 000 + 0.25 per unit if unit sales are greater than 4000

Production $1000 if sales are 0
$1500 if sales are between 0 and 3000
$2000 if sales are between 3000 and 6000
$2500 + 0.05 per unit if sales are greater than 6000

Create a contribution and a traditional income statement. What are the advantages and disadvantages of each?
5. Dred Scott Enterprises has sales of 10,000 units at $1,000 each. Its variable expenses are $200 per unit and fixed expenses are $500,000 if production is under 11,000 units and $1,000,000 if production is greater than or equal to 11,000. Marketing proposes they spend an additional $10,000 and that sales will increase to 11,500. Should you agree to the marketing department's proposal. Compute the BEP and contribution margin under both scenarios. Should you, as CEO, agree to marketing's proposal? Justify your answer.

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1. I.G. Farben has 600 units in works in progress and 500 units in finished inventory. The following represents a snippet of their balance sheet. How might you improve their management of assets? Pay particular attention to JIT, TQM, process reengineering, and financial strategies. What else could you suggest to enhance the organizational performance?

Current Assets Current Liabilities

Cash & Equivalents 100,000
Accounts Receivable 2,500,000 Accounts Payable 1,000,000
Inventory Notes Payable 20,000,000
-Raw Material 369,000
-Works in Progress 5,440,000
-Finished Goods 7,000,000

I.G. Farben should increase the average collection period in order to collect the accounts receivable faster and tighten the credit given to the customers so that the balance in the accounts receivable will be lower. Moreover, we can also see that the balances of work in progress and finished goods in the inventory section are very high. I.G. Farben should consider implementing JIT inventory system, whereby the company will receive the supplies from the suppliers on time when they receive the order from the customers and distribute the products directly to the customers after completion without keeping the finished goods in their warehouse. It will make their balances in works in progress and finished goods to be lower.
2. Given the following raw data from Mammas Manufacturing, construct the cost of goods manufactured

Advertising Expense 120,000
Depreciation: office equipment 5,000
Depreciation: factory equipment 20,000
Direct Labor ...

Solution Summary

This solution is comprised of a detailed explanation to answer how might you improve their management of assets, pay particular attention to JIT, TQM, process reengineering, and financial strategies, what else could you suggest to enhance the organizational performance, construct the cost of goods manufactured, compute the amount of under or over applied overhead cost for the year, create a contribution and a traditional income statement, what are the advantages and disadvantages of each, compute the BEP and contribution margin under both scenarios, and should you, as CEO, agree to marketing's proposal.

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