(Done Paper) Referencing Styles : Harvard East Coast Marine Ltd (ECM) manufactures parts for small marine craft. Over the past decade, ECM’s management has met

(Done Paper) Referencing Styles : Harvard East Coast Marine Ltd (ECM) manufactures parts for small marine craft. Over the past decade, ECM’s management has met

East Coast Marine Ltd (ECM) manufactures parts for small marine craft. Over the past decade, ECM’s management has met its goal of reducing its reliance on government contract work to 50 per cent of total sales. ECM is now equally reliant on commercial sales and government contracts. Traditionally, the costs of the Material Handling Department have been allocated to direct material as a percentage of direct material dollar value. This was adequate when the majority o … View More East Coast Marine Ltd (ECM) manufactures parts for small marine craft. Over the past decade, ECM’s management has met its goal of reducing its reliance on government contract work to 50 per cent of total sales. ECM is now equally reliant on commercial sales and government contracts. Traditionally, the costs of the Material Handling Department have been allocated to direct material as a percentage of direct material dollar value. This was adequate when the majority of the manufacturing was homogeneous and related to government contracts. Recently, however, government auditors have rejected some proposals, stating that ‘the amount of Material Handling Department costs allocated to these proposals is disproportionate to the total effort involved’. Eloise Smith, the newly hired cost accounting manager, was asked by the manager of ECM’s Government Contracts Unit, Paul Jones, to find a more equitable method of allocating the Material Handling Department costs to the user departments. Her review has revealed the following information: ? The majority of the direct material purchases for government contracts are high-dollar, low-volume purchases, while commercial materials represent low- dollar, high-volume purchases. ? Administrative departments such as Marketing, Finance and Administration, Human Resources and Maintenance also use the services of the Material Handling Department on a limited basis but have never been charged in the past for material handling costs. ? One purchasing manager with a direct phone line is assigned exclusively to purchasing high-dollar, low- volume material for government contracts on an annual salary of $36 000. Employee on-costs are estimated to be 20 per cent of the annual salary. The annual costs of the dedicated phone line are $2800. ? The components of the Material Handling Department’s budget for the coming year, as proposed by Lindley’s predecessor, follow. Payroll $180000 Employee on-costs 36000 Telephone 38000 Other utilities 22000 Materials and supplies 6000 Depreciation 6000 Direct material budget: Government contracts 2006000 Commercial products 874000 Smith has estimated the number of purchase orders to be processed in the coming year as follows: 2 * Exclusive of high-dollar, low-volume materials. Smith has recommended to Jones that material handling costs should be allocated on a per purchase order basis. Jones realises that the company has been allocating to government contracts more material handling costs than can be justified. However, the implication of Smith’s analysis could be a decrease in his unit’s earnings and, consequently, a cut in his annual bonus. Jones told Smith to ‘adjust’ her numbers and modify her recommendation so that the results will be more favourable to the Government Contracts Unit. Being new in her position, Smith is not sure how to proceed. She feels ambivalent about Jones’ instructions and suspects his motivation may not be in the best interest of ECM. To complicate matters for Smith, the company’s new managing director has asked her to prepare a three-year forecast of the Government Contracts Unit’s results, and she believes that the newly recommended allocation method would provide the most accurate data. However, this would put her in direct opposition to Jones’ directives. Smith has assembled the following data to project the material handling costs over the next three years: ? The number of purchase orders increases 5 per cent per year. ? The rati

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By | 2018-08-25T18:19:20+00:00 August 25th, 2018|Business|