Assignment Instructions/ Description
Assignment:Integrating the different projects To give greater continuity between the projects, please add the following paragraph at the very beginning of Project 3: At IPS you spend the first few years analyzing the industry, comparing your firm’s financial health to other firms in the industry and making sure that the financial statements are accurate. After a while you start exploring the other areas of accounting and finance work in the firm. You realize that accounting information is not only needed by external stakeholders for evaluating the firm, but also by management to judge the efficiency and optimality of operations. Your work expands to include Managerial Accounting."Congratulations!"You have been promoted to the CFO position at IPS! You have hardly settled into your new office when the CEO asks you to prepare a financial report on the proposed Android01, as well as the MiniX and MiniY.$2M has already been spent on market research, and IPS wishes to determine if the new Android01 component be produced in a way that will yield a profit."As you know," the CEO says, "there are different ways of allocating fixed overhead costs and our choice will affect the cost-per-unit of Android01." He continues, "I hope you can help us understand the different choices and how they'll impact our business."Your prior manufacturing experience makes you think that examining an alternative method of assigning costs would also be prudent since Android01 shares component assembly with a related product — Processor01.In your conversation with the IPS production manager, he alludes to the fact that a 30 percent markup is standard at IPS. While you're at it, you look for information on the variable costs per unit for different levels of production so you can provide a recommendation on what level of output will maximize profit.Thinking you've got everything covered, you decide to take a break. Just as your lunch arrives, you get a call from your CEO: "I almost forgot to ask you about the Mini line!"The CEO continues, "The new MiniY product has been so successful that we would like to increase production. We will need a budget projection. Also, the shared production costs for the Mini line have affected the value of our premiere product, the MiniX — I would like you to provide me with a profit or loss figure for the MiniX as well.As you scramble to take notes, she continues: "I'll need a report summarizing your findings and projections."This project will require you to analyze operations costs for the organization using managerial finance techniques. You will next determine the level of production and prices that maximize the firm's profit. Finally, you will prepare a financial budget for the firm and present your recommendations.Begin by going to Step 1: Allocation of Costs.
Step 1: Allocate CostsYou have been asked to look at production options for the Android01 since production methods and allocation of costs have implications for cost-per-unit. There are two alternative methods of production being considered. Begin by gathering data (using financial information in decision making), then answer various questions to determine the suitability of the project.Production ACosts are as follows:• $4.5 million per year in rent for factory and machinery• components and labor in the amount of $12 million will produce 300 units per yearProduction BIn an alternative production method, the production of Android01 will share some production facilities and service divisions with Processor01. Fixed costs are $5 million per year, and are to be assigned at the rate of 30 percent to Android01 and 70 percent to Processor01.The variable cost of the production facilities and service divisions is $20 million per year. The square footage of factory space and labor needed for the production of 500 units of Processor01 and 300 units
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