MARGARITA C.

TABAG JUNE 3, 2014

MAN ACC RCBC (ESCARTIN) Case 1: GOMEZ ELECTRONICS, INC.



SUMMARY OF FACTS:

Gomez Electronics, Inc. produces CD players. They have three models out in the
market. The company also has 3 major departments producing these products:
component assembly, chassis assembly, and final assembly. Model A and B is
produced by all 3 departments. Model C is only produced by the final assembly
department. In fact, Model C was only ever produced by the company after realizing in
1999. that the third departments capacity needs to be fully utilized. In fact, even when
producing Model C, the final assembly department is only at about 50% physical
capacity for a single shift.

In 2003, Gomez Electronics received a proposal from a discount company that
would allow them to supply 5,000 CD players much like Model C. Projected deliveries
would be at 1,000 CD players each month starting March of the same year. The
difference between Model C (cost at $37) and this discounted CD player would be a
cheaper plastic case that would bring down the cost at least $2 per player. The proposal
detailed that the discount company is offering to buy it for $28.75 each.

With that being said, the facts reveal that Gomez Electronics uses a full-cost,
standard costing system. These costs were revised on an annual basis. It highlighted
that ending inventories were also costed at standard costs. During the time the proposal
from the discount company was received by Gomez Electronics, the company president
was already evaluating if it would be beneficial for the company to change their costing
system to a direct costing system.


PROBLEM:

The Gomez Electronics, Inc. case has two main objectives. These two objectives
are related to evaluating performance and current business opportunities; as well as,
the companys cost accounting methods.

The case endeavors to answer these two major questions:
1. Should Gomez Electronics, Inc. shift to a direct costing system instead of a
full costing system?
2. Considering costs of production, will the proposal made by the discount
company profitable for Gomez Electronics, Inc?

In order to address these problems and objectives, the case requires the
preparation of comparative income statements, using the two cost systems and
evaluate the company performance using the two income statements.
MARGARITA C. TABAG JUNE 3, 2014
MAN ACC RCBC (ESCARTIN) Case 2: MONROE CLOCK COMPANY



SUMMARY OF FACTS:

Monroe Clock Company was founded in 1985 by its current president, Jim
Monroe. Although the company was sold in 1998 to Piedmont Appliance Corporation,
Mr. Monroe still serves as the companys head.

Monroe actually specialized in making decorative electric clocks, but in 1992, the
company shifted its focus to electric timing mechanisms. These mechanisms are though
to be accurate, durable and inexpensive. Currently, the make three different models
of these timing mechanisms. Since their product shift, the company has said to have
grown at least $50 million in sales. The products are sold in Piedmont Appliance and by
other retailers.

After a house burglary in 2000, the company developed a new household timing
device that would allow the automatic turning on or off of designated lights in the home.
This Monroe timer has two options: 1. A 48-hour cycle (lights would turn on or off each
day during at different times) and 2. A 24-hour cycle (lights would turn on or off at the
same time).

Since market competition is heavy and the sales manager wasnt certain as to
the value of these new options to the product, pricing is said to be very crucial. Of
course, before a company can effectively price a product or service, they need to
determine first and foremost the costs of production. This becomes tricky because the
new Monroe timers are produced differently than the existing products and
management isnt sure how to properly distribute overhead expenses. Due to this, cost
centers were set up, each with its own overhead rate: fabrication, machining, and
assembly. Direct labor costs were also divided among the three cost centers. Of the
three, the machining cost center is said to be the highest. The company wants to
compute cost for the new timers using the cost centers and the overhead rates. The
company also wants to factor in the cost-benefit of advertising with a target rate of
$85,000.

PROBLEM:

This case has two major problems:

1. What is the cost of the new household timer using the new overhead rates on a
fully allocated basis?
2. If the target contribution is at $85,000, including advertising, how many timers
would have to be sold at $8, $10, $15 to achieve that contribution to fixed costs
and profits.