ACCTBA3 WRITTEN GROUP BUSINESS CASE ANALYSIS

Term 3, Academic Year 2018-2019

“Alberta Gauge Company, Ltd.”

Alberta Gauge Company, Ltd., a small manufacturing company in Calgary, Alberta,

manufactures three type of electrical gauges used in a variety of machinery. For many years the
company has been profitable and has operated at capacity. However, in the last two years,
prices on all gauges were reduced and selling expenses increased to meet competition and keep
the plant operating at capacity. Second-quarter results for the current year, which follow, typify
recent experience.

ALBERTA GAUGE COMPANY, LTD.

Income Statement
Second Quarter
(In thousands)

Q-Gauge E-Gauge R-Gauge Total

Sales P1,600 P900 P900 P3,400
Cost of goods sold 1,048 770 950 2,768
Gross profit 552 130 (50) 632
Selling and administrative expenses 370 185 135 690
Income before taxes P182 (P55) (P185) (P58)

Alice Carlo, the company’s president, is concerned about the results of the pricing, selling and
production prices. After reviewing the second-quarter results, she asked her management staff
to consider the following three suggestions:

• Discontinue the R-gauge line immediately. R-gauges would not be returned to the
product line unless the problems with gauge can be identified and resolved.
• Increase quarterly sales promotion by P100,000 on the Q-gauge product line in order to
increase sales volume by 15 percent.
• Cut production on the E-gauge line by 50 percent, and cut the traceable advertising and
promotion for this line to P20,000 each quarter.

Jason Sperry, the controller, suggested a more careful study of the financial relationship to
determine the possible effects on the company’s operating results of the president’s proposed
course of action. The president agreed and assigned JoAnn Brower, the assistant controller, to
prepare an analysis. Brower has gathered the following information.

• All three gauges are manufactured with common equipment and facilities.
• The selling and administrative expense is allocated to the three gauge lines based on
average sales volume over the three years.
• Special selling expenses (primarily advertising, promotion, and shipping) are incurred for
each gauge as follows:
 Quarterly Advertising
and Promotion Shipping Expenses
Q-gauge P210,000 P10 per unit
E-gauge 100,000 4 per unit
R-gauge 40,000 10 per unit

• The unit manufacturing cost for the three products are as follows:

R-Gauge E-Gauge R-Gauge

Direct material P31 P17 P50
Direct labor 40 20 60
Variable manufacturing overhead 45 30 60
Fixed manufacturing overhead 15 10 20
Total P131 P77 P190

• The unit sales prices for the three products are as follows:

Q-gauge P200
E-gauge 90
R-gauge 180

• The company is manufacturing at capacity and is selling all the gauges it produces.

INSTRUCTIONS:
1. This is a group business case. Maximum of 5 members.

2. From the information gathered in the case, the group must then submit a written report
forming analysis, conclusions and recommendations. Incorporate the answers to the
following guide questions:

a. JoAnn Brower says that Alberta Gauge Company’s product-line income statement for
the second quarter is not suitable for analyzing proposals and making decisions such
as the ones suggested by Alice Carlo. Discuss the reasons to Alberta Gauge’s
president the following points:
§ Explain why the product-line income statement as presented is not suitable for
analysis and decision making.
§ Describe an alternative income-statement format that would be more suitable for
analysis and decision making, and explain why it is better.

b. Use the operating data presented for Alberta Gauge Company and assume that the
president’s proposed course of action had been implemented at the beginning of the
second quarter. Then evaluate the president’s proposal by specifically responding to
the following points.
 § Are each of the three suggestions cost-effective? Support your discussion with an
analysis that shows the net impact on income before taxes for each of the three
suggestions.
§ Was the president correct in proposing that the R-gauge line be eliminated?
Explain your answer.
§ Was the president correct in promoting the Q-gauge line rather than the E-gauge
line? Explain your answer.
§ Does the proposed course of action make effective use of the company’s
capacity? Explain your answer.

c. Are there any qualitative factors that Alberta Gauge Company’s management should
consider before it drops the R-gauge line? Explain your answer.

3. Outline:
I. INTRODUCTION

II. DISCUSSION (Be sure to include answers to guide questions and support your answers
with computations and logical ANALYSIS.)

III.CONCLUSION/RECOMMENDATION

IV. REFERENCES: (if any)

4. Format of Written Report:

a) Paper size: 8.5” x 11”
b) Margin: 1” on all sides
c) Font and Font size: Tahoma 11
d) Paragraph alignment: Justified
e) Paragraph spacing: 1.5
f) Length of written report: 5 to 8 pages
g) Attachment: peer evaluation of each group member at the end of your report.
h) The cover page template is shown on the next page:
 ALBERTA GAUGE COMPANY, LTD.

A Group Business Case

Presented to the
Accountancy Department
De La Salle University

In partial fulfillment
Of the course requirements
In ACCTBA3 Section___

SUBMITTED TO:
Ms. Joy Lynn Legaspi

SUBMITTED BY:
Surname, Given Name, M.I.*
Surname, Given Name, M.I.
Surname, Given Name, M.I.
Surname, Given Name, M.I.

August __, 2019

*NOTE: The names should be arranged alphabetically.

5. Deadline of Written Report:

August 23, 2019 (Friday) until 10:00 pm only
Submit it through email: joy.legaspi@dlsu.edu.ph