17.58 Bonuses and Production Decisions, Profit Variances, Income Statement Format Pine Producers (PP) is expecting sales growth, and so it has built nearly identica l automated plants in Grand Forks, British Columbia, and in --Singapore to produce its new Pine Powerhouse. 6 6 Each plant manager is responsible for producing adequate inventories to meet sales orders and for maintaining ~liiiij quality, while producing the Pine Powerhouse at the lowest possible cost. Under PP's decentralized organization, each U plant maintains its own accounting records. Quarterly reports are filed with the corporate controller's office and are then reviewed by corporate management. The following reports were filed for the third and fourth quarters by the two plants: GRAND FORKS, BRITISH COLUMBIA, PLANT INCOME STATEMENT FOR THIRD AND FOURTH QUARTERS . (IN THOUSANDS OF DOLLARS) Revenue Cost of goods sold Selling and administration expenses Interest expense Tax expense Net income Third Quarter $97,452 77,165 12,378 4,312 1,259 $2,338 GRAND FORKS, BRITISH COLUMBIA, PLANT Fourth Quarter $110,951 74,613 12,632 4,251 6,809 $ 12,646 STATEMENT OF FINANCIAL POSITION FOR THIRD AND FOURTH QUARTERS (IN THOUSANDS OF DOLLARS) Third Quarter Fourth Quarter -Ass,ets - Cash $ 2,346 $ 322 Inventory 12;872 30,972 - Plant(net of amortization) 152,456 148,635 Total assets $167,674 $179,929 Liabilities and Owners' Equities Accounts payable $ 214 $ 1,782 Construction bond payable 140,385 138,426 Owners' equity 27,075 39,721 Total liabilities and OE $167,674 $179,929 ~- Revenue Gast of goods sold Selling and administration expenses ' 10,453', , ' ', Interest expense 3,854 I I, ' ' 3,733 Tax expense 1,718 3,118 ~. Net income $ 3, 190 $ 5,791 '11 1(:1 1111 i, 1, 1',,.',,' .,,, , ... ,,.,, 11 ' J' 111, ' ''/di I'' '" " ''l'I I ' ' ii ' ' ' ' , I l; I' ii ;11; I ",J iH'!1i, 11 lk!f!i:(1; ii' ,,:I I: [11111111 11i ll11:11,::!ii11111\1\1111 ,: ' 111,,\,' 1111 '" " ' ': , , ' 1 ' ', '"' ,, I, ,, ' Ii 11 ,1 l1'1111 ,I ' ,I ill[j,11s" IN' G~no' RE DI IANT ' ' l ' I ' ,' ' j 1,i I j ' f'1 \ l"'i11 'l ["iL,11' 1 11 1' I 1, ' ' '' ' I" I I ,11 11111111 ' I'' ii ' ' 1' , ' ' , stA'.tEMENi oF FINANCl 1 AL 1 pos1t10N1:,FOR iHhi~ .~1 ~b ,FO~RTH."GUARTERS ' (TRA~SLATED 'ra CANADl,AN CURRENO~, :11~ 1 ~ :rh~~s,~~s ~,fi,DOLLAR,S), , 1 , Thitd Quarter! ,1 ., ' Fpurtti Qu,;1rter ' Assets Cash Inventory Plant (net of amortization) Total assets Liabilities and Owners' Equities Accounts payable 11, -! 111 L" . ,11111 1,1I '1'' . 111, I ' 1 11' ' $ , 1 l.,564 , 1 I II' .' ' 1 ' 3,642 1 ~i 1 3 24 "h11 11 ,\I ' I I ' ' 13 832 :I ' . .1 , I ' I ii I l ' 142 842./ II 1, 1,38,580 J II :1 ' \1 I $155 230 ii 11 ' \'' $1$6,054 -"-==='== = ll I t f 1 !I' l' I ,I I I ' ' ,I . \! 1 ill I I 1 \ 1 f 1h ll it' Ii 1, ,$ I ' 34Y ' I 11 I 11 , $' ' ,'' 22], ' ' ' ,, ~, 11 d I I 111 I ' I -I 1' 135,7,62 ,11 I \ 1 }30,92} '\' ! , I I ' ' ,,,, II' ,1 ,I I 1 ' I 19 1,21 l I\ I, I 24 91.~ ,1 ' \I I Owners'equity 1 , ~ 11 1 1 , i " 1 ' ,,, 1 ' 1 1 ,'' , ,, , , I I I ' ' 1111 I I' I ' I I ,\ 11' ii' Bond payable Total liabilities and OE I 11 ' 1$,1 55,:230 1 1 , 1 , i 1 , 1 1 1111 $l56,054 : 1 ,,i 11 : 1 . , ' , , ' . I ,II I Id' , I , II 1 11' 1 ,1 , I ,I i' ii ,1\ \ 11 , ' The following questions will he'lp you analyze the1 information for ,h,s pm~!ern.1 901 hot tmin m your ,answers to these I 1' ii L ' 1111 u / I I questions unless your professor asks you to do so. 11 1 ... 1 , 11 ,1 ,, 11,,,,1 1 , 1 11" ,11 ' , 11 ' 1 , ' 1 f I I 1l 1 I 11 1 I I' I ' , I I I'" 'I I ,I 1 1' ,, ", , ,, 11ou1em 11ro11111no1 INllYSIS 1 1 i'r 1 " , , , ' II I I A. Suppose each plant manager receives a bonus based on absorptio:n costing operating income 1 t~ait' is 5% of operating income. Calculate the bonus for each manager. Explain how this bonus plair1 m,ght affect the managers' production decisions. B. Examine changes in sales relative to cost of goods sold between the two quarters. What are two possible explanations for the Grand Forks plant's profit increase during the fourth quarter? C. Assuml:l that variable costs in this industry are an immaterial part of cost of goods sold. Recast the financial statements using the variable costing approach. D. What would you conclude about the relative performances of the two plant managers in the fourth quarter? Suppose you are the cost accountant for Pine Producers. Turn in your answers to the following. llQUlRED WBITIDI lSSIINMlNT E. ~ ri_t~ a memo to the CFO, recommending the type of income statement that would be best for monitoring d1v1s1onal performance. Attach to the memo a schedule showing any computations that might be useful to the CFO. As appropriate, refer to the schedule in the memo.