AC499 Bachelors Capstone in Accounting Unit 10 Discussion: Scenario Stacy Lynn, Inc. (SLI) is a manufacturer of rice cookers. The rice cookers sell for $45 per unit; the sales were 3,600 units in the current year. SLI has 400 units available for sale at the end of the current year and is projecting sales of 4,400 units next year. SLI is planning the same production level for the current year as last year - 4,000 units. The variable manufacturing costs for SLI are $16 and the variable selling costs are only $.50 per unit. The fixed manufacturing costs are $100,000 per year and the fixed selling costs are only $500 per year. Assume that beginning inventory was -0-. Stacy Ann Lynn, the great granddaughter of the companys founder is the current CEO/President of the company, which is still a family-owned business. The past several years have been especially difficult due to price-pressure from Chinese imports. At the moment, all that Stacy believes she can do is to try to keep the company running until the economy improves. But, the company needs an immediate infusion of cash. So, she has decided to ask her bank for a large line of credit to maintain operating viability for the foreseeable future. Based on the information provided in the narrative above, and the financial statements below, post a response to each Part below: Part A) If Stacy Lynn wants to show the bank the maximum profit over the previous 2-year period, which costing method should be presented? Part B) But, the bank requires that all financial statements conform to Generally Accepted Accounting Principles (GAAP). Based on that requirement, which costing method should be presented? Part C) The bank has delivered a memo to SLI in preparation for the meeting to negotiate the Credit Line; the memo states that they will expect a significant Net Income. Based on your responses to Parts A and B, what are the legal and ethical issues facing Stacy Lynn? Additional Financial Information for SLI: Current Income Statement: Item: Using Full Costing Using Full Costing Using Variable Costing Using Variable Costing Sales (4,400 x 45) $198,000 $198,000 Cost of Goods Sold: Beg. Inv. $ 16,400 $ 6,400 COGM $ 164,000 64,000 COGAS 180,000 70,400 End. Inv. 0 0 COGS 180,400 70,400 Less Variable Selling & Admin Expenses $ 2,200 Gross Margin $ 17,600 Contribution Margin $125,400 Item: Using Full Costing Using Full Costing Using Variable Costing Using Variable Costing Less Fixed Mfg. Costs $ 100.000 Less Selling & Admin Costs Variable $ 2,200 Fixed 500 2,700 500 100,500 O

Part A: If Stacy Lynn wants to show the bank the maximum profit over the previous 2-year period, which costing method should be presented?

Part B: However, the bank requires that all financial statements conform to Generally Accepted Accounting Principles (GAAP). Based on that requirement, which costing method should be presented?

Part C: The bank has delivered a memo in preparation for the meeting to negotiate the Credit Line; the memo states that they will expect a significant Net Income. Based on your responses to Parts A and B, what are some of the legal and ethical issues that may be of importance to Stacy Lynn?