answer A and B!! please focus on how the various reporting options impact the financial statements and thus the view of the company. Also, present and review how the internal users of information differ from the external isers and why there can be multiple sets of reports.
PLEASE HELP ASAP!l Answer question A and B! Please foous on how the various reporting options impact the financial statements and thus the view of the company. Also, present and review how the internal users of indormation differ from the external users and why there ear be multiple sets of reports Team Activity st complendi year of opeanons The llowing discussion took place between the coet, Gondon Mick an the company presien Ma ramings have beem increasing ach qaeeven though ou sales have been fat and ours and couns have sot changed Why is tis Gondo Oar actual sales have stayed even throughout the year but we been ineasing the tation of our factery every quartet By eping ou actory ulation igh we wi kep our osts down by alcaing the f unin so be low maeOur iveory aho increasing are matched a has a positive impacton our eaming by building Inveory Can this be tr Gono Well, Ive newer thought about i quite thar way.. but More And another thing.What will happn if we begn to dce wi go down een though our production fon d bling nntory and pemaline neducing Gonden tm sot sune whar can do-we have to follow goeally accepted at and our prices Mitt And whag wil happen we bep..sedwe eu g rm " what I can do.we havv tofollow mealy accepted about the presene of accounting TIF 20-2 Team Activity BendOR, Inc. manufactures control panels for the electronics industry and has just completed its first year of operations. The following discussion took place between the controller, Gordon Merrick, and the company president, Matt McCray: A-Z Matt: I've been looking over our first year's performance by quarters. Our earnings have been increasing each quarter, even though our sales have been flat and our prices and costs have not changed. Why is this? Gordon: Our actual sales have stayed even throughout the year, but we've been increasing the utilization of our factory every quarter. By keeping our factory utilization high, we will keep our costs down by allocating the fixed plant costs over a greater number of units. Naturally, this causes our cost per unit to be lower than it would be otherwise. Matt: Yes, but what good is this if we are unable to sell everything that we make? Our inventory is also increasing. Gordon: This is true. However, our unit costs are lower because of the additional production. When these lower costs are matched against sales, it has a positive impact on our earnings Matt: Are you saying that we are able to create additional earnings merely by building inventory? Can this be true? Gordon: Well, I've never thought about it quite that way... but I guess so Matt: And another thing. What will happen if we begin to reduce our production in order to liquidate the inventory? Don't tell me our earnings will go down even though our production effort drops! Gordon: Well... Matt: There must be a better way. I'd like our quarterly income statements to reflect what's really going on. I don't want our income reports to reward building inventory and penalize reducing inventory. Gordon: I'm not sure what I can do-we have to follow generally accepted accounting principles. Chapter Contents T've been looking over our first year's perfo earnings have been increasing each quarter, even though our sales have been flat and our prices and costs have not changed. Why is this? Gordon: Our actual sales have stayed even throughout the year, but we've been increasing the utilization of our factory every quarter. By keeping our factory utilization high, we will keep our costs down by allocating the fixed plant costs over a greater number of units. Naturally, this causes our cost per unit to be lower than it would be otherwise. Matt: Yes, but what good is this if we are unable to sell everything that we make? Our inventory is also increasing. Gordon: This is true. However, our unit costs are lower because of the additional production. When these lower costs are matched against sales, it has a positive impact on our earnings. Matt: Are you saying that we are able to create additional earnings merely by building inventory? Can this be true? Gordon: Well, I've never thought about it quite that way... but I guess so. Matt: And another thing. What will happen if we begin to reduce our production in order to liquidate the inventory? Don't tell me our earnings will go down even though our production effort drops! Gordon: Well... A-Z Matt: There must be a better way. I'd like our quarterly income statements to reflect what's really going on. I don't want our income reports to reward building inventory and penalize reducing inventory. Gordon: I'm not sure what I can do-we have to follow generally accepted accounting principles In teams A. Discuss why reporting income under generally accepted accounting principles rewards" building inventory and "penalizes" reducing inventory B. Discuss what advice you would give to Gordon in responding to Matt's concern about the present method of accounting. Be prepared to discuss your answers in class
