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Daveco, Inc. manufactures cylindrical automotive cell batteries used in electrical vehicles ( EV ) , under the brand name Lumix 0 . After several years

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Daveco, Inc. manufactures cylindrical automotive cell batteries used in electrical vehicles (EV), under
the brand name Lumix 0. After several years of manufacturing and selling Lumix0, the company expanded
operations and now has three plants named Havana, Banabe and Merlen, located across three states in the
United States. In the early years of operation, Daveco relied on standard costing approaches in producing
inventory, and used industry trends/benchmarks to determine how many units of Lumix0 to produce. However,
industry trends have become unreliable in predicting the accuracy of sales of inventory for cylindrical
automotive cell batteries as many EV manufacturess have begun using prismatic cells in some of their vehicles.
Also, Daveco's customers have become conscious of adhering to the United Nations Sustainable Development
Goals (SDG) and indicate that as part of the EV manufacturers' tracking of alignment with these goals, they
would be considering whether to continue ordering Daveco's Lumix0, pending yearly assessments on Daveo's
demonstration of commitments to Goal 12(ensure Sustainable Consumption and Production Patterns) and 13
(take urgent action to combat climate change and its impacts).
In the production of Lumix 0 battery cells, 41.48kWh of energy per kilowatt hour of cell capacity are
consumed per unit, while Daveco has also determined that 10.33kg of CO2-eq is emitted per kWh of battery manufacturing system that produces each component of inventory only as and when needed in the production
line. In the year 2018, Banebe produced and sold 10,000 units of Lumix0, and the plant manager was rewarded
with stock incentives. Towards the end of 2018, Daveco's CEO proposed the increase of the Havana and
Merlen plant managers' stock bonus incentives tied to increasing operating income in the coming year, 2019.
Daveco's plant managers have the discretion to choose their internal accounting methods, provided that the
external accounting methods are those accepted by the Internal Revenue Service (IRS). In 2019, managers of
the Havana and Merlen plant choose the absorption costing method for their internal reporting approach citing
the added fees that would be incurred in paying the variable costing reporting of their internal operations, since
Daveco would also need to provide the IRS an income statement using the absorption costing approach. The
income statement used by the plant managers is also the data available to the CEO and shareholders. At the end
of 2019, the data on units of Lumix0 produced and sold became available. Table 1 shows the data related to the
production of Lumix0 for both the Havana and Merlen plants at the end of 2019, and the Banebe Plant for the
2018 year.
TABLE 1: Details of production data for each of the 3 plants in the Relevant Period. To determine how well Daveco Inc.'s production provided benefits to shareholders in relation to costs, perform
the following:
Using an absorption costing approach and a variable costing approach, prepare income statements for the
Havana and Merlen plants at the end of 2019 and the Banebe plant in 2018.
Consider the units produced and sold for each plant (Havana and Merlen in 2019 and Banabe in 2018) and
perform a data analysis of the absorption vs. variable costing approach in terms of the behavior of total costs as
a percentage of revenue and operating income as a percentage of revenue.
Write a reflection on the implications for the operating income reported to shareholders by each of the plant
managers. How would the decision to build the inventory be different if the shareholders had been provided
with both operating income statements? Are there any ethical concerns?
For each plant in the relevant period given, compute the carbon emissions and energy usage attributable to
units produced and units not sold.
Perform analysis of data by visualizing (with charts/graphs) the information in requirement 4.
Write reflections on the impact of the accounting method used by the Havana and Merlen plants. How might
the data reflected in both the variable and absorption costing approaches align or misalign with SDG Goals 12
and 13 by Daveco Inc?
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