Hi,

Please answer questions on page 7 of the PDF Case:Performance Measurement Thomas Lipton. Please make sure to use the following format:

1) Cover sheet

2)Table of Contents

3)Issues( Actual questions of the case)

4)Facts of the case

5)Analysis (answer to the questions)

6)Conclusion

Attach is case 26-3 as an example of the format.

Thank you in advance,

Case 26-3 Hanson Manufacturing Company Prepared by Luis Zambrano for Professor C.E. Reese in partial fulfillment of the requirements for ACC 770-Managerial Accounting School of Business /Graduate Studies St. Thomas University Miami Gardens, Fla. Term A3/Summer, 2017 June 24, 2017 Table of Contents Issues........................................................................................................1 Facts..........................................................................................................1 Analysis ......................................................................................................3 Conclusion................................................................................................4 Issues 1. 1. If the company had dropped product 103 as of January 1, 1993, what effect would that action had on the $51,000 profit for the first six months of 1993? 2. In January 1994, should the company reduce the price of product 101 from $9.41 to $8.47? 3. What is Hanson's most profitable product? 4. What appears to have caused the return of profitable operations in the first six months of 1993? Facts In February 1993, Hanson Manufacturing Company appointed 56 year old Herbert Wessling as general manager of the company by Paul Hanson. Paul Hanson is now president of the Hanson Manufacturing Company after the death of his father and the company's former president Richard Hanson. Paul had only four years of experience with the company expecting to train with his father in a 10 year period; because of the untimely death it was now impossible. The company had suffered because of the lack of knowledge Paul had and poor decisions he had made in 1992. In the 1992, the income statement stated that the company had the loss of almost $200,000 during a relatively good year. That is when he hired Mr. Wessling as general manager with the responsibilities of full authority to execute any changes he desired. Those changes would have to be explained to Mr. Hanson for training purposes of successful leadership for when Mr. Wessling retires. Hanson's company made three industrial products 101, 102, and 103, which were sold by the company sales force for use in the processes of other manufacturers. All of the sales force sold three products in varying portions. Hanson sold throughout New England, where the other eight competitors with the same products were located. The dominant company in the area, Samra, set the prices. The only variance from quoted selling prices took the form of cash discounts. During 1992, Hanson's share of industry sales was 12 percent for type 101, 8 percent for 102, and 10 percent for 103. The industry wide quoted selling prices were $9.41, $9.91, and $10.56. Wessling chose to analyze 1992 operations and to wait for results of the first half of 1993. He instructed the accounting department to provide detailed expenses and earnings statements by products for 1992 with explanations of the natures of the costs including their expected future behavior. Wessling sent copies of the exhibits to Mr. Hanson for discussions. Hanson made his comments on that he thought product 103 should be dropped immediately as it would be impossible to lower expenses on product 103 as much as 76 cents per hundredweight. Wessling understood Hanson's recommendation but continued production of the three products. For control purposes, Wessling had the accounting department prepare monthly statements using as standard costs the actual costs per cwt from the 1992 profit and loss statement. These statements showed that the first half of 1993 was a profitable period. During 1993, the sales of the entire industry weakened including Hanson's company with a small profit in the last six month period. January 1994, the prices of production 101 dropped from $9.41 to $8.47 per cwt. Wessling forecast that if Hanson Company held to the $9.41 price during the first six months of 1994, their units sales would be 750,000 cwt. He felt that if they dropped their price to $8.47 per cwt; the six months' volume would be 1,000,000 cwt. The accounting department reported that the standard costs in use would probably be apply during the first half of 1994, with two exceptions : materials and supplies would be about 5 percent above standard, and light and heat would decrease about 3 percent. After discussion, product 101 would be below cost of $8.47 if the cost supplies and material increase. Therefore, Hanson wanted the $9.41 to be continued since he felt the company could not be profitable while selling a key product below cost. Analysis 1. If they decided to drop product 103, Hanson Company would suffer a loss of $2,646, which would have to be subtracted from profits, resulting in a loss of $2,495. The purpose for dropping can be to contain fixed costs Hanson Company will have to pay. Hanson Company would eliminate variable costs, but lose on 5%, 202 sales that would help cover the fixed costs. 2. If Hanson Company were to reduce the selling price to $84.7, they would see an increase in profits with a volume of 1,000,000 cwt. If Hanson Company were to keep its price at $9.41 during the first six months, then there would be a decline in unit sales by 750,000 cwt. Contribution margin = Total Revenues - Total Variable Costs Calculation: Price $9.41 sales unite 750,000 Contribution margin = $7,087,500 - ($3.87*750,000) = $7,087,500-$2,902,500 = $4,185,000 Price $8.47 sales units 1,000,000 Contribution margin = $8,470,000-($3.87*1,000,000) = $8,470,000-$3,870,000 = $4,600,000 3. Analysis Profit & Loss by product - Year Ended December 31, 1992 Product 101 Product 102 Product 103 Total Cost $18,772 $10,566 $11,011 Sales (net) $19,847 $9,978 $10,243 Profit (loss) $1,125 -568 -749 4. Return of Profitability Operations An increase in sales volume appears to be the sole reason for the profitable operations in the first six months of 1993. Actual Sale 1992 1 Year Product 101 Product 102 Product 103 $19,847 $9,978 $10,243 $9,279 $6,901 $5,583 Actual Sale 1993 1/2 Year Conclusion 1. If the company dropped Product 103, the company would suffer a loss of approximately 2.5MM. 2. Yes - the company should reduce the price of the product (from $9.41 to $8.47) as they will incur a substantial loss if price remains the unchanged. It is important to note that even though a loss is incurred, it will not be as great should the volume increase. 3. Product 101 is the most profitable product; please refer to tables herein attached. 4. An increase in sales volume appears to be the sole reason for the profitable operations in the first six months of 1993