Answered step by step
Verified Expert Solution
Question
...
1 Approved Answer
Levine Company is a manufacturer of very inexpensive cell phones and television sets. The company uses recycled parts and a highly structured manufacturing process to
Levine Company is a manufacturer of very inexpensive cell phones and television sets. The company uses recycled parts and a highly structured manufacturing process to keep costs low so that it can sell at very low prices. The company uses lean accounting procedures to help keep costs low and to examine financial performance. Levine uses value streams to study the profitability of its two main product groups, cell phones and TVs. Information about finished goods inventory, sales, production, and average sales price follows: Cell Phone Group TV Group Units Beginning inventory Price Sold Budgeted and actual production 2,800 $ 130 15,100 15,600 7,800 $ 180 16,400 15,800 Levine's costs for the current quarter are as follows. Note that some of the company's manufacturing and selling costs are traceable directly to the two value streams, while other costs are not traceable. Levine considers all traceable fixed costs to be controllable by the manager of each group. Also, Levine's value stream shows operating income determined by the full costing method; the difference from the traditional full costing income statement is that the effect on income from a change in inventory is shown as a separate item on the value-stream income statement: Cell Phone Group TV Group Total $ 74 5 $ 109 5 Unit variable costs Manufacturing Selling and administrative Traceable fixed costs Manufacturing Selling and administrative Nontraceable fixed costs Manufacturing Selling and administrative 218,400 116,000 297,040 116,000 $ 515,440 232,000 114,000 86,600 Company Breakdown into Profit Centers Breakdown of Division B to Product-Level Profit Centers Not Traceable Company as a Whole $ 2,000 900 $ 1,100 250 $ 850 400 Division A $ 600 200 $ 400 100 $ 300 120 Net revenues Variable costs Contribution margin Controllable fixed costs Controllable margin Noncontrollable fixed costs Contribution by profit center (CPC) Nontraceable costs Operating income Division B $ 1,400 700 $ 700 150 $ 550 280 Product 1 $ 400 100 $ 300 25 $ 275 10 Product 2 $ 700 350 $ 350 Product 3 $ 300 250 $ 50 o $ 50 120 100 $ 25 (25) 20 $ 250 130 $ 180 $ 270 $ (45) $ 265 $ 120 $ 450 200 $ (70) $ 250 Required: Consider Levine's two value streams as profit centers, and use the contribution income statement as a guide to develop a value- stream income statement for the company. (See Exhibit 18.9 for an example of a contribution income statement.) In your solution, replace the term controllable margin (in Exhibit 18.9) with value-stream profit. Be sure to include the inventory effect on profit as a separate line item in your value-stream income statement. 1. What is the effect of the inventory change (and in what direction) on the value stream profit of cell phones? Effect of the inventory change 2. What is the value stream profit of TVs? The value stream profit of TVs
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started