Prepare a report as described in the attached Brookfield Gearbox Products case.Your report should be about two to three pages typed plus appropriate exhibits

AC! Accormtmg Case Institute The Atlantic Home Fordeenwrng Case Studies Brookeld Gearbox Products Brookeld Gearbox Products (ESP) manufactures a broad line of gearboxes for cars. trucks. and recreational vehicles. BGP is segmented into three major responsibility centers: Grinding. Forming. and Assembly. Each gearbox must spend a certain amount of time in each of the three departments before it can be shipped to the customer. Inspection takes place in the assembly department and is extremely important because the customers (major auto and truck manufacturers and some small independent specialty producers) demand zero defects in products received. Recently. the owner of BGP has become concerned with the results the rm is achieving. According to Mary Paulson. the newly elected president and majority shareholder. sales volume is increasing but prots are falling rapidly. The two major products are the \"standard" and the \"deluxe" gearbox. which account for 9D% of total sales volume (the remaining products are small and can be ignored for the remainder of this question). Sales for the \"deluxe" gearbox have been growing rapidly. to the point where the firm sold twice its usual number in the last six months (this trend has been evident for about two years). Severe price competition has caused BGP to drastically cut the price of its major product. the \"standard\" gearbox. There is little information concerning the production costs related to specic products. An engineering study was performed three months ago. at the suggestion of the auditors. but nothing has been done with the information. A summary of the engineering study results follows: Ir Raw materials for the \"standard\" gearbox consist of 18 pounds of metal. There is no wastage or spoilage with respect to a \"standard\" gearbox. Twenty-two pounds of metal are used to manufacture a good unit of the \"deluxe" gearbox (the process begins with 22 pounds but 9.139% of the raw material is deemed to be unusable and is scrapped; the company receives no revenue for these scrapped materials). Ir The hourly rate [including fringe benets of $2.?5 per hour} for direct labor varies among the departments and between the products. The engineering study also determined how much time is generally taken in each department to produce one unit of product. These times and rates are indicated below: Standard Deluxe Grind Form Assemble lllll'ind Form is semble Direct labor hours 4.1} 3.1} 2.11] 5.0 1111.0 10.1} Direct labor ratee'DLH $8.01} $1D.l} $12.13] $12.00 5514.130 $16.01} Overhead costs were particularly troublesome. Overhead cost appear to be fairly constant om month to month but there did appear to be some changes between the months depending on how busy the plant was. Data on overhead costs for the past six months has been provided to Ms. Paulson by the controller: Production :5 Sales (units) Overhead Direct Labor Month Costs Standard Deluxe Total Hours January 35 1,305,955 1,000 500 1,500 26,500 February 1,282,140 3,000 800 3,300 62,000 Ivtarch 2,360,350 5,000 1,400 6,400 105,000 April 2,109,420 4,000 1,200 5,200 86,000 Ivtay 2,686,630 6,000 1,800 2,300 129,000 June 3 50? 300 10,000 m 12,000 190,000 T013115 mm m LE m M Because of the customer"s requirements of \"zero defect\" parts and \"Iust-In-Time\" shipments to the plants, BGP produces products in small batches and carries little Work-In-Process or Finished Goods Inventory. When financial statements must be prepared and inventories of completed or semi-completed goods exist, these goods are evaluated as follows (numbers shown relate to the January to June period): I 422 Direct Material Cost-"unit = m = $86.66!\" unit saroo 1.1121133 T1 [In Direct Labor Cost-'DLH = $6369 = $133.00f1mi1: 36,?11) units $1 75 7'95 . Overhead Rate = 3,17, = $3T431f lllt 363(1) units The use of these formulas has resulted in the following standard costs for the two major products: Direct Material $ 36.66 Direct Labor 183 .00 Overhead 3T4.T1 Total Product Cost 5033-331 The marketing department at EGP is concerned about the status of the products and has been telling Ms. Paulson so for the past two years. Migna International. a growing competitor, is underbidding BGP on most of the open market bids for \"standard\" gearboxes. During the past two years, BGP has cut its price for \"standard\" gearboxes om $804 to the current price of $698. Intelligence obtained by the vice-president of marketing indicates that Migna International is selling the product for $660. Unless EGP drops its price to $650, marketing believes that sales volume will drop by 30%. If the $650 price is instituted. the present vohune will be maintained and will likely grow in the next few years. Ms. Pauls on knows that the firm is now losing money and her opinion is: \"We will not be able to make any prots if we price our major selling product at $6 above production cost.\" Sales of the \"deluxe" gearbox are doubling every six months. The marketing department has urged a price increase but Ms. Paulson fears that this will hurt sales vohune and. in her words. \"drive the company lrther into the red.\" Marketing states that Migna is no longer bidding on open-market quotations for \"deluxe\" gearboxes and their deluxe gearbox plant has been sold to a company that is producing snow blowers; their last quotation for a deluxe gearbox was eight months ago and their price was in the neighborhood of $1.1. Marketing believes that sales volume will triple in the next six months if price remains arotmd $TISU; BGP will then have a 92% share of the \"deluxe" gearbox market. Presently. BGP is reporting net losses for the rst time in its 40-year history. Its customers are pleased with the quality of products produced. Selling and administrative expenses are xed at $5= per year. The income statement for January to June is as follows: Sales Revenue $26.94. Cost of Goods Sold 23.54321? Gross Margin 2.445.733 Selling and Administrative 2.530.001} Net Income 15431?! \"'I can't gure out what is wrong here.\" says Ms. Paulson. \"Mom ran this company for 41:} years and there always seemed to be lots of prots. I've only been here ve years and things are looking pretty sad. I'd like to see a report from accounting as soon as possible.\" Required: As the controller for Brookeld Gearbox Products= dra a report for presentation to Ms. Paulson. outlining what you think should be done about pricing the two major products produced by BGP