Question 1: ABC company manufactures toy dolls. The company is launching its operations in the month of October with a goal of making as much profit as possible during the upcoming gift giving holiday season. Because of the lack of time to adequately prepare any financial forecasts or budgets, the company has decided to forgo using any estimates for costs and will instead wait until after the holiday season to evaluate whether it was successful in its goal of maximizing its profits.

Required: Provide 3 reasons why this approach may be flawed. You must provide clear reasoning for your responses in order to earn points.

Question 2: Sin Corp. has been in operation for 5 years. The company produces bats which are used for the sport of baseball. Each year the company calculates a predetermined overhead rate which it uses to allocated its manufacturing overhead costs in the month of January. The companys costs fluctuate quite significantly in relation to the amount of actual costs as determined at the end of the year. The companys sales are relatively consistent except for in the spring (mostly the 2^nd quarter) and in the fall months (mostly the 3^rd quarter). Every year the companys manufacturing overhead costs are significantly overstated or understated.

Required: Discuss 2 issues you have identified which could explain the reason for the significant fluctuations from year to year. Provide at least one solution which could help address the issues you have identified.

Question 3:

Identify the product cost noted below and calculate the total amount of product cost in our table manufacturing business. You must provide one sentence explaining why each is or is not a component of product costs.

• Salary of CEO $250,000
• Salary of Plant Supervisor $40,000
• Lease on manufacturing plant $15,000
• Utilities of storage facility where raw materials are stored until needed for production $5,000
• Glue use in the production of tables $1,200
• Liability insurance for protection against lawsuits by consumers $3,500
• Advertising budget to market our custom table line $7,000
• Testing cost for new product line being considered $10,000
• Wages of janitors who clean the factory floor every day at end of shift $32,000

Question 4:

Explain how incremental analysis plays a key part in helping companies make business decisions that promote their profit seeking goals, and the importance of the contribution margin income statement approach over a GAAP basis financial statement.