Situation 1: Labor cost classification (10 Points) ABC Manufacturing Company has recently opened a plant in Bermuda in order to take advantage of certain tax benefits. In order to quality for these tax benefits, the company's direct manufacturing labor costs must be at least 20% of total manufacturing costs for the period. Manufacturing normally classifies direct manufacturing wages as direct manufacturing labor, but classifies fringe benefits, overtime premiums, idle time, and vacation time and sick leave indirect manufacturing labor (part of manufacturing overheads). During the first period of operations in Bermuda, ABc incurs a total ofs2,500,000 in manufacturing costs. of that, S410,000 is direct manufacturing labor wages, s45,000 is overtime premium, S86,000 is fringe b S20,500 is vacation time and sick leave, and S10,900 is idle time. Required 1. Based on ABC Manufacturing Company's normal cost classification practices, is the company likely to quality for the for the tax benefit? Show you calculations. (2 Points) 2. Bob Ryan, the manager of the new Bermuda plant, is concemed that he will not get a bonus this year the plant not get the tax benefit. Describe specific adjustments to ABC Manufacturing normal cost classification practices that Bod might ask the plant controller to make gets (Be in your Provide a specific rationale that Bod Ryan might use to justiif each ofthe adjustments you described above, Point Indicate whether the plant controller should make EACH of the Two adjustments you described in part 2 above. Support your opinion with appropriate and logical arguments. 4 Points) Situation 2: CVP Analysis (15 Points) Aranguez Corporation produces a molded plastic casing, Lx20A, for desktop computers. Summary data from its 2013 income statement are as follows: 8000.000 4,800,000 Variable costs 3,000,000 Fixed costs 200,000 Operating income Jane Dall, Aranguez's president, very concerned about Aranguez Corporation's poor profitability. She asks Giselle James, production manager, and Lester Saline, controller, to see if there are ways to reduce costs. After two weeks, James returns with a proposal to reduce variable costs to 50% of revenues by reducing the Aranguez currently incurs for safe disposal of waste plastic. Saline is concemed that this would expose the company to potential environmental liabilities. He tells James, "We would need to estimate some of these potential environmental costs and include them in our analysis." "You cannot do that," James replies. "We are