This is one of the mini cases from Cost Management textbook.

Masuna Assigning of income MINI-CASES 17.58 Bonuses and Production Decisions, Profit Variances, Income Statement Format Pine Producers (PP) is expect LOI, L02 ing sales growth and so it has built nearly identical automated plants in Grand Forks, British Columbia, and in LOS Singapore to produce its new Pine Powerhouse Each plant manager is responsible for producing adequate investories to meet sales orders and for maintaining plant maintains its own accounting records Quarterly reports are filed with the corporate controller's office and are then quality while producing the Pine Powerhouse at the lowest possible cost. Under PPs decentralized nation, each reviewed by corporate management. The following reports were filed for the third and fourth quarters by the two plants GRAND FORKS, BRITISH COLUMBIA, PLANT INCOME STATEMENT FOR THIRD AND FOURTH QUARTERS (IN THOUSANDS OF DOLLARS) Third Quarter Fourth Quarter $97,452 $110.951 77.165 74,613 12.378 12,632 4,312 4.251 1.259 6,809 $ 2338 $ 12.646 Revenue Cost of goods sold Selling and administration expenses Interest expense Tax expense Net income GRAND FORKS, BRITISH COLUMBIA, PLANT STATEMENT OF FINANCIAL POSITION FOR THIRD AND FOURTH QUARTERS CIN THOUSANDS OF DOLLARS) Third Quarter Fourth Quarter Assets Cash $ 2,346 $ 322 Inventory 12,872 30.972 Plant (net of amortization) 152,456 148.635 Total assets $167,674 $179,929 Liabilities and Owners' Equities Accounts payable $ 214 $ 1.782 Construction bond payable 140,385 138,426 Owners' equity 27,075 39.721 Total liabilities and OE $167,674 $179,929 SINGAPORE PLANT INCOME STATEMENT FOR THIRD AND FOURTH QUARTERS (TRANSLATED TO CANADIAN CURRENCY, IN THOUSANDS OF DOLLARS) Third Quarter Fourth Quarter Revenue $101,832 $111.085 Cost of goods sold 82,127 87.990 Selling and administration 10.943 10,453 expenses Interest expense 3,854 3,733 Tax expense 1.718 3,118 Net Income $ 3.190 $ 5,791 SINGAPORE PLANT STATEMENT OF FINANCIAL POSITION FOR THIRD AND FOURTH QUARTERS (TRANSLATED TO CANADIAN CURRENCY, IN THOUSANDS OF DOLLARS) Third Quarter Fourth Quarter Assets Cash $ 1,564 $ 3,642 Inventory 11,324 13,832 Plant (net of amortization) 142,342 138,580 Total assets $155,230 $156,054 Liabilities and Owners' Equities Accounts payable $ 347 $ 221 Bond payable 135,762 130,921 Owners' equity 19.121 24,912 Total liabilities and OE $155,230 $156,054 The following questions will help you analyze the information for this problem. Do not turn in your answers to these questions unless your professor asks you to do so. REQUIRED INFORMATION ANALYSIS A. Suppose each plant manager receives a bonus based on absorption costing operating income that is 5% of operating income. Calculate the bonus for each manager. Explain how this bonus plan might affect the managers' production decisions B. Examine changes in sales relative to cost of goods sold between the two quarters. What are two possible explanations for the Grand Forks plant's profit increase during the fourth quarter? C. Assume that variable costs in this industry are an immaterial part of cost of goods sold. Recast the financial statements using the variable costing approach. D. What would you conclude about the relative performances of the two plant managers in the fourth quarter? Suppose you are the cost accountant for Pine Producers. Turn in your answers to the following. REQUIRED WRITTEN ASSIGNMENT E. Write a memo to the CFO, recommending the type of income statement that would be best for monitoring divisional performance. Attach to the memo a schedule showing any computations that might be useful to the CFO. As appropriate, refer to the schedule in the memo