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Question 1
International Beans, Inc. (IBI) is a processor and distributor of a variety of blends of coffee. The company buys green (unprocessed) coffee beans from around the world and roasts, blends, and packages them for resale. IBI offers a large variety of different coffees that it sells to gourmet shops in one-kilogram bags. The major cost of the coffee is raw materials in the form of unprocessed coffee beans. However, the company’s predominately automated roasting, blending, and packing processes require a substantial amount of manufacturing overhead.
Some of IBI’s coffees are very popular and sell in large volumes, while a few of the newer blends sell in very low volumes. IBI prices its coffees at …show more content…

f. According to the CICA Handbook, Section 3031, if a company’s over applied overhead is a result of abnormally high production, how should it be handled? g. As the new assistant controller, you will be responsible for preparing the annual management reports. The company is approaching the end of its fiscal year, and the president has called a meeting with the marketing manager, the production manager, and you. During the meeting the president informs the team that sales are down and profits look like they are going to be lower than planned. The executive team is considering expanding the company’s product lines; however, this action will require a substantial loan from the bank for capital investments. Thus, the president, who is the head of the executive team, wants to ensure that profits are at least equal to or greater than last year’s. One of the executive team members has listed the following actions that could be taken to increase profits for the current year:
1. Reduce the sales price of their high-volume IBI coffee in order to increase sales.
2. Extend the current year’s cut-off date for sales to January 15 in order to include next year’s sales with the current sales.
3. Change the method of determining depreciation on all capital assets that are less than two years old from double declining balance to straight-line. Currently the declining balance rate is 40%. i. Based on the information in the question, explain why

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