- Business and Employment»
Financial Accounting Theory and Analysis
Honey Brown is a fairly large manufacturing company located in the southern United States. The company manufactures tennis rackets, tennis balls, tennis clothes, and tennis shoes all bearing the company’s distinctive logo, a large green question mark on a white flocked tennis ball. The company’s sales have been increasing over the past 10 years.
The tennis racket division has recently implemented several advanced manufacturing techniques. Robot arms hold the tennis rackets in place while glue dries, and machine vision systems check for defects. The engineering and design team uses computerized drafting and testing of new products. The following managers work in the tennis racket division.
Kobe Bryant, Sales Manager (supervises all sales representatives)
Steve Nash, Technical Specialist (supervises computer programmers)
LeBron James, Cost Accounting Manager (supervises cost accountants)
Dwyane Wade, Production Supervisor (supervises all manufacturing employees)
Kevin Durant, Engineer (supervises all new-product design teams)
What are the primary information needs of each manager?
Each of the managers who work in the tennis racket division plays an integral part in the success of Honey Brown. In order to do their job, each manager requires specific information.
Kobe Bryant, Sales Manager, supervises all sales representatives. The primary information the Sales Manager would need to know is who the customer base is. Since Honey Brown manufactures tennis related items, the Sales Manager would want his sales representatives to focus their sales on customers who play tennis either professionally or recreationally. The Sales Manager would also need to know the costs involved in each product. The manager would need to know the cost of the product from manufacturing to getting the product ready for sale. The Sales Manager would also need to know the salary paid to each sales representative and the commission each sales representative receives. This information would be required so the company could determine the profit on each product sold.
The technical specialist, Steve Nash who supervises the computer programmers, would need to know the function that each manager needs the computer to perform. The Sales Manager may need computer accounting software to keep track of sales or determine the commission paid on each sale. The cost accounting manager may need a computer program designed to determine the cost of each product manufactured or a program designed to keep track of inventory. The production manager may need a computer program designed to assist in the manufacturing process. The engineer may need a computerized drafting program that can be specifically used for creating new tennis products.
LeBron James, the cost accounting manager who supervises the cost accountants, would need to know the costs involved in manufacturing each of the products Honey Brown produces. These costs would include the product cost and period costs. The product cost consists of material costs, labor costs, and manufacturing overhead costs. Manufacturing overhead costs are costs related to indirect labor, indirect materials, and other indirect costs. Period costs consist of selling expenses and administrative expenses.
Dwyane Wade, production supervisor, would need much of the same information as the cost accounting manager. However, whereas the cost accounting manager is required to know both product costs and period costs, the production manager is only concerned with the product costs. As mentioned above, these costs include material cost, labor cost, and manufacturing overhead.
Kevin Durant, engineer who supervises all new-product design teams, would need to know the target audience for the new products. The engineer would need to work with the Sales Manager to determine if the products being manufactured are something the target audience, tennis players, would be willing to buy. The engineer would also need to know the product costs involved in each new design. The product costs would determine the price the products would be sold for. The engineer would need to work with the Sales Manager to determine the price the target audience is willing to pay for new products. The engineer would need to develop the product within that price range.
Which, if any, financial accounting report(s) is each likely to use?
Since Honey Brown is a manufacturer of tennis rackets and tennis related products, the Sales Manager, cost accounting manager, and production supervisor would likely use the income statement, cost of goods manufactured schedule, and balance sheet. The specific areas on the income statement these managers would be concerned with are the beginning finished goods inventory, the cost of goods manufactured, and the ending finished goods inventory. These areas would determine the cost of goods sold which is pertinent information for the Sales Manager, cost accounting manager, and the production supervisor. The cost of goods manufactured schedule shows a breakdown of the costs involved in determining the cost of goods manufactured. The specific areas on the balance sheet the managers mentioned above would focus on are the finished goods inventory, work in process, and the raw material inventory. The engineer may also use the financial reports listed above since she is involved with new product design. Since the technical specialist supervises the computer programmers, her use of financial statements would be limited, if any at all.
Special-purpose management accounting report that could be designed for each manager.
The special purpose management accounting report that could be designed for the Sales Manager could be entitled “Weekly Sales Report”. The report would be issued at the end of the week and would include the weekly sales total for each sales representative and the sales goal the sales team is trying to achieve. The sales goals could be broken down by monthly sales, quarterly sales, or annual sales.
The management accounting report for the technical specialist could be entitled “Computer Programming Costs” and could include the labor costs and overhead costs involved in designing the computer programs necessary in the manufacturing process for the company. The report should be issued at the end of each accounting period.
The accounting report for the cost accounting manager could be entitled “Manufacturing Costs” and could include a breakdown of the costs involved in manufacturing each product. The report could have a separate section for each product Honey Brown manufactures. The report would include the product costs as well as the period costs. The report should be issued at the end of each accounting period.
The accounting report for the production supervisor could be entitled “Production Costs”. The report would contain the much of the same information and be formatted similar to the “Manufacturing Costs” report but would not contain the period costs. Like the other reports listed above, the report should be issued at the end of the accounting period.
The special purpose management accounting report designed for the engineer could be entitled “New Product Design Costs”. Since the engineer supervises the new product design teams, the report should include all the costs involved in the design of the new products. Like the “Manufacturing Costs” report, the report should include both product costs and period costs. Like the other reports, the report should be issued at the end of the accounting period.
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