Question;Congratulations! You have been hired by Eastvaco as Plant Controller for the Charlotte facility. Your resume includes both financial and managerial accounting experience. You have had extensive experience in accounting for several manufacturing companies. You accepted this current position since it represents a substantial increase in responsibilities and you are eager to impress Sue and Tom. Sue, the Company Controller, has given you an extensive project. Eastvaco has enjoyed greater than industry average revenue, net income and cash flow. The Charlotte facility, initially, had a near monopoly on ?green? stationary. Green stationary is constructed from recycled materials and reforested trees. Unfortunately, that is no longer the case. Due to increased pressure from competition the current business model is no longer producing satisfactory results. Eastvaco operates in a decentralized manner with each facility being treated as an investment center.You are shocked to find that the previous plant controller did not actively participate in financial planning since the Company and, the Charlotte plant in particular, was doing so well it was thought that it was not needed. Sue explained that, due to the reduced revenue and profit margins, the Company was seeking a large bank loan specifically for the Charlotte facility. As part of the loan process the bank is requiring a budget. During your meeting with Sue you received a brief history of Eastvaco and the Charlotte Subsidiary. You listen intently has Sue gives you the following overview.Eastvaco Corporation, a Delaware Corporation incorporated in the early 1900s is one of the major producers of paper and paperboard in the United States. The company converts paper and paperboard into a variety of end products, manufactures a variety of specialty chemicals, produces lumber, sells timber from its timberlands and is engaged in land development. In Brazil, it is a major producer of paperboard and corrugated packaging for the markets of that country and also operates a folding carton plant. Eastvaco also has a folding carton plant in the Czech Republic. Eastvaco exports products from the United States, Brazil and the Czech Republic to other countries throughout the world.The Charlotte facility was created in the late 1980?s whose mission was to producehigh quality, environmental friendly, paper products. The Company believed, due to the substantial EPA violations and public opinion regarding the environment, that a cutting edge, low carbon footprint plant needed to be built. The Company uses the Charlotte facility as their premier plant and is used in much of their public relation campaigns. In the beginning the plant was enjoying a comfortable market share of green paper products. This was due to extensive advertising and relatively little competition in the use of green technology. The previous controller, Jim Person, had been with the Company for 28 years. While experienced and knowledgeable, he often relied on outdated methods of gathering information. He did not utilize all available information and reports (other than required financial reports) were not very extensive. In particular, internal reports and analyses were not considered a high priority.Sue continues explaining that ?those times are over.? We need more and better internal reporting. The Charlotte plant is no longer enjoying the large market share it once experienced. Also, revenue, net income and cash flow have declined. ?This is unacceptable to the CEO and Board of Directors and must be addressed.? The Board has authorized a large bank loan to upgrade facilities but due to the previous controller?s attitude, we simply do not have the required reports that will likely be required by banks. Sue has provided you with a complete set of financial statements, complete with Charlotte specific financial information. She strongly suggests that you begin by reading the complete set of statements that Eastvaco included in their SEC 10K report.After an intensive analyses of available information you prepared al budget worksheet. The following information is provided: fixed cost for 2007 totaled $6.5 Million, variable cost for envelopes is $15.3 Million, cups is $9.3 Million and packaging is $3.3 Million.Sue provided the following information.The envelopes and cups consist of various colors and sizes. You have not attempted to prepare any budgets by individual product lines.Fixed overhead consist of two categories of costs, depreciation and miscellaneous (taxes, supervisor salaries, etc.) Each category is allocated to individual product lines in proportion to estimated sales value of the goods produced in each year.The association between variable manufacturing costs and sales is based on actual activity in the latest year.It is estimated that general and administrative expenses will remain constant.The previous expenditure (10% of the prior year year?s total sales) for marketing will also remain constant.The anticipated bank loan will carry a 7% interest rate.After reviewing the above analyses and schedule Sue has some additional task and questions. You are to respond to the following inquiries.REQUIREMENTS:1. Sue ask for you to prepare a well organized and formatted schedule showing what the variable manufacturing cost is, as a percentage of total sales, for each of the three product lines for 2007.Sales were Envelopes = $18M, Cups = $11.6M and Packaging = $6.6M Total Sales = $36.2 M2. Calculate the 2007 weighted average contribution margin.3. Calculate breakeven in dollars for 2007. (Hint: You will need the information from previous requirements.)Additional Information:The home office rejected your proposed budget. This is based on their belief that the loan would not be granted based on your budget. The Plant Manager offers an alternate plan. He wants to increase the advertising budget to $3.8 million (was$3.6M). This he thinks will cause an increase in sales. This would bring sales to $19 million for envelopes, $13 million for cups and $8 million for packaging and create enough profit to have the loan approved. Assume that the advertising cost is treated as a fixed cost.4. Given the comments above, how much would the company?s profit increase? (Hint, use the weighted average contribution margin you calculated in requirement #3. Calculate increase in revenue after additional variable costs then subtract additional fixed cost)5. What other ways could you allocate fixed manufacturing costs?
Paper#44664 | Written in 18-Jul-2015Price : $37