ACCT 556 Week 7 Course Project Fantastic Inc\t\u00a0\tFantastic, Inc. is a case study which allows you to incorporate numerous financial and managerial accounting concepts into a single business setting.\u00a0 You will take the position of the company controller who will prepare the budget for the year ended December 31, 2006, using the actual data from 2001 through 2005 and information given to you by various departments. You will prepare a report for the president of the company describing the strengths and weakness of the corporation as well as to provide suggestions for the future. In short, you will be responsible for the planning and control procedures for the company from an accounting standpoint.\t\u00a0\tIn order to focus on important accounting concepts, certain simplifications are necessary to make this case manageable. The student should keep the following simplifications in mind while working on this case:\t\u00a0\t\uf06c Work in process inventories will be ignored.\t\uf06c Financial and IRS tax will be the same.\t\uf06c Some projections for 2006 will be given.\t\uf06c Standards used for the 2006 budget will be the reasonably obtainable standards.\t\uf06c No hourly worker will work overtime.\t\uf06c All price changes will occur on January 1st and will remain in effect for the entire year.\t\uf06c The actual 2005 information is available while preparing the 2006 budget.\t\uf06c All debt transactions will occur either on January 1st or December 31st.\t\uf06c There are no bad debts.\t\u00a0\tThe student should also keep in mind that the budgeting process is not an exact science; therefore, approximate figures provide adequate information for the decision maker. Figures should be rounded to the whole dollar throughout the budgeting process and the control applications. Since it is not possible to have a partial machine or person, certain figures will always have to be rounded up.\t\u00a0\tGENERAL COMPANY INFORMATION\t\u00a0\tFantastic, Inc. is a paint manufacturing company that produces two qualities of paint, Super and Stupendous. The company was established eight years ago and began with only one type of paint. Sales of the original product have been rather stable in the past 5 years. In 2003, a second, higher quality paint was introduced, and sales of this product have increased each year due to reasonably effective sales efforts. The president is currently concerned about the potential inefficient use of capacity and the effect that this has on profits.\t\u00a0\tAll raw materials are currently purchased from outside suppliers and no difficulty is foreseen in obtaining the necessary inventories for production in the future. All inventories are currently considered to be at the lowest safe levels possible given the delivery, production, and sales cycles. \ufffd\u00a0\t\u00a0\t\u00a0\tGiven the current production capacity, the company will have room for expansion for the next few years without building new facilities or expanding the current building. The company will also have the option of starting a second production shift to support future sales if necessary; therefore, increased production will be obtainable through purchasing additional equipment or increasing production hours. At this time, however, the president is not considering a second shift due the additional $1.00 per hour shift differential that would be necessary to pay the hourly second shift workers.\t\u00a0\tThe company had a cash flow problem in 2005 but has always managed to make all payments on a timely basis. The president wishes to increase the amount of cash on hand in the future so that the company will have a greater margin of safety. To date, the company has not had difficulty obtaining financing for expansion and does not foresee any future difficulties in obtaining necessary funding for legitimate purposes.\t\u00a0\tThe company has paid a consistently good dividend to the stockholders. The president would like to continue this policy in the future.\t\u00a0\tDEPARTMENT STRUCTURE\t\u00a0\tFantastic, Inc. has two separate production departments – one for each of the paint types. Since the end products are not distinguishable, the company uses process costing employing a FIFO inventory.\t\u00a0\tAbsorption costing is used for all outside reports. All non-direct fixed costs are allocated using various allocation bases as indicated throughout the project. The Company does not use a full ABC costing system; however, it does employee some of the ABC concepts in the budgeting process.\t\u00a0\tThe administrative department handles all of the purchasing, accounting, and secretarial duties in a highly efficient manner. The need for separate departments is not necessary at this time.\t\u00a0\t2005 INFORMATION\tSUPER \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 STUPENDOUS\tDEPARTMENT \ufffd \ufffd \ufffd \ufffd DEPARTMENT\t\u00a0\tNumber of machines available \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 26 \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0 20\tAnnual capacity per machine \ufffd \ufffd\u00a0\u00a0\u00a0 15,000 gallons \ufffd \ufffd\u00a0\u00a0 15,000 gallons\tAnnual production capacity \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0 390,000 gallons \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0 300,000 gallons\tMachine hours available per machine 1,800 hours \ufffd \ufffd \ufffd\u00a0 1,800 hours\tStandard machine hour per gallon \ufffd \ufffd \ufffd\u00a0\u00a0 .12 hour\/gallon \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 .12 hour\/gallon\tStandard labor hour per machine hour \ufffd \ufffd\u00a0 1.25 labor hr\/mach.hr\u00a0 1.25 labor hr\/mach.hr\tActual sales volume \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0 420,000 gallons \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0 268,200 gallons\tNumber of hourly employees \ufffd \ufffd\u00a0\u00a0\u00a0 29 \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0 21\tSupervisors (one per each eight hourly\t\u00a0\u00a0 employees) \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 4 \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 3\tRaw material prices\t\u00a0\u00a0 Cans \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 40\u00a2 each \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 40\u00a2 each\t\u00a0\u00a0 Pigment \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 $2.75 per pound \ufffd \ufffd \ufffd \ufffd\u00a0 $3.75 per pound\tRaw material usage \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0\t\u00a0\u00a0 Cans \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 one per gallon \ufffd \ufffd\u00a0\u00a0\u00a0 one per gallon\t\u00a0\u00a0 Pigment \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0\u00a0 two pounds per gallon \ufffd \ufffd\u00a0 two pounds per gallon\tDirect labor rate \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd $8.25 per hour \ufffd \ufffd\u00a0\u00a0 $8.25 per hour\t\u00a0\t\u00a0\t2006 PROJECTED SALES INFORMATION\t\u00a0\tThe sales department feels very good about the prospects for 2006. The reputation of the new product, Stupendous Paint, has increased significantly due to effective adverting in the past few years. The sales department is ready to launch a major advertising campaign which is expected to result in the trend of the last three year to continue for the Stupendous brand even with a small price increase per gallon.\t\u00a0\tSuper Paint has been produced since the company began production. The sales level of this product has been rather stagnant for the last 5 years, and that trend is expected to continue in the future.\t\u00a0\t\u00a0\tYou have made the following conclusions about the two different products:\tSuper Paint\t“\ufffd \ufffd \ufffd Sales growth in units will continue to be stagnant.\t“\ufffd \ufffd \ufffd The more recent years are more representative of continuing unit sales than years in the further past.\t“\ufffd \ufffd \ufffd Exponential Smoothing will be an appropriate unit sales projection method to use.\t\u00a0\tStupendous Paint\t“\ufffd \ufffd \ufffd Unit sales growth will continue on its current increasing trend\t“\ufffd \ufffd \ufffd An exponential growth function with the year being the independent variable and the sales volume being the dependent variable will be an appropriate sales projection method.\t\u00a0\t2006 DIRECT MATERIAL AND INVENTORY BUDGET INFORMATION\t\u00a0\tThe production department worked in conjunction with both the sales and purchasing departments in developing desired projected inventory levels for December 31, 2006. Information regarding beginning and desired ending inventories for 2006 are as follows:\t\u00a0\tHint: Remember that each gallon of paint requires two pounds of pigment.\t\u00a0\t\u00a0\t\u00a0\t\u00a0\t2006 DIRECT LABOR BUDGET INFORMATION\tDuring 2005, a new contract was signed with the union. As part of that agreement, no worker can work in more than one department, and no single worker can work over 2,000 hours during the year. This means that for every 2,000 hours of labor that is required for production in each department, one hourly employee is needed. For example, if a department needs 10,150 labor hours during the year, six employees will be needed (10,150 total hours \/2,000 per employee = 5.075 which needs to be rounded to 6 employees).\t\u00a0\tThe standard direct labor rate will increase $0.25 per hour over the 2005 rate.\t\u00a0\tAdditional information regarding employee benefits is included in the section on manufacturing overhead.\t\u00a0\t2006 OVERHEAD BUDGET INFORMATION\t\u00a0\tThe following information is available regarding the actual overhead costs incurred for 2005:\t\u00a0\t2006 SALES DEPARTMENT INFORMATION\t\u00a0\tThe sales department consists of 10 representatives who report directly to the president. Each individual is on a base salary plus a commission, and the sales reps also submit meal and entertainment expenses for reimbursement. (In 2005, the meal and entertainment expenses were limited to $50 per week per sales representative based upon a 52 week year.)\t\u00a0\tThe following information is available regarding the actual selling costs incurred for 2005:\t\u00a0\t \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0 No change\t\u00a0\t2006 ADMINISTRATIVE BUDGET INFORMATION\t\u00a0\tThe administrative department consists of the president and an office staff of eight who handle the secretarial, purchasing, and accounting duties. (Total of nine people.) The following information is available regarding the 2005 actual costs:\t\u00a0\t\u00a0\t\u00a0\t\u00a0\t\u00a0\tIt is felt that the level of the office and administrative staff will be adequate for the coming year. It is expected that the\tfollowing changes will occur in 2006:\t\u00a0\t\u00a0\t\u00a0\t2006 INCOME TAX INFORMATION\t\u00a0\tThe current federal and state income tax rates\u00a0 total 40%. All taxes for the year will be paid by the end of the year \ufffd \ufffd\u00a0\twhich means that there will be no accrued taxes on December 31, 2006.\t\u00a0\t\u00a0\t2006 ACCOUNTS RECEIVABLE INFORMATION\t\u00a0\tIt is expected sales will occur evenly throughout the year and that there will be no cash sales. 75% of monthly sales\twill be collected in the month following the sale, and the remaining 25% will be collected by the end of the second\tmonth. No bad debts are anticipated.\t\u00a0\t2006 ACCOUNTS PAYABLE INFORMATION\t\u00a0\tThis account represents the purchases for raw materials only. It is expected that purchases will be made evenly throughout \u00a0\u00a0\u00a0\u00a0\tthe year, and that all purchases will be paid for during the month following the purchase.\t\u00a0\t\u00a0\t\u00a0\t2006 WAGE AND SALARY INFORMATION\t\u00a0\tThe accrued wage account will include all direct labor, indirect labor, sales commissions and salaries, and administrative salaries. All wages are earned evenly throughout the year, and employees are paid twice each month. On December 31, 2006, the accrued wages will include wages representing one full payroll period.\t\u00a0\t2006 ACCRUED OTHER INFORMATION\t\u00a0\tThis account includes all other cash expenses not included in Account Payable and Accrued\u00a0 Wages. It is the company’s policy to pay all other expenses during the month following the purchase. These expenses will be incurred evenly throughout the year. The 20% fringe benefits will be paid on all wages, salaries, and commissions.\t\u00a0\t\u00a0\t\u00a02006 PROPERTY, PLANT AND EQUIPMENT INFORMATION\t\u00a0\tProperty, plant and equipment consist of the following on December 31, 2005:\t\u00a0\tProperty and plant \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0 $750,000\tEquipment \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd \ufffd\u00a0\u00a0 \ufffd \ufffd\u00a0\u00a0\u00a0 1,025,000\t \ufffd \ufffd\u00a0 Total Property, Plant and Equipment \ufffd \ufffd\u00a0 \ufffd \ufffd\u00a0\u00a0$1,775,000\t\u00a0\tEach additional machine that is needed to support the production level expected during 2006 will cost $30,000 and be depreciated over five years using the straight-line method. Assume that any equipment purchases are made on the first day of the January\u00a0 and are operational throughout the entire year.\t \ufffd \ufffd\u00a0\tNo new equipment will be needed for the sales and administrative departments.\t\u00a0\t2006 LONG-TERM DEBT INFORMATION\t\u00a0\tA long-term debt repayment (principle only)\u00a0 will be made on December 31, 2006 for $255,000. The interest rate charged on the debt balance throughout 2006 will be 7.5% and will be paid on December 31, 2006.\t\u00a0\tIf an additional machine is purchased, $5,000 will be paid in cash and the remaining $25,000 will be financed at the 7.5% rate. This same proportion of cash\/additional debt will be applied to all additional equipment purchased during 2006. Again, any purchases will be made on January 1, 2006.\t\u00a0\tDIVIDEND POLICY\t\u00a0\tFantastic, Inc.’s policy is to pay dividends on the last day of each quarter. The total anticipated dividends for 2006 are $2.50 per share.<\/p>\n","protected":false},"excerpt":{"rendered":"
ACCT 556 Week 7 Course Project Fantastic Inc \u00a0 Fantastic, Inc. is a case study which allows you to incorporate numerous financial and managerial accounting concepts into a single business setting.\u00a0 You will take the position of the company controller Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-201410","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/201410","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=201410"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/201410\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=201410"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=201410"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=201410"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}