CASE STUDY ASSIGNMENT: ‘Active Sports’ and its Customer ‘Sports-Strength’
Required
a. Given that Active Sports uses direct labour dollars as its application base, what is the company’s predetermined overhead rate?
b. Taking into consideration only these three products:
i. Calculate the total manufacturing cost for June.
ii. Calculate the Cost of Goods Manufactured for June.
iii. Calculate the Ending Work in Process Inventory for June.
iv. Calculate Gross Profit for June.
c. For each of the three products, state whether there are more, fewer, or the same
number of finished units in Finished Goods Inventory on June 30 than there were on
June 1.
d. Active Sports board of directors has adopted a long-term strategy of maximising value of the shareholders’ investment.
To achieve this goal, the board established the following five-year financial objectives:
Increase sales by 10% per year
Increase income before taxes by 15% per year
Increase dividends by 12% per year.
The managing director added a fourth financial objective last year: maintaining cost of goods sold at a maximum of 70% of sales. The company failed to achieve this goal in the year ending 1 February 2019, and it appears that it will again not be achieved in
the current year. Because employee bonuses are tied to performance on all four
objectives, the new internal accountant is concerned about company morale. She
decides that if she overestimates the amount of ending work in process inventory and
reclassifies the fabric inspection costs as administrative rather than manufacturing
overhead costs, cost of goods sold for the year will fall below the 70% maximum level.
She makes the adjustments and presents the managing director a set of financial
statements that meet most of the financial objectives.
i. Explain why the adjustments the accountant made are unethical.
ii. What additional costs, both monetary and non–monetary might Active Sports incur because of the accountant’s actions?
