Accounting 504 unit 8

1. (Analyzing inventory reductions at Supervalu) In a narrative format, answer all question presented in the case. Mention some ways other than cost cutting that will improve company operations. SUPERVALU Corporation may achieve the following benefits by reducing its inventory by 25% a. The first probable cost saving would be decreasing cost of material. Having fewer inventories in stock and lessening the use of inventory will save cost on inventory fees, insurance expense to cover inventory and shipping expenses. b. The fewer inventories the company holds the less space will be required saving, warehouse rent expenses as well as the cost of labor for stock verification and inventory level. c. Less inventory will possibility cut down the chances of theft, damage as there will be less items for the company to maintain. d. One possible benefit of holding fewer inventories in stock is the company may have an easier time getting loans, for the reason that creditors would see the company's operating expenses are lower indicating good management by the company. e. The fewer inventory the company carry the less cash is tied up as idle in holding inventory. f. Reduced inventory could help the company in pricing their products competitively, increasing their market share as profit margin as lower expenses could aid them in leading their respective industry. b. Prepare revised product-line earnings statements based on the elimination of Sugar-Bits. It will be necessary to calculate some per-unit data to accomplish this. Per Unit Data Product Amount Units Per/Unit Fiber Treats: Cost of production $48,000 480,000 $0.1000 Sales Commissions $6,000 480,000 $0.0125 Shipping and Handling $10,800 480,000 $0.0225 Miscellaneous $3,600 480,000 $0.0075 Carbo Treats Cost of production $48,000 480,000 $0.1000 Sales Commissions $6,000 480,000 $0.0125 Shipping and Handling $9,600 480,000 $0.0200 Miscellaneous $2,400 480,000 $0.0050 Product Line Earnings Statements (Revised) (Dollar Amounts are in thousands) Annual Cost of Operating Fiber Treats Carbo Treats Total Sales in units 580,000 580,000 1,160,000 Sales in dollars $580,000 $580,000 $1,160,000 Units level costs: Cost of production 58,000 58,000 116,000 Sales Commissions 7,250 7,250 14,500 Shipping and Handling 13,050 11,600 24,650 Miscellaneous 4,350 2,900 7,250 Total-Unit level costs 82,650 79,750 162,400 Product Level costs: Supervisors salaries 4,800 3,600 8,400 Facility Level costs: Rent 60,000 60,000 120,000 Utilities 63,000 63,000 126,000 Depreciation on equip. 192,000 192,000 384,000 Allocated Co. wide exp. 15,000 15,000 30,000 Total Facility level costs 330,000 330,000 660,000 Total Production costs 417,450 413,350 830,800 Profit on products $162,550 $166,650 $329,200 Sale of Sugar Bits Equipment 35,000 Projected Income 364,200 2. How do managers go about making segment product line elimination decisions? Whether to eliminate a product line segment or continue, a manager takes into account the qualitative and quantitative effect of that particular product line on the company profit. The first step in determining its effect is the quantitative analysis, which includes determining revenues and costs related with the probable elimination. The manager first break down each subcomponent by department, product and division segments and then finds out relevant expense and revenue reports for each sub component. For example, if they want to see the breakdown of their product line, say shampoo, conditioner and hair oil manufactured by the business, manager can create individual expense and revenue report for each product line and their individual contribution to the business. Then, the manager can create two separate income statement based on contribution margin (one statement assuming saving/loss if the product is continued and the other saving/loss if discontinued) and do the required comparison for determining cost and benefits of abolishing...

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