ABC Co grows and harvests peanuts From the peanuts ABC produces several products (for simplicity the products have been labeled as Product A. B, C, and Di The following incomie statement for the most current month was presented at a meeting of the company's management A B C D TOTAL Revenue $750,000 $300,000 $90,000 $150,000 $1,290,000 Peanut growing and harvesting 63,000 52,500 37,800 56,700 210,000 Separable Processing 480,000 120,000 90,000 690,000 costs Gross Margin $207,000 $127,500 $52,200 $3,300 $390,000 Gross Margin % (rounded) 28% 43% 58% 2% 30% Joint costs were allocated using the Sales Value at Split-Off method of allocation (for no particular reason, rather, that is just the method they have always used). During the company meeting, a tense discussion occurred when it was suggested by the CEO that the manager of product line D should be fired for their lagging performance (as determined by gross margin %). However, the Controller has suggested that the financial statements should be interpreted with caution. What do you think the controller is concerned about? Stated differently, what do you think the controller is worried that management might not be considering?
ABC Co grows and harvests peanuts From the peanuts ABC produces several products (for simplicity the products have been labeled as Product A. B, C, and Di The following incomie statement for the most current month was presented at a meeting of the company's management A B C D TOTAL Revenue $750,000 $300,000 $90,000 $150,000 $1,290,000 Peanut growing and harvesting 63,000 52,500 37,800 56,700 210,000 Separable Processing 480,000 120,000 90,000 690,000 costs Gross Margin $207,000 $127,500 $52,200 $3,300 $390,000 Gross Margin % (rounded) 28% 43% 58% 2% 30% Joint costs were allocated using the Sales Value at Split-Off method of allocation (for no particular reason, rather, that is just the method they have always used). During the company meeting, a tense discussion occurred when it was suggested by the CEO that the manager of product line D should be fired for their lagging performance (as determined by gross margin %). However, the Controller has suggested that the financial statements should be interpreted with caution. What do you think the controller is concerned about? Stated differently, what do you think the controller is worried that management might not be considering?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:ABC Co grows and harvests peanuts From the peanuts ABC produces several products (for
simplicity the products have been labeled as Product A. B, C, and Di The following incomie
statement for the most current month was presented at a meeting of the company's
management
A
B
C
D
TOTAL
Revenue
$750,000 $300,000
$90,000
$150,000
$1,290,000
Peanut growing and
harvesting
63,000
52,500
37,800
56,700
210,000
Separable Processing
480,000 120,000
90,000
690,000
costs
Gross Margin
$207,000 $127,500
$52,200
$3,300
$390,000
Gross Margin % (rounded)
28%
43%
58%
2%
30%
Joint costs were allocated using the Sales Value at Split-Off method of allocation (for no
particular reason, rather, that is just the method they have always used).
During the company meeting, a tense discussion occurred when it was suggested by the CEO
that the manager of product line D should be fired for their lagging performance (as
determined by gross margin %). However, the Controller has suggested that the financial
statements should be interpreted with caution.
What do you think the controller is concerned about? Stated differently, what do you think
the controller is worried that management might not be considering?
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