CASE TWO
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BANNER MANUFACTURING INC.
In your second interview with Mr. banner, you presented your well
prepared financial analysis of the Banner Manufacturing Company
along with a cash flow statement. Mr. Banner was indeed very
impressed with your personality and knowledge and consequently
offered you a position as a general manager for his company.
With a great deal of confidence and enthusiasm, you began your work
last week. After several days of hard work, you become familiar
with the general operations of the Company. In addition, you found
a copy of comparative financial statements for the first 12 months
of the operations (previous year). However, you were not able to find
reliable and useful information about the unit cost of the
Company’s products.
OPERATING DATA
Banner Company makes two products, X and Y. The manufacturing
operations take place in two producing departments, cutting and
assembly. The Company also has two service departments, general
factory and maintenance. These service departments provide services
to the cutting and assembly departments.
The general factory department handles all purchases and takes care of
the administrating matters. The maintenance department performs all
the maintenance works for the cutting and the assembly departments.
The Company uses material “A” for both products X and Y. Material
“B” is used only for product Y.
Due to the standardization and simplification of production,
unskilled workers have been used in the past year. The Company can
assign worker to either producing departments with minor training.
The material and labor requirements for the products are presented
in appendix C.
All sales of the Company are on credit. Approximately, half of the
customers take advantage of the cash discount and pay with in the
one month discount period.
PLANNING FOR SUCCESS
Having gathered the above information, you are very anxious to
utilize your intelligence and knowledge to improve the operations
of the Banner Company. You have realized that first you need to
determine the behavior of the Company’s various costs in order to
improve planning, cost control, and decision making.
REQUIREMENTS
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Determine the cost equations for factory overhead, advertising
expense, salary & commissions, bad debt expense, sales discount,
and purchasing expense by using a simple or multiple regression
model and the data presented in appendices C &D.