Direct Marketing Inc. (DMI) offers database marketing strategies to help companies increase their sales

P 6. Direct Marketing Inc. (DMI) offers database marketing strategies to help companies increase their sales. DMI’s basic package of services includes the design of a mailing piece (either a Direct Mailer or a Store Mailer), creation and maintenance of marketing databases containing information about the client’s target group, and a production process that prints a promotional piece and prepares it for mailing. In its marketing strategies, DMI targets working women ages 25 to 54 who are married with children and who have an annual household income in excess of $50,000. DMI has adopted activity-based management, and its controller is in the process of developing an ABC system. The controller has identified the following primary activities of the
company:

Use database of customers Accounting
Service sales Mailer assembly
Deliver mailers to post office Process orders
Supplies storage Purchase supplies
Client follow-up Design mailer
Database research trends Building maintenance
Schedule order processing Processing cleanup
Personnel Mailer rework

Required
1. Identify the activities that do not add value to DMI’s services.
2. Assist the controller’s analysis by grouping the value-adding activities into the activity areas of the value chain shown in Figure 22-1.
3. State whether each non-value-adding activity is necessary or unnecessary. Suggest how each unnecessary activity could be reduced or eliminated.


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The management of Clare Co. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods

P6-7B The management of Clare Co. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2011, the accounting records show the following data.

Inventory, January 1 (10,000 units) $ 45,000
Cost of 100,000 units purchased 532,000
Selling price of 80,000 units sold 700,000
Operating expenses 140,000

Units purchased consisted of 35,000 units at $5.10 on May 10; 35,000 units at $5.30 on August 15; and 30,000 units at $5.60 on November 20. Income taxes are 30%.

Instructions
(a) Prepare comparative condensed income statements for 2011 under FIFO and LIFO. (Show computations of ending inventory.)
(b) Answer the following questions for management.
(1) Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why?
(2) Which inventory cost flow method produces the most meaningful net income? Why?
(3) Which inventory cost flow method is most likely to approximate actual physical flow of the goods? Why?
(4) How much additional cash will be available for management under LIFO than under
FIFO? Why?
(5) How much of the gross profit under FIFO is illusory in comparison with the gross profit under LIFO?


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The management of Utley Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods

P6-7A The management of Utley Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2008 the accounting records show these data.

Inventory, January 1 (10,000 Units) $35,000
Cost of 120,000 units purchased 504,500
Selling price of 100,000 units sold 665,000
Operating expenses 130,000

Units purchased consisted of 35,000 units at $4.00 on May 10; 60,000 units at $4.20 on August 15; and 25,000 units at $4.50 on November 20. Income taxes are 28%.

Instructions:
a. Prepare comparative condensed income statements for 2008 under FIFO and LIFO (show computations of ending inventory.)
b. Answer the following questions for management in the form of a business letter.
1. Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why?
2. Which inventory cost flow method produces the most meaningful net income? Why?
3. Which inventory cost flow method is most likely to approximate the actual physical flow of the goods? Why?
4. How much more cash will be available for management under LIFO than under FIFO? Why?
5. How much of the gross profit under FIFO is illusionary in comparison with the gross profit under LIFO?

Click here for the solution: The management of Utley Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods