Gateway Construction Company – Case Study – Valerie Jane
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Gateway Construction Company
[pic 1]A Case Analysis entitledCase 2: Gateway Construction Company Submitted to theRamon V. Del Rosario College of BusinessDe La Salle University – Manila In partial fulfillmentOf the course requirements inACC535M Management AccountingSaturday, 9:00 am – 12:00 noonTerm 3, AY 2016 – 2017June 3, 2017 Submitted by:Group 3Angeli Ronica BuenviajeEvan Christopher CotiangcoJiezel MasajoValerie Jane Osuna Submitted to:Dr. Jose Lauro B. CruzTable of Contents I. SynthesisII. Point of ViewIII. Statement of the ProblemIV. Statement of ObjectivesV. Areas of ConsiderationVI. Case QuestionsVII. Alternative Courses of ActionVIII. RecommendationIX. Implementation PlanX. ReferencesSYNTHESIS Gateway Construction Corporation is engaged in the business of subcontracting serves for laying gas, sewage and water pipelines. The company employs 25 to 30 people. Its contracts comes mostly from the city and state agencies in Nebraska. The company only averages a profit of 0 to 10% from its sales. In order to stay competitive Jack reviews bids coming from their competitors, and uses the information he was able to gain from his analysis of the differences of their bids and his competition’s basis for their computation. Jack believes that Gateway’s current accounting system is deficient. No effort is made to distinguish between costs, and all bids are based on the cost of laying pipe.POINT OF VIEW The case takes the point of view of Jack Gateway who runs Gateway Construction Corporation.STATEMENT OF THE PROBLEMHow should Gateway Construction set the prices of its services to increase profitability of the company? STATEMENT OF OBJECTIVES Jack’s main objective is to correct the deficient accounting reporting system being used by the company in order to be able to set competitive prices for its services. In particular, Jack should:
Compute for the total traceable equipment costs;Identify the cost classification of each expense; andIdentify better costing strategy to competitively price the company’s services.AREAS OF CONSIDERATION In order to address the identified problem and meet the objectives, the following management and accounting principles must be considered:Activity Based Costing (ABC)This method assigns manufacturing overhead costs to products in a more logical manner than the traditional approach of simply allocating costs on the basis of machine hours. Activity based costing first assigns costs to the activities that are the real cause of the overhead. It then assigns the cost of those activities only to the products that are actually demanding the activities.CASE QUESTIONSClassify the costs in the income statement as (1) costs of laying the pipe (production costs), (2) costs of securing contracts (selling costs), (3) costs of general administration. For production costs, identify direct materials, direct labor, and overhead costs. The company never has significant work in process (most jobs are completed within a day).Analysing and re-classifying the expenses incurred by Gateway Construction Corporation, the Income Statement below is prepared to better reflect the total cost of sales and operating expenses incurred by the company, and its gross and net profit.GATEWAY CONSTRUCTION COMPANYIncome StatementFor the year Ended December 31, 2013Sales (18,200 equipment hrs @ $165)$3,003,000.00Less: Cost of SalesDirect Materials Pipe$1,401,340.00Direct Labor Machine operators$218,000.00 Salaries of mechanics$50,000.00 Other direct labor$265,700.00Overhead Supervisory salaries$70,000.00 Depreciation, equipment$198,000.00 Tires & fuel$418,600.00Total Cost of Sales$2,621,640.00Gross Profit$381,360.00Less: Operating ExpensesSelling Expenses Administrative salaries$57,000.00 Advertising$15,000.00$72,000.00General Administrative Expenses Utilities$24,000.00 Rent, office building$24,000.00 CPA fees$20,000.00 Administrative salaries$57,000.00$125,000.00Net Profit$184,360.00
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By: Valerie Jane
Submitted: August 1, 2017
Essay Length: 1,905 Words / 8 Pages
Paper type: Case Study Views: 816
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