Evian Corporation is a private corporation formed for thepurpose of providing

the products and the services needed to irrigate farms, parks,commercial projects,

and private homes. It has a centrally located factory in a U.S.city that manufactures the

products it markets to retail outlets across the nation. It alsomaintains a division that

provides installation and warranty servicing in six metropolitanareas.

The mission of Evian is to manufacture quality parts that can beused for effective

irrigation projects that also conserve water. By that effort,the company hopes to satisfy

its customers, provide rapid and responsible service, and servethe community and

the employees who represent them in each community.

The company has been growing rapidly, so management isconsidering new ideas to

help the company continue its growth and maintain the highquality of its products.

Evian was founded by Will Winkman who is the company presidentand chief

executive officer (CEO). Working with him from the company’sinception was Will’s brother,

Ben, whose sprinkler designs and ideas about the installation ofproper systems have been

a major basis of the company’s success. Ben is the vicepresident who oversees all aspects

of design and production in the company. The factory itself ismanaged by Todd Senter who hires his line managers to supervise thefactory employees. The factory makes all of the parts for theirrigation systems. The purchasing department is managed by HectorHines.

The installation and training division is overseen byvice president Henry Writer, who

supervises the managers of the six local installationoperations. Each of these local managers

hires his or her own local service people. These serviceemployees are trained by the home

office under Henry Writer’s direction because of the uniquenessof the company’s products.

There is a small Human Resources department under the directionof Sally Fenton,

a vice president who handles the employeepaperwork, though hiring is actually performed

by the separate departments. Sam Totter is the vicepresident who heads the sales

and marketing area; he oversees 10 well-trained salespeople.

The accounting and finance division of the company is headed byAbe Headman, who

is the chief financial officer (CFO) and a company vicepresident; he is a member of the

Institute of Management Accountants and holds a certificate inmanagement accounting.

He has a small staff of Certified Public Accountants, includinga controller and a treasurer,

and a staff of accounting input operators who maintain thefinancial records.

A partial list of Evian’s accounts and their balances for themonth of November 2012 follows.

AccountsReceivable                                                               $ 245,000

AdvertisingExpenses                                                                 54,000

Cash                                                                                              250,000

Depreciation—Factory Equipment                                            16,800

Depreciation—Office Equipment                                                2,400

Direct Labor                                                                                   42,000

Factory Supplies Used                                                                 16,800

Factory Utilities                                                                             10,200

Finished Goods Inventory, November30                                              67,700

Finished Goods Inventory, October 31                                     72,500

Indirect Labor                                                                               48,000

Office Supplies Expense                                                               1,600

Other Administrative Expenses                                                72,000

Prepaid Expenses                                                                        41,250

Raw Materials Inventory, November 30                                 52,600

Raw Materials Inventory, October31                                     38,300

Raw Materials Purchases                                                         184,500

Rent—Factory Equipment                                                        47,000

Repairs—Factory Equipment                                                     4,500

Salaries for the officeworkers                                              325,500

Sales                                                                                       1,225,000

Sales Commissions                                                                    40,500

Work In Process Inventory October 31                                  52,700

Work In Process Inventory, November 30                            41,000

Instructions for part 1

(a) Based on the information given, construct anorganizational chart of Evian

Corporation. (see illustration 1-2 in text)

(b) A list of accounts and their values are given above.From this information, prepare a cost of goods manufacturedschedule, a cost of goods sold schedule, an income statement, andthe current assets section of the balance sheet for EvianCorporation for the month of November 2012. (see illustrations inthe text)

Part 2

Evian has two major public-park projects to provide withcomprehensive

irrigation in one of its service locations this month. Job J57and Job K52 involve 15 acres

of landscaped terrain which will require special-order sprinklerheads to meet the specifications

of the project. Using a job cost system to produce these parts,the following

events occurred during December 2012:

Raw materials were requisitioned from thecompany’s inventory on December 2 for

$4,995; on December 8 for $960; and on December 14 for $3,306.In each instance, two-

thirds (2/3) of these materials were for J57 and the rest forK52.

Six time tickets were turned in for these twoprojects for a total amount of 18 hours

of work. All the workers were paid $16.50 per hour. The timetickets were dated December 3,

December 9, and December 15. On each of those days, 6 laborhours were spent on these

jobs, two-thirds (2/3) for J57 and the rest for K52.

The predetermined overhead rate is based onmachine hours. The expected machine

hour use for the year is 2,112 hours, and the anticipatedoverhead costs are $842,688

for the year. The machine were used by workers on projects K52and J57 on December 3, 9,

and 15. Six machine hours were used for project K52 (2 eachday), and 8.5 machine hours

were used for project J57 (2.5 the first day and 3 each of theother days). Both of these

special orders were completed on December 15, producing 235sprinkler heads for J57

and 145 sprinkler heads for K52.

Additional job order activities during this period of timeincluded:

Dec. 1 Purchased raw materials from Durbin Supply Company onaccount for $53,200.

Dec. 2 Issued $42,000 of direct materials from the company’sinventory to jobs other than K52 and J57 and $3,000 of indirectmaterials.

Dec. 12 Paid Evian’s factory salaries and wages in the amount of$67,000.

Dec. 13 Paid the factory’s water bill of $3,000.

Dec. 18 Transferred $50,000 of costs from other completed jobsto finished goods.

Dec. 21 Paid the factory’s electric bill of $12,000 forfactory.

Instructions for part 2

(a) Set up the job cost sheets for Job No. J57 and JobNo. K52. Determine the total cost for each manufacturing specialorder for these jobs. (Round unit cost to nearestcent.)

(b) Journalize the activities from these job cost sheetsin the general journal. Also journalize the other costs thatoccurred during this period of time.

(c) Assuming that Manufacturing Overhead has a creditbalance of $3,400, determine whether overhead has been under/overapplied and make the adjusting entry.

Part 3

Because most of the parts for its irrigation systems arestandard, Evian handles

the majority of its manufacturing as a process cost system.There are multiple process

departments. Three of these departments are the Molding,Cutting, and Welding departments.

All items eventually end up in the Package department whichprepares items for

sale in kits or individually.

The following information is available for the Moldingdepartment for January.

Work in process beginning: 22,000 units , Totalcosts in beginning work in process $252,854

Costs in work in process inventory:   Materials$168,020, Labor 67,564, Overhead 17,270

Units started into production in January60,000

Units completed and transferred-out in January58,000

Costs added to production: Materials $264,940, Labor 376,188,Overhead 60,578 =Total costs added into production in January$701,706

Work in process ending:

Units in process 24,000

Stage of completion for materials 100%

Stage of completion for labor and overhead 30%

Instructions for part 3

(a) Prepare a production cost report for Evian using theweighted-average method.

Part 4

Direct labor or machine hours may not be the appropriate costdriver for overhead

in all areas of manufacturing due to the complexities of manymanufacturing

processes. Many companies use activity-based costing (ABC) whichuses multiple drivers

(items that consume resources) rather than just one driver toapply overhead to their

activities. With ABC, a company can use a cost driver that has adirect cause/effect relationship

in its applied overhead costs.

Evian looked into ABC as a method of costing because of thevariety of items it

produces and the many different activities in which it isinvolved. The activities listed

below are a sample of possible cost pools for Evian.

Assembling

Payroll

Billing

Plant supervision

Digging trenches

Purchasing materials

Machine maintenance

Selling

Machine setups

Testing

Molding

Welding

Packaging

Instructions for part 4

(a) For each of these cost pools, what would be thelikely activity cost driver?

(b) Using the following information, determine theoverhead rates and the actual cost assigned for each of theactivity cost pools in a possible ABC system forEvian.

EVIAN CORPORATION

Expected

Use of                            Actual

Estimated          CostDrivers                            Use of

Activity CostPools                      Cost Drivers      Overhead          per Activity                            Drivers

Irrigationinstallation                   Labor cost         $1,999,500             12,900                                   12,941

Machining (all machine use)      Machine hours 1,670,400        33,408,000                            33,409,000

Customer orders                          # of orders              30,636                  2,553                                     2,520

Shipping                                        none(direct)                   N/A traced directly

Design                                            Cost per design           820                     10                                          7

Selling                                            Number of calls       372,300            21,900                                   22,100

(d) (1) The results of ABC can provide a more accuratepicture of costs. Discuss the value of Evian using this system todetermine overhead costs.

(2) How might using ABC affect decision making atEvian?