Gomez Electronics manufactures three models of portable compact disc (CD) player. The company uses a full-cost standard-costing system for internal and external financial reporting. However, the president of the company is considering changing to a standard direct costing (ie, variable costing) for internal purposes. Students are asked to use two sets of profit and loss accounts: one based on a standard costing system, and the other on a standard marginal costing system. Each set of … Read more »

Gomez Electronics manufactures three models of portable compact disc (CD) player. The company uses a full-cost standard-costing system for internal and external financial reporting. However, the president of the company is considering changing to a standard direct costing (ie, variable costing) for internal purposes. Students are asked to use two sets of profit and loss accounts: one based on a standard costing system, and the other on a standard marginal costing system. Each set of profit and loss account contains information that budgeted sales and production budget, and reflects the actual sales and actual production. Gomez Electronics has three production departments, all of which have excess capacity. The company received and an offer from a large discount business, a large amount of CD players, which, with the exception of the plastic case, similar to buy a Gomez Electronics CD player. Under the offer, the price, the total quantity and the delivery schedule. The students are asked to make a decision about whether to accept the offer for the discount company. In addition, students are asked to make a recommendation on the adoption of a standard direct costing for internal use.
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E. Richard Brownlee II
Source: Darden School of Business
6 pages.
Release Date: 6 September 2004. Prod #: UV1745-PDF-ENG
Gomez Electronics, Inc. HBR case solution

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