Value Streams and Profit Centers Levine Company is a manufacturer of very inexpensive DVD players and television sets. The company uses recycled parts and a highly structured manufacturing process to keep costs low so that it can sell at very low prices. The company uses lean accounting procedures to help keep costs low and to examine financial performance. Levine uses value streams to study the profitability of its two main product groups, DVD players and TVs. Information about finished goods inventory, sales, production, and average sales price follows:
traceable. Levine considers all traceable fixed costs to be controllable by the manager of each group. Also, Levine’s value stream shows operating income determined by the full costing method; the difference from the traditional full costing income statement is that the effect on income from a change in inventory is shown as a separate item on the value-stream income statement:
Required Consider Levine’s two value streams as profit centers, and use the contribution income statement as a guide to develop a value-stream income statement for the company. (See Exhibit 18.9 for an example of a contribution income statement.) In your solution, replace the term controllable margin (in Exhibit 18.9) with value-stream profit. Be sure to include the inventory effect on profit as a separate line item in your value-stream income statement.
1. What is the effect of the inventory change on the value stream profit of DVDs? a. $500 increase b. $500 decrease c. $5,000 increase d. $5,000 decrease 2. What is the value stream profit of TVs? a. $125,000 b. $111,680 c. $236,680 d. $21,680 3. Interpret the information revealed by the value stream income statements. 4. What is the benefit of the use of value streams for evaluating profit centers relative to the use of the contribution income statement for individual product lines?
