Gantry Manufacturing is a medium-sized organization with manufacturing facilities in seven locations around the southwestern United States. Of these facilities, Galveston and Amarillo are treated as profit centers, with local management exercising authority over manufacturing costs, certain nonmanufacturing costs (e.g., advertising at local minor league baseball stadiums, sponsoring local charity events, etc.), and sales revenue. The following segment income statements were prepared by facility-level accountants and were provided to the corporate office in Denver, Colorado, shortly after the end of this year’s second quarter. Note that the statements are shown in parallel for convenience and are not intended to be combined for analysis purposes. The managers of these two facilities are former classmates at the University of Texas at Austin and routinely stay in touch with each other. Shortly after receiving the quarterly results from his accountant the Amarillo manager, Jim Lowell, called his friend in Galveston to talk about the surprising loss shown on his facility’s income statement. After a short conversation with the Galveston manager, Jim met with his accountant. He learned the following: • A recent memo sent from the corporate controller to all facility controllers indicated that new manufacturing overhead rates should be used beginning May 1, 2009. The old rate was $2.80 per direct labor hour and the new rate is $3.25 per direct labor hour. The memo had a new p
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