MINNESOTA CASTING CORPORATION (MCC): A REVENUE RECOGNITION CASE STUDY

Abstract

The Minnesota Casting Corporation (MCC) case study presents a real-life, research-based application of the revenue recognition concept.  It is cast within the automotive manufacturing industry and the revenue recognition issues surrounding a company with customer owned specialized tooling. In a new deal, the company (MCC) acquires, on a client reimbursement basis, the machinery necessary to produce the inventory item required by the client.  Three major issues are to be addressed by the student.  First is whether there is revenue to be recognized by the manufacturer (MCC) for the reimbursed cost of the customer owned tool, especially given that MCC includes a “profit margin” to the cost of the tool.  Second, when should the revenue from the manufacturing process be recognized?  A conversation between MCC’s controller and MCC’s auditors is then captured and becomes part of the case study.  The auditors questioned the treatment given to the reimbursed cost of the customer owned tool.  A unique element in this case study is the consideration given to industry practice in influencing accounting treatment afforded transactions.  Finally, the case requires the student to determine when and how revenue should be recognized for the unique transaction under the newly enacted revenue recognition standard ASC 606.    In summary, this case requires the student to conduct accounting research, apply a principles-based accounting revenue recognition standard to a unique industry where Multiple-Element Arrangements are present, and present a well written solution offering guidance on the treatment of the unique transaction.