Group Project2 2024 Spring

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Los Angeles Southwest College *

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COST ACCOU

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Accounting

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Apr 3, 2024

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pdf

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Uploaded by BrigadierWren1173

1 © 2024, Jennifer K Howard. All rights reserved. ACCT 320: Group Project 2 Spring 2024 Business Description Beauville Furniture Corporation produces sofas, recliners, and lounge chairs. Beauville is located in a medium-sized community in the southeastern part of the United States. It is a major employer in the community. In fact, the economic well-being of the community is tied very strongly to Beauville. Beauville operates a sawmill, a fabric plant, and a furniture plant in the same community. Fabric Plant The fabric plant is responsible for producing the fabric that is used by the furniture plant. To produce three totally different fabrics (identified by fabric ID codes FB60, FB70, and FB80, respectively), the plant has three separate production operations—one for each fabric. Thus, production of all three fabrics occurs at the same time in different locations in the plant. Each fabric's production operation has two processes: 1. Weaving and pattern process a. In the weaving and pattern process, yarn is used to create yards of fabric with different designs. 2. Coloring and bolting process a. In the next process, the fabric is dyed, cut into 25-yard sections, and wrapped around cardboard rods to form 25-yard bolts. b. The bolts are transported by forklift to the furniture plant's Receiving Department. All of the output of the fabric plant is used by the furniture plant (to produce the sofas and chairs). For accounting purposes, the fabric is transferred at cost to the furniture plant.

2 © 2024, Jennifer K Howard. All rights reserved. Furniture Plant The furniture plant produces orders for customers on a special-order basis. The customers specify the quantity, style, fabric, lumber grade, and pattern. Typically, jobs are large (involving at least 500 units). The plant has two production departments: 1. Cutting a. In the Cutting Department, the fabric and wooden frame components are sized and cut. b. Other components are purchased from external suppliers and are removed from stores as needed for assembly. c. After the fabric and wooden components are finished for the entire job, they are moved to the Assembly Department 2. Assembly a. The Assembly Department takes the individual components and assembles the sofas (or chairs). Problem Beauville Furniture has been in business for over two decades and has a good reputation. However, during the past five years, Beauville experienced eroding profits and declining sales. Bids were increasingly lost (even aggressive bids) on the more popular models. Yet, the company was winning bids on some of the more-difficult-to-produce items. Lance Hays, the owner and manager, was frustrated. He simply could not understand how some of his competitors could sell for such low prices. On a common sofa job involving 500 units, Beauville's bids were running $25 per unit, or $12,500 per job more than the winning bids (on average). Yet, on the more difficult items, Beauville's bids were running about $60 per unit less than the next closest bid. Gisela Berling, vice president of finance, was assigned the task of preparing a cost analysis of the company's product lines. Lance wanted to know if the company's costs were excessive. Perhaps the company was being wasteful, and it was simply costing more to produce furniture than it was costing its competitors. Gisela prepared herself by reading recent literature on cost management and product costing and attending several conferences that explored the same issues. She then reviewed the costing

3 © 2024, Jennifer K Howard. All rights reserved. procedures of the company's mill and two plants and did a preliminary assessment of their soundness. Preliminary assessment The two plants used normal costing systems. The fabric plant used process costing, and the furniture plant used job-order costing. Both plants used plantwide overhead rates based on direct labor hours. Based on her initial reviews, she concluded that the costing procedures for the fabric plant were satisfactory. Essentially, there was no evidence of product diversity. A statistical analysis revealed that about 90 percent of the variability in the plant's overhead cost could be explained by direct labor hours. Thus, the use of a plantwide overhead rate based on direct labor hours seemed justified. What did concern her, though, was the material waste that she observed in the plant. Maybe a standard cost system would be useful for increasing the overall cost efficiency of the plant. Consequently, as part of her report to Lance, she decided to include a description of the fabric plant's costing procedures—at least for one of the fabric types (FB70). She also decided to develop a standard cost sheet for the chosen fabric (FB70). The furniture plant, however, was a more difficult matter. Product diversity was present and could be causing some distortions in product costs. Furthermore, statistical analysis revealed that only about 40 percent of the variability in overhead cost was explained by the direct labor hours. She decided that additional analysis was needed so that a sound product costing method could be recommended. One possibility would be to increase the number of overhead rates. Thus, she decided to include departmental data so that the effect of moving to departmental rates could be assessed.

4 © 2024, Jennifer K Howard. All rights reserved. With the cooperation of the cost accounting manager for the mill and each plant’s controller, she gathered the following data for last year: Fabric Plant: Budgeted overhead: $1,200,000 (50% fixed) Practical volume (direct labor hours): 120,000 hours Actual overhead: $1,150,000 (50% fixed) Actual hours worked (for each fabric type, department, and in total): Grade Weaving and Pattern Coloring and Bolting Total Fabric FB60 20,000 12,000 32,000 Fabric FB70 28,000 14,000 42,000 Fabric FB80 26,000 18,000 44,000 Total 74,000 44,000 118,000 Departmental data on Fabric FB70 (actual costs and actual outcomes): Weaving and Pattern Coloring and Bolting Beginning inventories Units* 20,000 400 Costs: Transferred in $0 $100,000 Materials $80,000 $8,000 Labor $18,000 $6,600 Overhead $22,000 $9,000 Current production: Units started 80,000 ? Units transferred out 80,000 3,200 Costs: Transferred in $0 ? Materials $320,000 $82,000 Labor $208,000 $99,400 Overhead ? ? Percentage completion: Beginning inventory 30% 40% Ending inventory 40% 50% *Units are measured in yards for the Weaving and Pattern Department and in bolts for the Coloring and Bolting Department. Note: With the exception of the cardboard bolt rods, materials

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