Giberson’s Glass Studio
Giberson is a skilled glassblower facing financial difficulties in his business. His resources are draining out quickly due to the following reasons –
Lack of proper bookkeeping following his divorce, since his wife used to take care of the activity
He has no knowledge which of his 4 items – glasses, paper weights, tumblers and vases – is profitable
He is in dire need of a better pricing strategy to maintain profits after accounting for costs and his wages
Looking at the available data, Giberson seems to be under-utilizing several of his resources, namely raw materials and time in addition to inefficiently pricing the products. Let us look at each of these factors separately.
Raw Materials
Let us
…show more content…
He could also use this time to expand his portfolio by taking new requests from his customers.
Pricing o Current Profit
Let us calculate the current profit margin and then determine the profitability of the individual items.
First, let us determine the revenue generated from the 4 items
Item
Patterned glasses
Paperwights
Wrapped tumblers
Vases
Weekly
Production
19
10
32
8
Yearly
Production
760
400
1280
320
2760
Price/unit
($)
9
15
8
25
Revenue
($)
6840
6000
10240
8000
31080
Total number of products produced in a year = 2760
Total revenue generated = $31,080
Raw materials cost/year = $ $856.80 ~ $857
In order to calculate operating costs, we need to take into account the depreciation of the assets from the balance sheet. Depreciation cost (DC) = Amount/Life time of the item
Item
Office Supplies
Hand tools & supplies
Part time labor
Gas
Others
Salary
Truck
Insurance
Rent
DC - Furnace & Ovens
DC - Equipment
DC - Gas Tanks
DC - Trucks
Mothly Operating Cost
25
150
100
1000
640
2083.33
205
200
175
208.33
31.25
4.167
142.67
Months
10
10
10
10
12
12
12
12
12
12
12
12
12
Yearly Operating Cost
250
Variable
1500
Cost
1000
$12750
10000
7680
25000
2460
2400
Fixed
2100
Cost
2499.96
$44277
375
50.004
1712.04
57027
[NOTE: Not sure how to use liabilities from the balance sheet]
The items with a 12 month entries incur the cost irrespective of any production activities, while the items with 10 month entries depend on the weight of the items produced.
Total
Thus my recommendation would be for him would involve the utilization of Activity Based Costing to allocate all indirect costs, direct costs, and overall manufacturing time into each and every product he is currently selling. His current method of splitting overhead between each line is inefficient and an incorrect picture of where all his resources are going. Going back to the Wrapped Tumblers example, Giberson would need to allocate more costs towards this product as its high levels of demand are utilizing more resources than he currently realizes. Realizing the true costing amounts of each product in this fashion will allow him to either drop inefficient products or increase/decrease the current prices of his products to match what he is truly spending on them. Given that his business is currently under distress, he also needs to focus on the effects of him completing his custom “made-to-order” products as they will bring in further revenue since manufacturing capacity is not at
Some of the disadvantages are: limiting the vendors may limit the variety of products, relinquishing inventory control over to vendors and distributors may negatively impact their customer satisfaction, and the customers may decide to deal with supplier directly which could put Best Buy at risk of loosing their business.
5. Determine the necessary sales in unit and dollars to break-even or attain desired profit using the break-even formula.
1. For financial accounting purposes, what is the total amount of product costs incurred to make 10,000 units?
Interestingly, clubs, collectors, and museums alike fawn over even the most common of pieces. What makes Depression Glass so special? In a time of hunger and unemployment, its bright colors and exciting patterns made the mundane, or even the miserable, feel more special.
b. The inventory write down recorded, as an expense by the company is $4.4 million. It is measured at lower of cost and net realizable value. Cost is measured by weighted average using standard cost method or
Cost-plus pricing puts many distributors in a difficult position. Unless distributors manufacture the medical supplies they sell, they have difficulty offering competitive prices to customers while continuing to make reasonable profit margins. Applying only the cost-plus pricing method forces distributors to absorb the costs associated with holding, managing, and delivering inventory, regardless of the variations in weight, size or handling difficulties among different products. This is in addition to
Representing costs as a percentage of sales is not the best way to judge efficiency since it can ignore variables such as bottle deposits and discounted rates, which would show problems in production when in fact there are not any. Therefore, JJ’s statement on production remains truthful when he said that CBI has been operating as efficiently, if not more, in the past. Here’s an example:
Risk of increasing labor costs faster than expected which could directly impact the pricing of the products
* Requires short-term capital expenditure to launch product, and provides less economies of scale to launching into the whole market.
know what it is exactly, in order to assess the extent to which the accounting profit reflects
Then, you will have to organize you time better and rearrange the idle periods to locate additional 10.5 hour ((64 minus 43)x1/2 hour) per month for blowing and finishing additional Vases.
And the customer are sensitive to the price since those products are using only few times and need to be change all the time.
The value of fixed assets typically decreases over time. The amount of the decrease each year is accounted for and is called depreciation. Depreciation for the year is expensed on the income statement and added to the accumulated depreciation account on the balance sheet. So the value of the fixed assets on the balance sheet is reduced by the accumulated depreciation.
Businesses – from manufacturing, merchandising and service industries alike – take careful considerations for their costing systems. Setting-up competitive prices in the market can be a result of proper costing methods. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods Zauner Ornaments are currently using and upon conclusion, it will enable us to distinguish the advantages and disadvantages of each costing method.