About This Assignment
Imagine you are the new CFO for a furniture manufacturer named American Furniture Company (AFC) that has only been in business for a few years. The company manufactures three products: wooden chairs, tables and dressers. AFC started off as a 'Mom & Pop' shop but has grown rapidly. AFC uses one assembly line to build all three products, and each product is hand-assembled before going through an automated painting process. You have been tasked with modernizing the company's accounting methods towards their future goals.
The four different parts of this assignment should be submitted together. While outside sources are NOT required for this assignment, formatting and citations for all parts of this assignment should be done in APA format. For more information on APA format, please see the section on APA Formatting below.
Part #1
Justify to the CEO what type of costing method job-order, process costing, variable costing, and/or activity-based costing) you would recommend AFC use. Assume that all of the items produced are sold. Use the following accounting data in your analysis.
Production & Cost Description
Annual Production
Raw materials in board feet (BF) per unit Raw materiaJs price per unit
Assembly labor time (hours per unit) Labor pay rate
Assembly department overhead per direct labor hour
Painting process machine hours (MH) Painting department overhead per MH Changeover cost per batch
Sales price Fixed Cost Variable SG&A Fixed SG&A
Production & Cost Amounts
5000 chairs/10 batches; 4000 tables/20 batches; 3000 dressers/20 batches
1 chair = 10 BF; 1 table — 15 BF; 1 dresser — 20 BF
$2 per BF
1 chair = 5 hours; 1 table = 7 hours; 1 dresser = 10 hours
$15 per hour
$5
1 chair = 0.5 MH; 1 table = 1.5 MH; 1 dresser = 2 MH
$20
1 chair = $100: 1 table = $150; 1 dresser = $200 1 chair = $180; 1 table = $270; 1 dresser = 5270
$50,000
$5 per unit
$25,000
Within your analysis, make sure to include the following:
• Briefly discuss the advantages and disadvantages of the four costing methods.
• Narrow the choice down to two cost methods you would most recommend and provide your justification.
• Demonstrate how each of the two costing methods you chose would allocate overhead and administrative costs by calculating product costs using each method.
• Provide an income statement for each of the two methods.
• Recommend one of the two final costing methods, providing justification for your final costing method selection.
Your justification should be between 1,000 to 1,500 words in length.
Part #2
Determine what inventory cost flow assumption (weighted average, FIFO and/or LIFO) would be best suited for valuing inventory near the current replacement cost. You will make your analysis based on the following inventory transactions involving chairs only. Remember that the sales price of chairs is
$180 per unit according to the table in Part 1.
Within your analysis, make sure to include the following:
• Briefly discuss the advantages and disadvantages of each inventory costing assumption.
• Calculate the cost of goods sold and ending inventory for each cost flow assumption.
• Demonstrate which of these should be used to net the highest income during inflationary periods.
• Provide justification on what inventory costing assumption you choose.
• Record journal entries for each purchase and sales transaction listed.
Your justification should be between 500 to T50 words in length.
Part #3
|
' Q1 |
Q2 |
Q3 |
Q4 |
|
Chairs sold per quarter ! 1150 |
T 200 |
1250 |
1400 |
Target Sales Goal Per Quarter:
|
Goods |
Quantity |
|
Chairs |
1300 |
|
Tables |
1100 |
|
Dressers |
800 |
Q1 beginning inventory:
|
Goods |
Quantity |
|
Chairs |
120 |
|
Tables |
90 |
|
Dressers |
70 |
Assume that the material and labor costs from Part 1 are standards. Compare those standard costs to the actual amounts listed below. These are the actual amounts used for the entire fiscal year:
|
Actual amount of wood purchased and used |
46,120 bd. ft. |
|
Actual cost of wood purchased and used |
$80,028 |
|
Actual amount of direct labor hours |
17,900 |
|
Actua] cost of direct labor |
$275,550 |
Within your analysis, make sure to include the following:
• Create variance reports for Q1, Q2, Q3, and Q4 against the Quarterly Budget.
• Generate a quarteñy budget for the upcoming year that includes sales, production, materials and labor budgets. Assume a 10% increase in sales.
• Explain how a master budget can be a useful tool in aligning a company’s operations to its long-term goals.
• Discuss how a variance report can be used to direct management toward production issues.
Your explanations of master budgets and variance reports should be 500 to 750 words in length.
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