answer questions 10 and 11 only. ................................................................

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. The sawmill buys logs from independent producers. The sawmill then processes the logs into four grades of lumber: firsts and seconds, No. 1 common, No. 2 common, and No. 3 common. All costs incurred in the mill are common to the four grades of lumber. All four grades of lumber are used by the furniture plant. The mill transfers everything it produces to the furniture plant, and the grades are trans- ferred at cost. Trucks are used to move the lumber from the mill to the furniture plant. Although no outside sales exist, the mill could sell to external customers, and the selling prices of the four grades are known. The fabric plant is responsible for producing the fabric that is used by the furniture plant. To pro- duce three totally different fabrics (identified by fabric ID codes FB60, FB70, and FB80, respectively), the plant has three separate production operationsone 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: the weaving and pattern process and the coloring and bolting process. In the weav- ing and pattern process, yarn is used to create yards of fabric with different designs. In the next pro- cess, the fabric is dyed, cut into 25-yard sections, and wrapped around cardboard rods to form 25-yard bolts. The bolts are transported by forklift to the furniture plant's Receiving Department. All of the out- put 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. 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: Cutting and Assembly. In the Cutting Department, the fabric and wooden frame components are sized and cut. Other components are purchased from external suppliers and are removed from stores as needed for assembly. After the fabric and wooden components are finished for the entire job, they are moved to the Assembly Department. The Assem- bly Department takes the individual components and assembles the sofas (or chairs). 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 couldn't 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 com- pany'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 proce- dures of the company's mill and two plants and did a preliminary assessment of their soundness. The production costs of the mill were common to all lumber grades and were assigned using the physical units method. Since the output and production costs were fairly uniform throughout the year, the mill used an actual costing system. Although Gisela had no difficulty with actual costing, she decided to Answer only question 10 and 11 1. Allocate the joint manufacturing costs to each grade, and calculate the cost per board foot for each grade: (a) using the physical units method of allocation, and (b) using the sales-value-at- split-off method. Which method should the mill use? Explain. What is the effect on the cost of each proposed job if the mill switches to the sales-value-at-split-off method? 2. Calculate the plantwide overhead rate for the fabric plant. 3. Calculate the amount of under- or overapplied overhead for the fabric plant. 4. Using the weighted average method, calculate the cost per bolt for Fabric FB70. 5. Assume that the weaving and pattern process is not a separate process for each fabric. Also, assume that the yarn used for each fabric differs significantly in cost. In this case, would process costing be appropriate for the weaving and pattern process? What costing approach would you recommend? Describe your approach in detail. 6. In the Coloring and Bolting Department, 400,000 ounces of other materials were used to pro- duce the output of the period. Using the proposed standard cost sheet, calculate the following variances for the Coloring and Bolting Department: Calculate the following overhead rates for the furniture plant: (1) plantwide rate and (2) depart- mental rates. Use the direct method for assigning service costs to producing departments. 10. For each of the overhead rates computed in Requirement 9, calculate unit bid prices for Jobs A500 and B75. Assume that the company's aggressive bidding policy is unit cost plus 50 percent. Did departmental overhead rates have any effect on Beauville's winning or losing bids? What recommendation would you make? Explain. Now, adjust the costs and bids for departmental rate bids using the proposed standard costs for the Coloring and Bolting Department. Did this make a difference? What does this tell you? 11. Suppose that the fabric plant is set up as a profit center. Bolts of Fabric FB70 sell for $400 (or can be bought for $400 from outside suppliers). The fabric plant and the furniture plant both have excess capacity. Assume that Job A500 is a special order. The fabric and furniture plants have sufficient excess capacity to satisfy the demands of Job A500. What is the minimum transfer price for a bolt of FB70? If the maximum transfer price is $400, by how much do the fabric plant's prof- its increase if the two profit centers negotiate a transfer price that splits the joint benefit? Here is the answer to questions 6 to 9 6. a. Material price variance = (std. price - actual price) actual qty. b. materials usage variance = (std. qty - actual qty) std price. c. labor rate variance is the difference between the standard labor rate and the actual labor rate during a specific period. the formula is (SR-AR) AH standard rate = 8. actual hours - 14,000 actual rate = total labor costs/ actual hours = (99,400+6,600) / 14,000= 7.57 therefore LRV = (8-7.57) 14000 = 6020 d. Labor efficiency variance the difference between the standard hours of actual output and actual labor hours and the product of the standard labor rate. LEV= (standard hrs. for actual output- actual hours) std. rate Std rate for actual hours= total labor hours units transferred out = 3.13,200 = 9,920 Given: actual hours =14,000, Std. rate = 8 Therefore LRV is (9,920 - 14,000) 8 = 32,640 7. Assuming that the standard hours allowed for the actual total output of the fabric plant are 115,000. Budgeted fixed overhead = 12lacs50%= Rs.600,00 Actual fixed overhead is, 1150,00050% = Rs.575,000 a. Fixed overhead spending variance = (budgeted fixed overhead - actual fixed overhead) 600,000-575,000 = 25,000 (f) b. Fixed overhead volume variance = std hrs for actual output - budgeted hours) std rate. std hrs for actual output = (direct labor hours overhead) / budgeted overhead (120,0001,150,000) / 1,200,00 = 115,000 (115,00-118,000) 10 = 30,000 (A) c. Variable overhead spending variance = (budgeted variable OH - actual variable OH) 600,000-575,000= 25,000(f) 8. a. Sales budget: Units (3,000 + 2,000) Selling price Sales 5,000 $400 $2,000,000 b. Production budget: Unit sales 5,000 Desired ending inventory 1,000 Total needed 6,000 Less: Beginning inventory 500 Units produced c. 5,500 Direct labor budget: Units produced 5,500 Direct labor hours per unit Direct labor hours needed 17,050 Cost per hour Total direct labor cost d. 3.1 $8 $136,400 Cost of goods sold budget: Units to be sold Unit standard cost Cost of goods sold 9. Plant Wide Rate: The overhead rate for the furniture plant are: 5,000 $325.80 $1,629,000 Basis Receiving Power Maintenanc e General factory Cutting Assembly Overhead $450,000 $600,000 $300,000 $525,000 $750,000 $375,000 Basis of receiving orders Basis of machine hours Basis of square feet ($450,000) $270,000 $180,000 $480,000 $120,000 $180,000 $120,000 ($525,000) $105,000 $420,000 Nil $1,785,000 $1,215,000 (600,000) ($300,000) Basis of labor hours Total Nil Nil Nil b. departmental rates, furniture plant, departmental data(budgeted), service departments. Overhead Receiving Power Maintenance $450,000 $600,000 $300,000 Machine hours Receiving orders $600,000 ($450,000) Square feet ($300,000) Direct labor hours Departmental data (budgeted): Producing department Overhead General factory Cutting Assembly $525,000 $750,000 $375,000 Machine hours $480,000 $120,000 Receiving orders $270,000 $180,000 Square feet $180,000 $120,000 Direct labor hours $105,000 $420,000