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 transferred 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 produce three totally different fabrics (identified by fabric ID codes FB60, F870, and FBBO, 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: the weaving and pattern process and the coloring and bolting process. In the weaving and pattern process, yarn is used to create yards of fabric with different designs. In the next process, 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 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. 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 externalisminions and are removed from stars as needed for comb Alto hatiandi vandencomanantsins filshade 3:38 A 90 100 from external suppliers and are removed from stores as needed for assembly. Alter the fabric and wooden components are finished for the entire job, they are moved to the Assembly Department. The Assembly 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 dedining 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 soo 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 slmply 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 procedures 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 explore the effects of using the sales-value-at-split-off method. Thus, cost and production data for the mill were gathered so that an analysis could be conducted. 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 234 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. She also decided to develop a standard cost sheet for the chosen fabric. 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. Finally, she also wanted to explore the possibility of converting the sawmill and fabric plant into profit centers and changing the existing transfer pricing policy. with the cooperation of the cost accounting manager for the mill and each plant's controller, she gathered the following data for last year: Sawmill: Joint manufacturing costs: $900,000 Quantity Produced Grade (board feet) Price at Split-Off (per 1,000 board foot) Firsts and seconds 1,500,000 $300 No. 1 common 3,000,000 225 No 2 common 1.875,000 140 ORI @ 3:39 PM 3/7/2021 Sawmill: Joint manufacturing costs: $900,000 Quantity Produced Grade (board feet) Firsts and seconds 1,500,000 Price at Split-off (per 1,000 board foot) $300 No. 1 common 3,000,000 225 No. 2 common 1,875,000 140 No. 3 common 1,125,000 100 Total 7.500,000 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 Weaving and Coloring and Grade Pattern Bolting Total Fabric F360 20,000 12,000 32,000 OR 3:40 PM 1/7/2021 Weaving and Pattern Coloring and Bolting Grade 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 coloring and Pattern 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: 9 Id Current production: 80,000 2 Units started Units transferred out 80,000 3,200 Costs: $0 2 Transferred in Materials $320,000 $82,000 Labor $208,000 $99,400 Overhead ? 2 Percentage completion: Beginning inventory Ending Inventory 30% 40% 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 are added at the beginning of each process, The cost of the rods is relatively insignificant and is included in overhead. Proposed standard cost sheet for Fabric FB70 (for the Coloring and Bolting Department only): Transferred-in materials (25 yards @ $10) $250.00 Other materials (100 ounces @ $0.20) 20.00 Labor (3.1 hours @ $8) 24.80 15 Elved overhead /21 heures ROOTSPEROUS Fixed overhead (3.1 hours @ $5) 15.50 15.50 Variable overhead (3.1 hours $5) Standard cost per unit $325.80 Furniture Plant: Departmental data (budgeted): Service Departments Producing Departments General Receiving Power Maintenance Factory Cutting Assembly Overhead $450,000 $300,000 $600,000 $375,000 $525,000 $750,000 60,000 15,000 Machine hours 13,500 9,000 Receiving orders 1,000 4,000 10,000 5,000 Square feet 15,000 50,000 200,000 Direct labor hours After some discussion with the furniture plant controller, Gisela decided to use machine hours to calculate the overhead rate for the Cutting Department and direct labor hours for the Assembly Department rate (the Cutting Department was more automated than the Assembly Department). As part of her report, she wanted to compare the effects of plantwide rates and departmental fates on 3:41 the Assembly Department). As part of her report, she wanted to compare the effects of plantwide rates and departmental rates on the cost of jobs. She wanted to know if overhead costing could be the source of the pricing problems the company was experiencing. To assess the effect of the different overhead assignment procedures, Gisela decided to examine two prospective jobs. One job, Job A500, could produce 500 sofas, using a frequently requested style and Fabric FB70. Bids on this type of job were being lost more frequently to competitors. The second job, Job B75, would produce 75 specially designed recliners. This job involved a new design and was more difficult for the workers to build. It involved some special cutting requirements and an unfamiliar assembly. Recently, the company seemed to be winning more bids on jobs of this type. To compute the costs of the two jobs, Gisela assembled the following information on the two jobs: Job A500: 180 bolts $350 20,000 board feet O $0.12 Direct materials: Fabric FB70 Lumber (No. 1 common) Other components Direct labor: Cutting Department Assembly Department $26,600 400 hours $10 1,600 hours $8.75 Machine time: 350 machine hours Cutting Department Assembly Department 50 machine hours Job B75: Direct materials: N Fabric FB70 26 yards a $350 Lumber (first and seconds) 2,200 board feet O $0.12 Other components $3,236 Direct labor: 70 hours $10 Cutting Department Assembly Department 240 hours @ $8.75 Machine time: 90 machine hours Cutting Department Assembly Department 15 machine hours Required: 1. Allocate the joint manufacturing costs to each grade, and calculate the cost per board foot for each grade using the following methods. Round unit cost answers to two decimal places. (a) Physical units method of allocation: Grades Allocation Unit Cost Firsts and seconds A common RE PITSIS TO SECUTUS No. I common III No. 2 common No. 3 common Totals (b) Sales-value-at-split-off method: Grades Allocation Unit Cost Firsts and seconds No. 1 common III No. 2 common No. 3 common Totals Which method should the mill use? What is the effect on the cost of each proposed job If the mill switches to the sales-value-at-split-off method? Effect on Job ASOO the cost per board foot is thus cost by $ Effect on Job 875 the cost per board foot is by $ thus cost Galat that ssignment/take AssignmentMain.do?invokerStakeAssignmentSessionlocator unprogle LOGO 2. Calculate the plantwide overhead rate for the fabric plant. per hour 7 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. used. Typically, Process costing be appropriate. Operation costing is the approach that are assigned using a predetermined conversion cost rate. Thus, we would have a hybrid of procedures 6. In the Coloring and Bolting Department, 400,000 ounces of other materials were used to produce the output of the period. Using the proposed standard cost sheet, calculate the following variances for the Coloring and Bolting Department: $ Enter all amounts as positive numbers. a. Materials price variance (for other materials only) b. Materials usage variance (for other materials only) $ c. Labor rate variance c. Labor rate variance d. Labor efficiency variance In calculating the variances, which method did you use to compute the actual output of the period-FIFO or weighted average? Explain. must be used because it measures output of the period. Standard costing simplifies process costing because the unit cost is the standard cost and be calculated. The unit standard cost be used to value goods transferred out and EWIP. Thus, all that is needed are the physical flow schedule and the equivalent units schedule. 7. Assume that the standard hours allowed for the actual total output of the fabric plant are 115,000. Calculate the following variances: Enter all amounts as positive numbers. a. Fixed overhead spending variance b. Fixed overhead volume variance C. Variable overhead spending variance d. Variable overhead efficiency variance 8. Suppose that the fabric plant has 500 bolts of F870 in beginning finished goods inventory. The current-year plan is to have 1,000 bolts of FB70 in finished goods inventory at the end of the year. This fabric has an external market price of $400 per bolt. If the fabric plant is set up as a profit center, it could sell 3,000 bolts per year to outside customers and supply 2,000 bolts per year internally to Beauville's furniture plant. If the fabric plant were designated as a profit center, the plant would transfer all goods Internally at market orice using the nonosed standardnat shaat las needed and any other relevant data renare the following for Fabric FB70: a. Sales budget b. Production budget c. Direct labor budget d. Cost of goods sold budget 9. Calculate the following overhead rates for the furniture plant: (1) plantwide rate and (2) departmental rates. Use the direct method for assigning service costs to producing departments. Round your answers to two decimal places. Rate per DLH per MH Plantwide rate Cutting department Assembly department 10. For each of the overhead rates computed in Requirement 9. calculate unit bid prices for Jobs A500 and 875. Round your answers to two decimal places. per DLH Unit Bid Plantwide rates Job A500 Job B75 Departmental rates takeAssignment/takeAssignmentMain.doFinvoker=&takeAssignmentSessionLocator &inprogressfalse + 8 Job 875 Departmental rates. Job A500 Job 875 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. Round your answers to two decimal places. Departmental rates bid for the more the bld for the more produced Job A500 and the produce Job B7S. This appears to be in the right direction. We would recommend using the 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? Round your answers to two decimal places. Enter all amounts as positive numbers. Standard cost would the cost of Fabric FB70 for both jobs. For Job A500, prime costs will by 5 And for Job B75, prime costs will by s Thus, the bid for Job ASOO will by s Similarly, the bid for Job B75 will by This tells us that we apparently avoid including waste in our bid by using standard costs and our bidding. It also tells us that we need to focus on becoming efficient 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 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? Round your answers to two decimal places. Enter all amounts as positive numbers. by S by 9 Standard cost would the cost of Fabric FB70 for both jobs. For Job ASOO, prime costs will by And for Job B75, prime costs will Thus, the bid for Job ASOO will by s Similarly, the bid for Job B75 will This tells us that we apparently avoid including waste in our bid by using standard costs and our bidding. It also tells us that we need to focus on becoming efficient. 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 AS00. What is the minimum transfer price for a bolt of FB70? Round your answers to two decimal places. If the maximum transfer price is $400, by how much do the fabric plant's profits increase? If the two profit centers negotiate a transfer price that splits the joint benefit