Classic Cabinets has a factory that produces custom kitchen cabinets. It has multiple product lines.

Materials and labor for the cabinets are determined by each job. To simplify the assignment, we will assume the following average costs.

The materials include $1,500 for the wood and other materials on a per job basis. It requires 20 hours of labor on average for a custom kitchen. The hourly rate is $12. The sales price will be set at a markup of 85%.

The company estimates that it will have 16,000 direct labor hours in total for the kitchen cabinets.

It assumes 800 units are sold on average per year. A breakdown of estimated yearly costs related to the kitchen cabinets follows:

	Salaries- office & administrative					$ 520,000
	Salaries for factory personal					$ 220,000
	Office Rent					$ 125,000
	Factory Rent					$ 20,000
	Utilities and Misc office expenses(based on units sold)					$ 20,000
	Travel(based on units sold)					$ 24,000
	Insurance - office					$ 14,000
	Depreciation - office equipment					$ 45,000
	Depreciation for factory equipment					$ 70,000
	Advertising					$ 20,000
	Sales commissions(based on units sold)					$ 45,000
	Factory Property taxes					$ 10,000
	Maintenance for factory equipment					$ 80,000

Part ADetermine the average cost of manufacturing one custom kitchen assuming the units given. Assume the MOH costs are allocated based on the direct labor hours per unit. Please show all calculations and round to the nearest dollar. I would recommend that you calculate the MOH per kitchen first. You should calculate an Overhead rate. Discuss other options for the activity base and the importance of the MOH allocation. Do multiple product lines impact the MOH allocation?

Part B Prepare a Job Order Cost sheet for the following custom kitchen: Materials $2,500 and 40 hours of labor. What should the price to the customer be? Base the price on the companys sales % markup. What other factors would impact the sales price for this type of company? Can a company rely on setting price based on just a % on cost?

Part C What are the variable and fixed costs for this product line? I would recommend that you show a schedule for each area on a yearly basis. For the variable costs, also, show them on a per unit (800 units) How does a company identify each type of cost? Can a cost classification be changed over time? If yes, explain how and give an example. If no, explain why?

Part D What is the Contribution Margin (CM) in total and per unit dollars, and CM% for the sale of 800 kitchen cabinets? Explain the importance of CM and how it can be used by companies to predict future income. Create some examples with numbers to show how it can be used(this area could be completed in excel).

Part E Prepare a traditional Income Statement assuming a volume of 800 units. For the cost of goods sold, please use the per unit cost you calculated in #1. You do not have to prepare any additional schedules. I would use a similar format to exhibit 16-8 on page 737 or from your lecture notes. I recommend that you list out all operating expenses given above. Do not use just Selling and General/Administrative Expenses for your categories. Points will be lost by not listing out all period costs. You can ignore interest and income tax expense.

Part F Prepare three CVP Income Statements using the following yearly volumes: 400, 800 and 1,200. Keep in mind how variable and fixed costs behave. The traditional income statement from #5 should be about the same net income as the 800 units for the CVP format.(use the excel spreadsheet that I sent through mail for an example of format.)

Calculate Break-even in units and sales $ for the company

Calculate units and sales $ if the company wants a profit of $1,000,000.

Margin of safety for 800 units.

Discuss the importance of these calculations to a company. Fully discuss the differences between the traditional vs CVP format. Give examples supported by numbers of how you would use these calculations as the CFO of the company.

Part G If the following changes were to be made, calculate a new CVP Income Statement: Direct Material costs decrease by 10%; fixed costs increase by 15% and sales price would increase by 5%. Assume you are selling the 800 units. Should the company consider these changes? Why or why not? Give some real examples of cost increases for fixed costs(at least 2) and decreases for direct materials(at least 2) that could be implemented for this business.

Part H Explain what will happen to the MOH costs on a per unit basis if fewer units are sold. Could it impact per unit cost? (keep in mind the type of cost that MOH is) If another product line that would share the MOH costs was added, how would it impact the MOH costs? Should ABC be considered? Why? Fully discuss all pertinent points and show calculations needed to support your answers. I highly recommend including an excel spreadsheet to support the answer!!