Custom Fabric Ventures is a small company that produces fabric-based wardrobe accessories (such as, handbags, scarves, and headbands) and home accessories (such as placemats, pillows, and window treatments). The company keeps a limited number of popular items in stock, but primarily produces custom orders. Customers are able to choose from a wide selection of styles, sizes, and fabrics for each type of product. Most of the company's customers are small boutiques, home dcor shops, and homedecorators who serve clientele with discerning tastes. As a result, customers expect high-quality products. The sales staff of Custom Fabric Ventures has just received the following order: See Excel file: Customer Order Form Due to its popularity, the Black and White Handbag (BW14293) is normally a stock item. However, the handbag is currently out of stock. Rather than producing only enough units to fill Katie's order, management would like to produce a job (Job 114) that is large enough to fill Katie's order and replenish stock. The fabric used for this job can be stacked four layers deep for cutting, while still maintaining the quality and precision of the cut. Therefore, the company is able to realize some economies of scale by producing the handbags in multiples of 4. Management would like to produce enough units in this job to have a minimum of 30 and a maximum of 35 handbags left in stock after Katie's order has been filled. Your primary task is to determine the cost of producing Job 114 so that you can calculate the gross profit on the sale to Katie's Boutique. As part of this process, you will be required to schedule production, purchase any raw materials that aren't currently in stock, requisition materials for the job, and complete the job cost record. You will also be asked to consider relevant management and accounting issues and record the transactions related to this job in the company's accounting records. The following step-by-step requirements will guide you through the entire job costing process. The documents you will encounter in this case are normally completed electronically rather than manually. In addition, these documents often interface with each other electronically in order to transfer data in real-time, eliminate tedious calculations, and prevent errors. However, the underlying process is the same regardless of whether the company uses electronic or manual documents. Req. 1: Before the year began, Custom Fabric Ventures estimated the following costs for the year: See Excel file: Estimated Annual Costs First, fill in the missing costs. Then, calculate the company's predetermined manufacturing overhead rate, assuming the company uses direct labor hours as its allocation base: Req. 2: To realize maximum efficiency and meet management's desired level of stock, how many Black & White handbags should be produced in Job 114?___________ Req. 3: The production engineers have given you the materials requirements for each Black & White handbag. Assume that no efficiencies in materials can be achieved by producing more than one unit per batch. Complete the Bill of Materials for Job #114 found below. Be sure to include number of units being produced in the Job as well as the total quantity needed of each direct material. See Excel file: Bill of Materials Req. 4: The production engineers have also given you the production labor requirements for each individual bag produced, assuming one bag is produced at a time: Cutting time: 30 minutes per bag; Sewing time: 70 minutes per bag; Ironing time: 8 minutes per bag Since each bag must be sewn and ironed individually, no sewing and ironing labor efficiencies can be achieved by producing larger batch sizes. Recall, however, that fabric can be stacked for cutting purposes, such that the material for four bags can be cut in the same amount of time it would take to cut one individual bag. Compute the estimated labor time requirement for producing Job 114. TOTAL hours required for Job 114: _________ Req. 5: Use the estimated labor time requirement to schedule production of Job 114, including the start and end dates. Assume the plant will already be operating at full capacity every day while completing Jobs 111, 112, and 113. Also assume that only 4 direct laborers with the needed skill set will be available for this job. These hourly employees are only allowed to work a maximum of 8 hours per day so that the company can avoid paying overtime premiums. See Excel file: Production Schedule Req.6: In addition to the direct materials shown on the Bill of Materials, what indirect materials might be used in the factory while Job 114 is being produced? List at least 2 items Req. 7: What types of production equipment will be needed for producing Job #114? List at least 5 items. Req. 8: Consult the Raw Materials records to determine the types and quantities of materials you currently have in stock. Determine which types of materials you need to purchase for Job 114 and how much of each you'll need. See Excel file: Raw Materials Records List the materials that need to be purchased, along with the quantity of each needed: Req. 9: Complete the purchase orders (supplier, date needed, item number, quantity, cost per yard, total cost, total for the whole order) assuming you are only buying what you need for this job, and no other jobs. Your purchasing agent will need to check with your authorized suppliers (JoAnne Fabrics and Hancack Fabrics) to determine the current sales price of the materials. No shipping is charged on purchases orders over $50. Note: Both suppliers only allow you to order in increments of 5 yards at time, so you may have to buy a little more than what you need. This is not a problem for your company, as it can always use large pieces of leftover material for other jobs. Custom Fabric Ventures also has a standing contract with Mattel to produce clothing for the Barbie and Ken line of dolls. Thus, small fabric remnants can always be used for the toy clothing line. See Excel file: Suppliers See Excel file: Purchase Order #1 See Excel file: Purchase Order #2 Briefly explain why you chose to purchase certain materials from each supplier: Req. 10: Assume shipments of all supplies arrive on 10/9. Your receiving personnel have checked the receipts against the Purchase Order and Invoice, and have noted no discrepancies in the ordered quantities or prices. Since the company keeps perpetual inventory records, update the Raw Materials Records for the materials received and the new balance in stock. Update both the physical quantities and costs. The company uses FIFO as its inventory flow assumption. If needed, keep track of separate inventory price layers. See Excel file: Raw Materials Records Req. 11: Assume for a moment that the Raw Materials Records given to you represent a complete list of the raw materials carried by the company. If you were to look at the Balance Sheet at the close of business on Oct. 9, what balance would be shown for Raw Materials Inventory? (Show the total balance and how you arrived at it.) $__________________ Req. 12: The scheduled start date for the job has arrived. In order to begin production the materials for the job are needed in the plant. Production would like to requisition all needed materials at one time. Complete the Materials Requisition (fill in the date, Job #, and quantity needed) so that the inventory storeroom personnel know the quantities and types of material to pick. See Excel file: Materials Requisition Req. 13: The storeroom personnel correctly pick the direct materials and send them to production. Complete the cost information on the Materials Requisition above, assuming the company uses FIFO as its inventory flow assumption. Req. 14: Update the Raw materials records for the materials that were picked in Req. 13. If you were to look at the Balance Sheet at the end of the day, what balance would be shown for Raw Materials Inventory? Calculate the total balance and show how you arrived at it. $_______________ Req. 15: Start a Job Cost Record for Job 114. Record the direct materials used by the job by recording the materials requisition number and the total cost of materials requisitioned. See Excel file: Job Cost Record Req. 16: Obtain the Labor Time Records for the week to determine how much direct labor cost to assign to Job 114. Record the direct labor used by the job by recording the labor time record numbers, hours worked, and total DL cost on the job cost record. See Excel file: Labor Time Records See Excel file: Job Cost Record Req. 17: Calculate the amount of manufacturing overhead to allocate to Job 114. Show your calculations on the job cost record. See Excel file: Job Cost Record Req. 18: Complete the job cost record. Determine the total job cost as well as the cost of each handbag in the job. See Excel file: Job Cost Record Req. 19: The handbags have been moved out of the factory and into the finished goods warehouse to await shipment. Before the handbags are completed, the job cost records served as a basis for valuing which inventory account on the balance sheet? ______________________________. After the handbags are completed, the job cost records serve as a basis for valuing which inventory account? ____________________ Req. 20: The handbags ordered by Katie's Boutique are shipped out on 10/14. Update the job cost record. What is the new balance in Finished Goods Inventory for this item? ___________________ See Excel file: Job Cost Record Req. 21: Calculate the gross profit on the sale to Katie's Boutique: Req. 22: Assume for a moment that Katie's Boutique has found an overseas manufacturer that would charge $45 per unit for the same handbag. Should Custom Fabric Ventures match the price of this competitor? Briefly explain your answer. Req. 23: Would the cost of Job 114, as reported on the job cost record, have been different had the company used LIFO or Weighted Average, rather than FIFO, as its inventory flow assumption? If so, would it have been higher or lower than currently reported? ______Explain. Req. 24: Would the cost of Job 114, as reported on the job cost record, have been different had the company used \"direct labor cost\" as the MOH allocation base, rather than \"direct labor hours\"?_____ If so, by how much would the total job cost have differed?_______ Req. 25: Would the cost of Job 114, as reported on the job cost record, have been different had the company's production equipment been 6 years old, rather than 3 years old? If so, by how much would the total job cost have differed? ________ Req. 26: The budgeted data for the year did not include employment benefits, such as paid time off, company-paid health insurance, or company-sponsored retirement plans. From an accounting standpoint, how should these costs be treated if they relate to selling and administrative personnel? ______________________________ How should they be treated if they relate to plant personnel? ______________________________Through what two mechanisms might these costs be assigned to jobs if they relate to employees working in the plant? 1. 2. Req. 27: As a manager, you always need to be thinking about how to decrease costs without sacrificing the quality of your products and services. Generate three to five specific ideas this company could possibly implement for decreasing costs on similar jobs in the future. Note: General answers such as \"spend less on labor\" or \"be more efficient\" will not count. You must generate specific, realistic and actionable recommendations managers could take to possibly decrease production costs related to similar jobs in the future. Req. 28: Record the following journal entries associated with this case: 1. Record the purchases of raw materials. 2. Record the use of direct materials on Job 114. 3. Record the use of direct labor on Job 114. 4. Record the allocation of manufacturing overhead to Job 114. 5. Record the completion of Job 114 and its movement out of the factory. 6. Record the sale of 7 units from Job 114 to Katie's Boutique. Use a perpetual system. 7. Record indirect labor which totaled $3,500 for the month. 8. Record the use of indirect materials which totaled $1,500 for the month. 9. Assume the total amount of MOH incurred during the month was $25,450 and the total amount allocated to jobs during the month was $28,934. Was manufacturing overhead over or under allocated? __________________________ Record the journal entry to close the manufacturing overhead (MOH) account assuming the company closes MOH to Cost of Goods Sold (CGS). PROJECT OVERVIEW Henkel Industries produces its product in two sequential departments: Blending and Forming. The old controller, who has just retired, has been manually preparing the production cost reports each month. The new controller would like you, as an intern, to develop an Excelbased production cost report for the month of MAY that will automatically calculate the cost per equivalent unit, etc., when the monthly information is dropped into Data area of the worksheet (the data area is shown as a blue box). The controller has provided you with a basic template, but needs to you finish the spreadsheet by adding formulas and cell references as needed. The only place she ever wants to type in numbers is in the blue box. Although there are two departments, the controller wants you to focus your attention on the Blending department until she is sure that your spreadsheet will provide accurate information. As you begin to formulate the May spreadsheet, you'll need to get production and cost data for the month of May. Some of the information can be found on last month's manually-prepared production cost report, while other pieces of information can be found in the May general ledger. In addition the production supervisor has already reported that 220,000 units were started during May and that 30,000 units were 80% of the way completed at the end of the month. During your initial plant tour, you found out that all of the direct materials were added at the very beginning of the Blending process. Once you finish the spreadsheet, the controller has more questions and tasks for you (see the Additional Analysis worksheet after you have completed the May Production Cost Report). STEP-BY-STEP INSTRUCTIONS 1) Start with the May Blending Dept Cost Report. Fill in the information about units and percentages of completion in the May blue box. FORMAT percentages as percentages (not decimals). 2) Fill in the cost information in the May blue box. (Hint: Gather from April's cost report and from the General Ledger). FORMAT in DOLLARS and CENTS. If you get a ######### it simply means your column is not wide enough (if so, drag and drop the cell line so that the cell is wider) 3) Use cell references and formulas to populate the production cost report. For example, in cell E4 you should type in the following reference: = B3. In cell E6 you should type in the following formula: = E4+E5. NOTE: DO NOT TYPE IN ANY NUMBERS. ALL CELLS SHOULD CONTAIN FORMULAS OR REFERENCES TO CELLS IN THE BLUE BOX. 4) Make sure all of the cost information is in dollars and cents (use the dollar format button). 5) Clean up the spreadsheet formatting as necessary (for example, if anything is bold, change it back to regular font; get rid of unnecessary decimal places; align numbers properly, etc.) 6) Once you finish the production cost report, go to the "Additional Analysis" worksheet for additional requirements and directions. 4) Make sure all of the cost information is in dollars and cents (use the dollar format button). 5) Clean up the spreadsheet formatting as necessary (for example, if anything is bold, change it back to regular font; get rid of unnecessary decimal places; align numbers properly, etc.) 6) Once you finish the production cost report, go to the "Additional Analysis" worksheet for additional requirements and directions. Department Data Information about units: Units in Beginning WIP Started during month Units in Ending WIP Percentage of completion: Direct materials Conversion 25,000 220,000 30,000 100% 80% Costs in Beginning WIP DM in beginning WIP Conversion costs in beginning WIP 132,000 78,000 Cost information for the current month: DM traced to Dept during the month DL traced to Dept during the month MOH allocated to dept during the month ### 45,000 610,000 Production Cost Report: Blending Department - MAY FLOW OF UNITS Physical Units DM EU Units to account for: Beginning work in process 25,000 Started in production 220,000 Total units to account for 245,000 Units accounted for: Completed and transferred out Ending WIP Total units accounted for FLOW OF COSTS Costs to account for: Beginning work in process Costs added during month Total costs to account for 215,000 30,000 245,000 Total 218,800 1,816,350.00 2,027,150.00 Cost per equivalent unit Costs accounted for: Completed and transferred out Ending WIP Total costs accounted for 1,795,250.00 231,900.00 2,027,150.00 Conversion EU 215,000 30,000 245,000 DM 215,000 24,000 239,000 Conversion 132,500 1,153,750.00 1,286,250 78,300.00 662,600 740,900 $5.25 $3.10 1,128,750.00 157,500.00 1,286,250.00 $666,500.00 74,400 740,900.00 Production Cost Report: Blending Dept.- APRIL FLOW OF UNITS Physical Units DM EU Units to account for: Beginning work in process Started in production Total units to account for Units accounted for: Completed and transferred out Ending WIP Total units accounted for Conversion EU 25,000 FLOW OF COSTS Costs to account for: Beginning work in process Costs added during month Total costs to account for Total DM Conversion Cost per equivalent unit Costs accounted for: Completed and transferred out Ending WIP Total costs accounted for $ 210,800 $ 132,500 $ 78,300 NOTE: Do NOT complete this production cost report. Production Cost Report: Forming Dept.- MAY FLOW OF UNITS Physical Units DM EU Units to account for: Beginning work in process Started in production Total units to account for Conversion EU Units accounted for: Completed and transferred out Ending WIP Total units accounted for FLOW OF COSTS Costs to account for: Beginning work in process Costs added during month Total costs to account for Cost per equivalent unit Costs accounted for: Completed and transferred out Ending WIP Total costs accounted for Total DM $ Conversion 1.50 $ 0.60 NOTE: Do NOT complete this production cost report. May General Journal Entries- Partial list WIP- Blending Wages Payable (to record DL traced to the Blending Dept) $ WIP-Blending Raw materials inventory (to record DM traced to the Blending Dept) $ WIP- Blending MOH (to record MOH allocated to the Blending Dept) $ WIP- Forming Wages Payable (to record DL traced to the Forming Dept) $ WIP-Forming Raw materials inventory (to record DM traced to the Forming Dept) $ WIP- Forming MOH- Forming (to record MOH allocated to the Forming Dept) $ Salary Expense Wages Payable (to record salaries and wages of selling, general and admin. staff) $ Rent Expense Rent Payable (to record monthly rent) $ Insurance Expense Prepaid Insurance (to record Insurance on selling, general, and admin. Building) $ Utilities Expense Utilities Payable (to record Insurance on selling, general, and admin. Building) $ Advertising expense Accounts Payable (to record advertising expenses) $ 45,000 $ 45,000 1,153,750 $ 1,153,750 617,600 $ 617,600 $ 750,000 $ 45,000 $ 617,600 $ 275,000 $ 25,000 $ 30,000 $ 10,000 $ 120,000 750,000 45,000 617,600 275,000 25,000 30,000 10,000 120,000 For Income Statement: Total Operating Expenses = Additional analysis 1) Journal entry needed 2) Total cost per unit: 3) Henkel Industries Income Statement For the Month Ending May 31 Per unit Total 4) Inventory Analysis WIP Inventory- Blending WIP Inventory- Forming Finished Goods Inventory Ending Units Total Cost 5A) Total cost per unit 5B) Henkel Industries Income Statement For the Month Ending May 31 Per unit Total Units Sold 180,000 Reconciling UNITS in End FG Inv Beg FG + Made -Sold = End FG 5C) Difference in operating income: Lower or higher when 60% is used? 5D) Briefly explain the reason for the difference. 5E) If managers want to inflate earnings in a particular period, what can they do? ng UNITS in End FG Inv DIRECTIONS Now that you have completed the production cost report, the controller would like you to do a few more ta space at the left to document your responses. IMPORTANT NOTE: Every figure on this spread sheet (dollar amounts and units) should be cell referenced fr (not typed in) EXCEPT for the Sales price per unit. You should only type in line labels and account names. 1) Record the journal entry that needs to be made to reflect the units completed and transferred out of the Dept. during the month . 2 )The controller wants to know the cost of making one unit of product in May, from START to FINISH (inclu Blending and Forming Departments). Show your calculations by listing each of the costs per EU from all o departments that make up the total cost. FORMAT the cost per unit in dollars and cents and HIGHLIGHT per unit (use the spilling paint bucket button to fill in the cell with neon yellow color.) 3) During the month Henkel sold 180,000 of the units it produced during May at a sales price of $20 per uni controller would like you to prepare a draft of the company's income statement. She would like you to incl information about the gross profit per unit, as well as the total for the month. See General ledger for opera expenses. Make sure you format everything in dollars and cents. 4) At the beginning of May, the company had no Finished Goods inventory and no WIP in the Forming De units transferred out of the Blending Dept. in May also made it completely through the Forming Dept. in controller would like you to prepare an analysis of the company's ending WIP and FG inventory at May 31. The controller wants to know the following : a) How many units are in each Department's ending WIP Inventory? b) What is the cost balance for each Department's ending WIP Inventory? c) How many units are in ending Finished Goods Inventory? (Use side purple box to figure it out.) d) What is the total cost balance in ending Finished Goods Inventory? 5) Although the production manager said that the units in WIP at the end of May were 80% of the way thro process, the controller knows that figure is somewhat subjective. She has talked to the assistant producti who believes the units were only about 60% complete. She wants you to run your spreadsheet using 60% a of completion to see what impact the estimate has on A) total cost per unit, and B) the company's income the month. IMPORTANT: BEFORE doing the analysis in Step 5, copy your May production cost report worksheet to a rename it "What-if 60%?" To do this, right click on the May tab at the bottom of the screen and choose "m then check the box, "make a copy". Then right click on the new copied spreadsheet and choose "rename". 5C) Calculate the difference in operating income and the direction that it went. 5D) Briefly explain why the income occurs. 5E) If managers wanted to inflate earnings in a particular period, what could they do? 6) Finally, check the Grading Rubric worksheet to make sure you have completed all requirements. Then s and send it to the TA. The subject line of the email should be the same as the file name. to do a few more tasks. Use the be cell referenced from elsewhere d account names. ansferred out of the Blending ART to FINISH (including both the sts per EU from all of the ts and HIGHLIGHT the total cost price of $20 per unit. The ould like you to include eral ledger for operating P in the Forming Department. All e Forming Dept. in May. The ventory at May 31. re it out.) 80% of the way through the e assistant production manager, adsheet using 60% as the percent company's income statement for ort worksheet to a new tab and reen and choose "move or copy" d choose "rename". fly explain why the difference in could they do? uirements. Then save your file e