Hi , this is a case study assignment from Managerial Accounting course , I need a solution for question 4 (a&b) please

please I need that

Greetings Inc. Greetings Inc.: Activity-Based Costing Developed by Thomas L Zeller, Lovela University Chicago, and Paud D. Kimmel, University of Wisconsin-Milwaukee The Business Situation Mr. Burns, president of Greetings Inc., created the Wall Decor unit of Greetings three years ago to increase the company's revenue and profits. Unfortunately, even though Wall Decor's revenues have grown quickly, Greetings appears to be losing money on Wall Decor Me Burns has hired you to provide consulting services to Wall Decor's management. Your assignment is to make Wall Decor a profitable business unit. Your first step is to talk with the Wall Decor work force. From your conver sations with store managers you learn that the individual Greetings stores are very happy with the Wall Decor arrangement. The stores are generating additional sales revenue from the sale of unframed and framed prints. They are especially enthusiastic about this revenue source because the online nature of the product enables them to generate revenue without the additional cost of carrying inven. tory Wall Decor sells unframed and framed prints to each store at product cost plus 20%. A 20% markup on products is a standard policy of all Greetings inter company transactions. Each store is allowed to add an additional markup to the unframed and framed print items according to market pressures. That is, the sell ing price charged by each store for unframed and framed prints is determined by each store manager. This policy ensures competitive pricing in the respective store locations, an important business issue because of the intense mall competition While the store managers are generally happy with the Wall Decor products, they have noted a significant difference in the sales performance of the untramed prints and the framed prints. They find it difficult to sell inframed prints at a competitive price. The price competition in the malls is very intense. On average stores find that the profits on unframed prints are very low because the cost for unframed prints charged by Wall Decor to the Greetings stores is only slightly below what competing stores charge their customers for unframed prints. As a result, the profit margin on unframed prints is very low, and the overall profit earned is small, even with the large volume of prints sold. In contrast, stores make a very good profit on framed prints and still beat the nearest competitor's price by about 15%. That is, the mall competitors cannot meet at a competi- tive price the quality of framed prints provided by the Greetings stores. As a re sult, store managers advertise the lowest prices in town for high-quality framed prints. One store manager referred to Wall Decor's computer on the counter as a "cash machine for framed prints and a "lemonade stand for unframed prints In a conversation with the production manager, you learned that she believes that the relative profitability of framed and unframed prints is distorted because case 2 Cases for Management Decision Making Greetings ca.7 of improper product conting. She feels that the costs provided by the company traditional job order costing system are inaccurate. From the very beginning she has carefully managed production and distribution costs. She explains Wall Dcor is essentially giving away expensive framed prints, and it appears that it is charging the store too much for unframed prints in her office she shows you her own product costing system, which supports her point of view, Your tour of the information technology department provided additional insight as to why Wall Decor is having financial problems, You discovered that to keep the website running requires separate computer servers and several infor mation technology professionals. Two separate activities are occurring in the technology area. First, purchasing professionals and IT professionals spend many hours managing thousands of prints and frame and matting material. Their tasks include selecting the prints and the types of framing material to sell. They also must upload, manage, and download prints and framing material onto and off of the website. The IT staff tells you much of their time is spent with framing and matting material Only a highly skilled IT professional can properly scan a print and load it up to the site so that it graphically represents what the print will look like when properly matted and framed In addition, you discover that a different team of IT professionals is dedicated to optimizing the operating performance of the website. These costs are classified as manufacturing overhead because a substantial amount of work is required to keep the site integrated with purchasing and production and to safeguard Wall Decor's assets online. Most time-consuming is the effort to develop and maintain the site so that customers can view the prints as they would appear either un framed or framed and matted A discussion with the IT professionals suggests that the time spent develop ing and maintaining the site for the unframed prints is considerably less than that required for the framed prints and in particular for the framed and matted prints Developing and maintaining a site that can display the unframed prints is relatively straightforward. It becomes more complicated when the site must allow the customer to view every possible combination of print with every type of steel frame, and immensely more complicated when one considers all of the possible wood frames and different matting colors. Obviously a very substantial portion of the IT professionals time and resources is required to present the over 1,000 different framing and matting options Based on your preliminary findings, you have decided that the company's ability to measure and evaluate the profitability of individual products would be improved if the company employed an activity-based costing (ABC) stem. As a first step in this effort, you compiled a list of costs, activities, and values. Your work consisted of taking the original manufacturing overhead cost ($375,200, provided in Case 1) and allocating the costs to activities. You identified four activities: picking prints, inventory election and management (includes general management and overhead): website optimization and framing and matting Cont (includes equipment, insurance, rent, and supervisor's salary) The first activity is picking prints. The estimated overhead vated to this activity is $30,600. The cost driver for this activity is the number of prints. It is expected that the total number of prints will be 102.000. This is the sum of 80,000 unframed. 15,000 steel framed, and 7,000 wood-framed 2. Activity Picking prints Cost Driver Number of prints Estimated Overhead $30,000 illustration CA 2-1 Wormation for at Expected Use of Cost Driver (80,000 15000 - 7.000) 102.000 prints CA-8 Greetings case 2 Cases for Management Decision-Making The second activity is inventory selection and management. The estimated overhead related to this activity is $91.700. The cost driver for this activity is the number of components per print item. An unframed print has one component a steel framed print has two components (the print and the frame), and a wood framed print has three components (the print, the mat, and the frame) The total number of components is expected to be 131.000, Illustration CA 2-2 Information for activity 2 Estimated Overhead 591.700 Activity Cost Driver Inventory Number of selection and components management Print (1) Print and frame (2) Print, mat, and frame (3) Expected Use of Cost Driver Prints: 80,000 components Print and ime: 15.000 2 30.000 components Print, mat, and frame 7.000 21.000 components Total - 131,000 components 3 The third activity is website optimization. The total overhead cost related to website optimization is expected to be $129,000. It was difficult to identify a cost driver that directly related website optimisation to the products. In order to re flect the fact that the majority of the time spent on this activity related to framed prints. you first split the cost of website optimization between unframed prints and framed prints. Based on your discussion with the IT professionals, vou deter- mined that they spend roughly one-fifth of their time developing and maintain ing the site for unframed prints, and the other four fifths of their time on framed prints, even though the number of framed prints sold is substantially less than the number of unframed prints. As a consequence, you allocated $25.800 of the we head costs related to website optimization to unframed prints and $103.200 to framed prints. You contemplated having three categories (unframed, steel framed, and wood-Framed with matting), but chose not to add this additional refinement illustration CA 2-3 Information for activity Estimated Overhead Expected Use of Cost Driver Cost Driver Activity Website optimization Unframed 525,800 Number of prints at capacity Framed 5103 200 Number of pants al capacity Unframed prints 100.000 print capacity Framed and mated prints 25.000 print capacity (16,000 steel 9,000 wood) Once the $129,000 of the third activity was allocated across the two broad product categories, the number of prints at operating capacity was used as the cost driver. Note that operating capacity was used instead of expected units sold The overhead costs related to website optimization are relatively fixed because the employees are salaried. If a fixed cost is allocated using a value that varies from period to period (like expected sales), then the cost per unit will vary from period to period. When allocating fixed costs it is better to use a base that does not vary as much, such as operating capacity. The advantage of using operating capacity as the base is that it keeps the fixed costs per unit stable over time. case 2 Cases for Management Decision Making Greetings CA-9 The mal activity is framing and mainting. The expected overheads related to framing and matting are $123.900 None this owerhead cont should be allo ed to framed prints. The costs related to coming and matting are relatively fined because the costs relate to equipment and either costs that do not vary with sales volume. As a consequence, like white optimization, vouchere to use the est driver on levels operating payather than the expected lesiovel The cost driver is the member of components Steel framed prints have two.com ponents the print and frame and wood-frame pishane three comments the print, mat, and frame. The total compensat penting capacity would be steel frame 32,000 for 1.000 x and wood frame 27.000 for 9.000 3.000) Estimated Overhead $12.00 Illustration CA 2-4 Information for activity Activity Framing and matting equipment insurance, and supervisory labor Cost Driver Number components at capacity Expected Use of Cost Driver Prima 000 12.000 composta pocity Print me and frame 3000 3- 27.500 ponents The component To summarize, the overhead costs and cont divers used for each product are expected to be Steel Wood Fra Framed Na Unframed atting Manting Total Illustration CA 2-5 Summary of the com and contri Overhaal 000 15000 3.000 100.000 $30.00 Cost Activity Driver 1. Picking Number of prints prints 2. Inventory Number of selection and Con manomat 3. Website Number of optimization peints capacity 4. Framing al Number of components al capacity VE 700 1.000 100,000 11000 11.000 1000 TAO 25 000 TOTO 32.000 22000 50,000 5375200 Instructions w the following questions Identity to why an activihased tem be app will Decor 2. Compute the activityhusederhead rates for the 1. Discuss the implications of singing the rather than the expected units old when allocating fixed overhead costs 4 (a) Allocate the overhead to the three product categories med print Meel framed prints, and wood framed print with mailing that the timate of the expected units old scorect and the act of cred equaled the estimated amount of $375.00 ibi Calculate the total amount of overhead allocated. Explus the clothed of $375 200 was not allocated, even though the estimate osales was cut. What are the implications of this for mantement? Greetings Inc. Greetings Inc.: Activity-Based Costing Developed by Thomas L Zeller, Lovela University Chicago, and Paud D. Kimmel, University of Wisconsin-Milwaukee The Business Situation Mr. Burns, president of Greetings Inc., created the Wall Decor unit of Greetings three years ago to increase the company's revenue and profits. Unfortunately, even though Wall Decor's revenues have grown quickly, Greetings appears to be losing money on Wall Decor Me Burns has hired you to provide consulting services to Wall Decor's management. Your assignment is to make Wall Decor a profitable business unit. Your first step is to talk with the Wall Decor work force. From your conver sations with store managers you learn that the individual Greetings stores are very happy with the Wall Decor arrangement. The stores are generating additional sales revenue from the sale of unframed and framed prints. They are especially enthusiastic about this revenue source because the online nature of the product enables them to generate revenue without the additional cost of carrying inven. tory Wall Decor sells unframed and framed prints to each store at product cost plus 20%. A 20% markup on products is a standard policy of all Greetings inter company transactions. Each store is allowed to add an additional markup to the unframed and framed print items according to market pressures. That is, the sell ing price charged by each store for unframed and framed prints is determined by each store manager. This policy ensures competitive pricing in the respective store locations, an important business issue because of the intense mall competition While the store managers are generally happy with the Wall Decor products, they have noted a significant difference in the sales performance of the untramed prints and the framed prints. They find it difficult to sell inframed prints at a competitive price. The price competition in the malls is very intense. On average stores find that the profits on unframed prints are very low because the cost for unframed prints charged by Wall Decor to the Greetings stores is only slightly below what competing stores charge their customers for unframed prints. As a result, the profit margin on unframed prints is very low, and the overall profit earned is small, even with the large volume of prints sold. In contrast, stores make a very good profit on framed prints and still beat the nearest competitor's price by about 15%. That is, the mall competitors cannot meet at a competi- tive price the quality of framed prints provided by the Greetings stores. As a re sult, store managers advertise the lowest prices in town for high-quality framed prints. One store manager referred to Wall Decor's computer on the counter as a "cash machine for framed prints and a "lemonade stand for unframed prints In a conversation with the production manager, you learned that she believes that the relative profitability of framed and unframed prints is distorted because case 2 Cases for Management Decision Making Greetings ca.7 of improper product conting. She feels that the costs provided by the company traditional job order costing system are inaccurate. From the very beginning she has carefully managed production and distribution costs. She explains Wall Dcor is essentially giving away expensive framed prints, and it appears that it is charging the store too much for unframed prints in her office she shows you her own product costing system, which supports her point of view, Your tour of the information technology department provided additional insight as to why Wall Decor is having financial problems, You discovered that to keep the website running requires separate computer servers and several infor mation technology professionals. Two separate activities are occurring in the technology area. First, purchasing professionals and IT professionals spend many hours managing thousands of prints and frame and matting material. Their tasks include selecting the prints and the types of framing material to sell. They also must upload, manage, and download prints and framing material onto and off of the website. The IT staff tells you much of their time is spent with framing and matting material Only a highly skilled IT professional can properly scan a print and load it up to the site so that it graphically represents what the print will look like when properly matted and framed In addition, you discover that a different team of IT professionals is dedicated to optimizing the operating performance of the website. These costs are classified as manufacturing overhead because a substantial amount of work is required to keep the site integrated with purchasing and production and to safeguard Wall Decor's assets online. Most time-consuming is the effort to develop and maintain the site so that customers can view the prints as they would appear either un framed or framed and matted A discussion with the IT professionals suggests that the time spent develop ing and maintaining the site for the unframed prints is considerably less than that required for the framed prints and in particular for the framed and matted prints Developing and maintaining a site that can display the unframed prints is relatively straightforward. It becomes more complicated when the site must allow the customer to view every possible combination of print with every type of steel frame, and immensely more complicated when one considers all of the possible wood frames and different matting colors. Obviously a very substantial portion of the IT professionals time and resources is required to present the over 1,000 different framing and matting options Based on your preliminary findings, you have decided that the company's ability to measure and evaluate the profitability of individual products would be improved if the company employed an activity-based costing (ABC) stem. As a first step in this effort, you compiled a list of costs, activities, and values. Your work consisted of taking the original manufacturing overhead cost ($375,200, provided in Case 1) and allocating the costs to activities. You identified four activities: picking prints, inventory election and management (includes general management and overhead): website optimization and framing and matting Cont (includes equipment, insurance, rent, and supervisor's salary) The first activity is picking prints. The estimated overhead vated to this activity is $30,600. The cost driver for this activity is the number of prints. It is expected that the total number of prints will be 102.000. This is the sum of 80,000 unframed. 15,000 steel framed, and 7,000 wood-framed 2. Activity Picking prints Cost Driver Number of prints Estimated Overhead $30,000 illustration CA 2-1 Wormation for at Expected Use of Cost Driver (80,000 15000 - 7.000) 102.000 prints CA-8 Greetings case 2 Cases for Management Decision-Making The second activity is inventory selection and management. The estimated overhead related to this activity is $91.700. The cost driver for this activity is the number of components per print item. An unframed print has one component a steel framed print has two components (the print and the frame), and a wood framed print has three components (the print, the mat, and the frame) The total number of components is expected to be 131.000, Illustration CA 2-2 Information for activity 2 Estimated Overhead 591.700 Activity Cost Driver Inventory Number of selection and components management Print (1) Print and frame (2) Print, mat, and frame (3) Expected Use of Cost Driver Prints: 80,000 components Print and ime: 15.000 2 30.000 components Print, mat, and frame 7.000 21.000 components Total - 131,000 components 3 The third activity is website optimization. The total overhead cost related to website optimization is expected to be $129,000. It was difficult to identify a cost driver that directly related website optimisation to the products. In order to re flect the fact that the majority of the time spent on this activity related to framed prints. you first split the cost of website optimization between unframed prints and framed prints. Based on your discussion with the IT professionals, vou deter- mined that they spend roughly one-fifth of their time developing and maintain ing the site for unframed prints, and the other four fifths of their time on framed prints, even though the number of framed prints sold is substantially less than the number of unframed prints. As a consequence, you allocated $25.800 of the we head costs related to website optimization to unframed prints and $103.200 to framed prints. You contemplated having three categories (unframed, steel framed, and wood-Framed with matting), but chose not to add this additional refinement illustration CA 2-3 Information for activity Estimated Overhead Expected Use of Cost Driver Cost Driver Activity Website optimization Unframed 525,800 Number of prints at capacity Framed 5103 200 Number of pants al capacity Unframed prints 100.000 print capacity Framed and mated prints 25.000 print capacity (16,000 steel 9,000 wood) Once the $129,000 of the third activity was allocated across the two broad product categories, the number of prints at operating capacity was used as the cost driver. Note that operating capacity was used instead of expected units sold The overhead costs related to website optimization are relatively fixed because the employees are salaried. If a fixed cost is allocated using a value that varies from period to period (like expected sales), then the cost per unit will vary from period to period. When allocating fixed costs it is better to use a base that does not vary as much, such as operating capacity. The advantage of using operating capacity as the base is that it keeps the fixed costs per unit stable over time. case 2 Cases for Management Decision Making Greetings CA-9 The mal activity is framing and mainting. The expected overheads related to framing and matting are $123.900 None this owerhead cont should be allo ed to framed prints. The costs related to coming and matting are relatively fined because the costs relate to equipment and either costs that do not vary with sales volume. As a consequence, like white optimization, vouchere to use the est driver on levels operating payather than the expected lesiovel The cost driver is the member of components Steel framed prints have two.com ponents the print and frame and wood-frame pishane three comments the print, mat, and frame. The total compensat penting capacity would be steel frame 32,000 for 1.000 x and wood frame 27.000 for 9.000 3.000) Estimated Overhead $12.00 Illustration CA 2-4 Information for activity Activity Framing and matting equipment insurance, and supervisory labor Cost Driver Number components at capacity Expected Use of Cost Driver Prima 000 12.000 composta pocity Print me and frame 3000 3- 27.500 ponents The component To summarize, the overhead costs and cont divers used for each product are expected to be Steel Wood Fra Framed Na Unframed atting Manting Total Illustration CA 2-5 Summary of the com and contri Overhaal 000 15000 3.000 100.000 $30.00 Cost Activity Driver 1. Picking Number of prints prints 2. Inventory Number of selection and Con manomat 3. Website Number of optimization peints capacity 4. Framing al Number of components al capacity VE 700 1.000 100,000 11000 11.000 1000 TAO 25 000 TOTO 32.000 22000 50,000 5375200 Instructions w the following questions Identity to why an activihased tem be app will Decor 2. Compute the activityhusederhead rates for the 1. Discuss the implications of singing the rather than the expected units old when allocating fixed overhead costs 4 (a) Allocate the overhead to the three product categories med print Meel framed prints, and wood framed print with mailing that the timate of the expected units old scorect and the act of cred equaled the estimated amount of $375.00 ibi Calculate the total amount of overhead allocated. Explus the clothed of $375 200 was not allocated, even though the estimate osales was cut. What are the implications of this for mantement