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  JJ, a master cabinetmaker, owned and operated a shop where he sold custom-made cabinets. At
  the beginning of September, he had no outstanding debts, and the following amounts were on his
  books:
  1. Work-in-process inventory, $5,650 (detail below)
  Job Materials Labor Overhead (50% of Labor
  A-3 $750 $1,100 $550
  A-4 900 650 325
  A-5 325 700 350
  Total $1,975 $2,450 $1,225 $5,650
  During the month, JJ’s woodworking crew finished jobs A-3, A-4, and A-6, but did not finish A-
  5. Job A-7 was started but not finished during September. Overhead costs
  (pertaining primarily to equipment and shop depreciation, cleaning supplies, and insurance) were
  applied to every job at the end of the month unless the job was finished during the month, in
  which case overhead was applied when the job was finished.
  Other important financial factors in September were as follows:
  1. Raw materials costing $1,675 were purchased during the month.
  2. Supplies costing $580 were purchased.
  3. Total wages paid were $5,460.
  4. General and administrative expenses for the month were $3,420
  5. Collections received from customers on jobs A-3, A-4, and A-6, respectively, amounted to
  $6,125, $8,600, and $1,750, respectively, for a total of $16,475.
  While JJ was reviewing the September data, he became concerned about the underapplied
  manufacturing-overhead. Because he never wanted to lay off an employee, the underapplied
  manufacturing-overhead was always large in months when business was slow. (JJ assigned idle
  workers to general cleanup and repair work, and charged their wages to indirect labor.) Of
  course, JJ realized why the underapplied manufacturing-overhead was large. What he was
  worried about, however, was Mrs. Carson.
  Mrs. Carson, a neighbor, had stopped by the shop one day in early September to get a price on
  some cabinets she wanted built. JJ’s son, JJ Jr. spoke with her. JJ Jr. was working in the shop
  while on summer vacation between his first and second year of graduate business school in
  Arkansas. He studied Mrs. Carson’s plans, and estimated the cost of building her cabinets to be
  $1,625. His job-estimation sheet showed the following:

  Lumber $590
  Finishing materials 75
  Direct-labor cost 640
  Overhead 320
  $1,625
  When JJ Jr. quoted a price of $1,900 ($1,625 cost plus $275 profit) to Mrs. Carson, she said that
  she could get the same thing built by Walton Kitchens for $1,500. Furthermore, she informed
  him, "I would throw the dumb economics books away before I would pay a penny more than
  $1,500 for book cabinets to store them"
  JJ Jr. simply told her that his best price was $1,900. He explained all about labor, materials,
  profit, overhead, and competitive capitalism. In addition, he told Mrs. Carson that Walton could
  not make money on a $1,500 price, and if Walton was really willing to build the shelves for
  $1,500, she would be stealing from him!
  Mrs. Carson was very angry when she left. JJ Jr. later told his father the whole story, and laughed
  as he said, "Heck, we can't build stuff that costs $1,625 and sell it at a price of $1,600, let alone
  $1,500, can we?" At the time, JJ did not think much about the incident, but he began to wonder
  whether JJ Jr. had learned anything at graduate business school. JJ became especially concerned
  when he saw Bob Walton, who said, "Mrs. Carson saved me last month." Walton had just
  delivered Mrs. Carson 's new cabinets, for which she paid $1,500. JJ wondered who was right: JJ
  Jr. or Walton?
  Required. Must be a Word document.
  1. (2 points) Write a one paragraph explanation of why JJ Jr. was correct in holding to a
  price of $1,900. Use numbers and be sure to give your reasons why he was right. Defend
  this position, whether you agree with it or not!
  2. (2 points) Write a one paragraph explanation of why JJ Jr. was wrong in holding to a
  price of $1,900. Use numbers and be sure to give your reasons why he was wrong.
  Defend this position, whether you agree with it or not!
  3. (1 point) Assuming you are JJ, what would you tell JJ Jr. about the way he handled Mrs.
  Carson in the Carson negotiation? (One paragraph.)