Kofi and Sons Carpet Installations

Kofi Jackson is the President of Kofi and Family Carpet. The company started as a

sole proprietorship that offered carpeting services to the Jacksonville area hotels.

Of course, Kofi was very busy and managed his business very diligently. This work

ethic afforded him a good reputation as a carpet installer and he started receiving

request for jobs in Central Florida and Southern Georgia. Because of the escalating

demand Kofi had to hire more personnel and brought his sons Freddy and Tiara $($is

Tiara a son?$)$ to help in managing the company.

The Cost System:

At the beginning of the business, Kofi implemented a Job Costing System using Actual

Costing. However, as business picked up$,$ he took the advice of Tiara, who majored in

accounting at USF, and implemented a normal costing system so that they had the

ability to plan and control the jobs in a timely fashion. Based on history at the

time, they decided to allocate overhead using direct materials costs as the cost

driver because they thought "the business is about installing carpets and, well,

carpet is the main driver of the cost," and was an casy and convenient way of

accounting for the overhead. They concluded, at the time, that overhead was about

five percent of the cost of materials. And they let it ride like that until..

Some issues:

The growth in the business continued and Kofi's reputation increased. In an effort

to better manage their costs and pricing, Kofi decided to classify jobs by the number

of rooms $($i$.$e$.,$ small, medium, large and resorts$).$ He thought this would allow him to

plan better the size and type of crews as well as the material offerings to different

clients. In addition, the business expansion required the acquisition of a fleet of

trucks, machinery and other costs that didn' $t$ exist when he started the business.

Currently, Tiara and Kofi are concerned with the amount of underallocated overhead

that has been occurring over the last three years, around $28$ percent on average. They

downloaded the data from the last three years $($see data file attached$)$ and started

considering what the cause of the problem might be$.$ The data available includes type

of "job", the number of rooms, the square footage, direct costs, actual overhead

costs and allocated overhead costs for all the jobs completed.

The pricing system:

IIistorically, Kofi has been known for high quality and relatively low prices. The

company' s pricing system has remained the same over the years and Kofi believes that