Transcribed image text: Deauville Furniture Corporation produces sofas, recliners, and lounge chairs. Deauville is located in a medium-sized community in the southeastern part of the United States. It is a major employer in the community. In fact, the economic well-being of the community is tied very strongly to Beauville Beauville operates a sawmill, a fabric plant, and a furniture plant in the same community The sawmill buys logs from independent producers. The sawmill then processes the logs into four grades of lumber: firsts and seconds, No. 1 common, No. 2 common, and No. 3 common. All costs incurred in the mill are common ta the four grades of lumber. All four grades of lumber are Lsed by the furniture plant. The mill transfers everything it produces to the furniture plant, and the grades are transferred at cost. Thus are used to move the lumber from the mill to the furniture plant. Although no outside sales exist, the mill could sell to external customers, and the selling prices of the four grades are known. The fabric plant is responsible for producing the fabric that is used by the furniture plant. To produce three totally different fabrics (identified by fabric ID cudes F360, FB70, and FB20, respectively), the plant has three separate production operations-one for each fabric. Thus, pruduction br all three fabrics ecours at the same time in different locations in the plant. Each fabric's production operation has two processes the weaving and pattern process and the coloring and bolting process. In the weaving and pattern process, yam is used to create yards or fabric with biferent designs. In the next process, the fabric is dyed, cut into 25-yard sections, and wrapped around cardboard rods to form 25-yard bolts. The bots are transported by for dift to the furniture plant's Receiving Department. All of the output of the fabric plant is used by the furniture plant (to produce the sofas and chairs). For accounting purposes, the fabric is transferred at cost to the furniture plant. The furniture plant produces orders for customers on a special-order basis. The customers specify the quantity, style, fabric, lumber grade, and pattern. Typically, jobs are large involving at least 500 units). The plant has two production departments: Outting and Assembly. In the Cutting -(. Department, the fabric and wooden fraire components are sized and cut. Other components are purchased from external suppliers and are removed from stores as needed for assembly. After the fabric and wooden components are finished for the entire job, they are moved to the sembly Depaitent. The ceny Deatment takes the dual campanents and comes the sales for chalet cauville Furniture has been in business for over two decades and has a good reputation. However, during the past five years, Besuville experienced creding profits and declining sales. Bids were increasingly lost (even aggressive bids on the more popular models. Yet, the company was winning bids on some of the more difficult-to-produce items. Lance Hays, the owner and manager, was frustrated. He simply couldn't understand how some of his competitors could sell for such low prices. On a commun sofa job involving 500 units, Beauville's bids were running S25 per nit, or $12,500 per job more than the winning bids (on average). Yet, on the more difficult items, Beauville's bids were running about $50 per unit less than the next dosest bid. Gisela Berling, vice president of finance, was assigned the task of preparing a cost analysis of the company's product lines. Lance wanted to know if the company's costs were excessive. Pertaps the company was being wasteful, and it was simply casting more to produce furniture than it was casting its competitors. Gisela prepared herself by reading recent literature an cost management and product costing and attending several conferences that explored the same issues. She then reviewed the casting procedures of the company's mill and two plants and did a preliminary assessment of their Soundness. The production costs of the mil were common to all lumber grades and were assigned using the physical units method. Since the output and production costs were fairly uniform throughout the year, the mill used an actual costing system. Although Gisela had no difficulty with lectual custing, she decided to explore the effects of using the sales-value-at-split-uff method. Thus, cost and production date for the mill were gathered su that an analysis could be conducted. The two plants used normal costing systems. The fabric plant used process custing, and the Furniture plant used job-order costing. Both plants used plantwide averhead rates based on direct labar hours. Based on her initial reviews, she concluded that the costing procedures for the fabric plant were satisfactory, Essentially, there was no evidence of product diversity. A statistical analysis revealed that about 90 percent of the variability in the plant's overhead cost could be explained by direct labor hours. Thus, the use of a plantwide overhead rate based on direct labor hours secmed justified. What did concern her, though, was the material waste that she observed in the plant. Maybe a standard cust system would be useful for increasing the overall cost efficiency of the plant. Consequently, as part of her report to Lance, she decided to include a description of the fabric plant's costing procedures, at least for one of the fabric types. She also decided to develop a standard cost sheet for the chosen fabric. The furniture plent, however, was a more difficult matter. Product diversity was present and could be causing some distortions in product costs. Furthermore, statistical analysis revealed that only about 40 percent of the variability in overhead cost was explained by the direct labor hours. She decided that additional analysis was needed so that a sound product costing method could be recommended. One possibility would be to increase the number of overhead rates. Thus, she decided to include departmental data so that the effect of moving to departmental rates could be assessed. Finally, she also wanted to explore the possibility of converting the sawmil and fabric plant into profit centers and changing the exsting transfer pricing policy. With the cooperation of the cost accounting manager for the mill and each plant's controller, she gathered the following data for last year: Sawmill: Joint manufacturing costs: $900,000 Quantity Produced Grade (board feet) Firsts and seconds 1,500,000 Price at Split-Off (per 1,000 board foot) $300 No. 1 common 3,000,000 225 No. 2 Coman 1,875.000 140 No. 3 common 1,125.000 100 Total 7,500,000 Fabric Plant: Budgeted overhead: $1,200,000 (50% fixed) Practical volume (direct labor hours): 120,000 hours Actual overhead: $1,150,000 (50% fixed) Actual hours worked: Weaving and Pattern Coloring and Bolting Grade Total Fabric FB60 20,000 12,000 32,000 Fabric FB70 28,000 14,000 42,000 Fabric FB80 26,000 18,000 44,000 Total 74,000 44,000 118,000 epartmental data on Fabric FB70 (actual costs and actual outcomes): Weaving and Pattern Coloring and Bolting Beginning inventories Units 20,000 400 Costs: Transferred in $0 $100,000 Materials $80,000 $8,000 Labor $18,000 $6,600 Overhead $22,000 $9,000 Current production: Units started 80,000 ? Units transferred out 80,000 3,200 Costs: Transferred in $0 ? Materials $320,000 $82,000 Labor $208,000 $99,400 Overhead 7 7 Overhead 7 Percentage completion: Beginning inventory 30% 40% Ending Inventory 40% 509 Units are measured in yards for the Weaving and Pattern Department and in bolts for the Coloring and Bolting Department. Note: With the exception of the cardboard bolt rods, materials are added at the beginning of each process. The cost of the rods is relatively insignificant and is included in overhead. Proposed standard cost sheet for Fabric FB70 (for the Coloring and Bolting Department only): Transferred-in materials (25 yards $10) $250.00 Other materials (100 ounces $0.20) 20.00 Labor (3.1 hours $9) 24.80 Flved overhead (3.1 hour's S5) 15.50 Variable averhead (3.1 hours a $5) 15.50 Standard cost per unit $325.80 Furniture Plant: Departmental data (budgeted): Service Departments Producing Departments General Factory Power Maintenance Cutting Assembly Receiving $450,000 $600,000 Overheed $300,000 5525,000 $750,000 $375,000 Machine hours 60,000 13,500 15,000 9,000 Receiving urders Square feet 1,000 5,000 4,000 15,000 10,000 Direct labor hours 50,000 200,000 After some discussion with the furniture plant controller, Gisela decided to use machine hours to calculate the overhead rate for the Cutting Department and direct labar hours for the Assembly Department rate (the Outting Department was more automated than the Assembly Department). As part of her report, she wanted to compare the effects of plantwide rates and departmental rates on the cost of jobs. She wanted to know if overhead casting could be the source of the pricing problems the company was experiencing. After some discussion with the furniture plant controller, Gisela decided to use machine hours to calculate the overhead rate for the Outting Department and direct labor hours for the Assembly Department rate (the Cutting Department was more automated than the Assembly epartment). As part of her report, she wanted to compare the effects of plantwide rates and departmental rates on the cost of jobs. She wanted to know if avaitead costing could be the source of the pricing problems the company was experiencing. To assess the effect of the different overhead assignment procedures, Gisela decided to examine two prospective jobs. One job, Job A500, could produce 500 sofas, using a frequently requested style and Fabric F870. Bids on this type of job were being lost more frequently to competitors. The second job, Job B75, would produce 75 specially designed recliners. This job involved a new design and was more difficult for the workers to build. It involved some special cutting requirements and an unfamiliar assembly. Recently, the company seemed to be winning more bids on ons of this type. Ta compute the costs of the twn Jobs, Gisela assembled the following information on the twojobs Job A500: Direct materials Fabric FB70 180 bolts $350 $ 20,000 board feet $0.12 Lumber (No. 1 commen) $26,600 Other components Direct labor Outting Department 400 hours @ $10 Assembly Department 1,600 hours $9.75 Machina ima Outting Department 350 machine hours Assembly Department SO machine hours Job B75: Direct materials: Fabric FB70 25 yards $350 Lumber first and seconds) 2,200 board feet $0.12 Other components $3,236 Direct labor 70 hours $10 Outting Department Assembly Department 240 hours 58.75 Machine time: on machine hours Outting Department Assembly Department 15 machine hours Required: 1. Complete the following table by calculating the sawmills cust per boerd for each grade using both the physical units method and the sales-value-at-split-off method. Begin by allocating the joint manufacturing costs to each grade, and calculate the cost per boerd foot for each grade using each method. Round unit cost answers to two decimal places. a. Physical units method of allocation: Grades Allocation Unit Cost Firsts and seconds No. 1 common No. 2 common No. 3 common Totais Sales-value-at-split-off method Grades Allocation Unit Cost Firsts and seconds $ No. 1 common No. 2 comman No. 3 common Total Grade Sawmill Cost and Production Data Physical Units Method: Sales-Value-at-Split-off Method: Cost per Board Foot Cost per Board Foot Firsts and seconds No. 1 common No. 2 common No. 3 common b. Given that the sawmill provides lumber at cost to the furniture plant, using the sales-value-at-split-off method the cost of Bob A500 by $ and the cost of ob 875 by s C. The physical units mechod, often used in the lumber industry, essentially assumes that it costs which grace is used. This approach has some drawbacks. Intuitively, the higher grades should cost lumber purchased, because the higher grades have a selling price to produce each beard foot the grade. Thus, . Certainly, if the company was buying this input from suppliers, there would be cost of lumber would be assigned to a sofa or chair for sofas and chairs the grade of The relative sales value method assigns cost to grades that have a market value. Thus, the cost assigned to sofas and chairs the grace of lumber used. b. Given that the sawmill provides lumber at cost to the furniture plant, using the sales-value-at-split-off method the cost of Job A500 by $ and the cost of Job B75 by $ c. The physical units method, often used in the lumber industry, essentially assumes that it costs which grade is used. This approach has some drawbacks. Intuitively, the higher grades should cost lumber purchased, because the higher grades have a selling price. to produce each board foot the grade. Thus, . Certainly, if the company was buying this input from suppliers, there would be cost of lumber would be assigned to a sofa or chair for sofas and chairs the grade of The relative sales value method assigns cost to grades that have a market value. Thus, the cost assigned to sofas and chairs the grade of lumber used. d. Review the data analytic concepts and metrics found in Exhibits 2.5 and 2.6, pp. 37, 40. What are the data analytic models being considered for the Sawmill? Which of the data analytic types is being used in Part a of Requirement 1? And for Part b? Part c? Transcribed image text: Deauville Furniture Corporation produces sofas, recliners, and lounge chairs. Deauville is located in a medium-sized community in the southeastern part of the United States. It is a major employer in the community. In fact, the economic well-being of the community is tied very strongly to Beauville Beauville operates a sawmill, a fabric plant, and a furniture plant in the same community The sawmill buys logs from independent producers. The sawmill then processes the logs into four grades of lumber: firsts and seconds, No. 1 common, No. 2 common, and No. 3 common. All costs incurred in the mill are common ta the four grades of lumber. All four grades of lumber are Lsed by the furniture plant. The mill transfers everything it produces to the furniture plant, and the grades are transferred at cost. Thus are used to move the lumber from the mill to the furniture plant. Although no outside sales exist, the mill could sell to external customers, and the selling prices of the four grades are known. The fabric plant is responsible for producing the fabric that is used by the furniture plant. To produce three totally different fabrics (identified by fabric ID cudes F360, FB70, and FB20, respectively), the plant has three separate production operations-one for each fabric. Thus, pruduction br all three fabrics ecours at the same time in different locations in the plant. Each fabric's production operation has two processes the weaving and pattern process and the coloring and bolting process. In the weaving and pattern process, yam is used to create yards or fabric with biferent designs. In the next process, the fabric is dyed, cut into 25-yard sections, and wrapped around cardboard rods to form 25-yard bolts. The bots are transported by for dift to the furniture plant's Receiving Department. All of the output of the fabric plant is used by the furniture plant (to produce the sofas and chairs). For accounting purposes, the fabric is transferred at cost to the furniture plant. The furniture plant produces orders for customers on a special-order basis. The customers specify the quantity, style, fabric, lumber grade, and pattern. Typically, jobs are large involving at least 500 units). The plant has two production departments: Outting and Assembly. In the Cutting -(. Department, the fabric and wooden fraire components are sized and cut. Other components are purchased from external suppliers and are removed from stores as needed for assembly. After the fabric and wooden components are finished for the entire job, they are moved to the sembly Depaitent. The ceny Deatment takes the dual campanents and comes the sales for chalet cauville Furniture has been in business for over two decades and has a good reputation. However, during the past five years, Besuville experienced creding profits and declining sales. Bids were increasingly lost (even aggressive bids on the more popular models. Yet, the company was winning bids on some of the more difficult-to-produce items. Lance Hays, the owner and manager, was frustrated. He simply couldn't understand how some of his competitors could sell for such low prices. On a commun sofa job involving 500 units, Beauville's bids were running S25 per nit, or $12,500 per job more than the winning bids (on average). Yet, on the more difficult items, Beauville's bids were running about $50 per unit less than the next dosest bid. Gisela Berling, vice president of finance, was assigned the task of preparing a cost analysis of the company's product lines. Lance wanted to know if the company's costs were excessive. Pertaps the company was being wasteful, and it was simply casting more to produce furniture than it was casting its competitors. Gisela prepared herself by reading recent literature an cost management and product costing and attending several conferences that explored the same issues. She then reviewed the casting procedures of the company's mill and two plants and did a preliminary assessment of their Soundness. The production costs of the mil were common to all lumber grades and were assigned using the physical units method. Since the output and production costs were fairly uniform throughout the year, the mill used an actual costing system. Although Gisela had no difficulty with lectual custing, she decided to explore the effects of using the sales-value-at-split-uff method. Thus, cost and production date for the mill were gathered su that an analysis could be conducted. The two plants used normal costing systems. The fabric plant used process custing, and the Furniture plant used job-order costing. Both plants used plantwide averhead rates based on direct labar hours. Based on her initial reviews, she concluded that the costing procedures for the fabric plant were satisfactory, Essentially, there was no evidence of product diversity. A statistical analysis revealed that about 90 percent of the variability in the plant's overhead cost could be explained by direct labor hours. Thus, the use of a plantwide overhead rate based on direct labor hours secmed justified. What did concern her, though, was the material waste that she observed in the plant. Maybe a standard cust system would be useful for increasing the overall cost efficiency of the plant. Consequently, as part of her report to Lance, she decided to include a description of the fabric plant's costing procedures, at least for one of the fabric types. She also decided to develop a standard cost sheet for the chosen fabric. The furniture plent, however, was a more difficult matter. Product diversity was present and could be causing some distortions in product costs. Furthermore, statistical analysis revealed that only about 40 percent of the variability in overhead cost was explained by the direct labor hours. She decided that additional analysis was needed so that a sound product costing method could be recommended. One possibility would be to increase the number of overhead rates. Thus, she decided to include departmental data so that the effect of moving to departmental rates could be assessed. Finally, she also wanted to explore the possibility of converting the sawmil and fabric plant into profit centers and changing the exsting transfer pricing policy. With the cooperation of the cost accounting manager for the mill and each plant's controller, she gathered the following data for last year: Sawmill: Joint manufacturing costs: $900,000 Quantity Produced Grade (board feet) Firsts and seconds 1,500,000 Price at Split-Off (per 1,000 board foot) $300 No. 1 common 3,000,000 225 No. 2 Coman 1,875.000 140 No. 3 common 1,125.000 100 Total 7,500,000 Fabric Plant: Budgeted overhead: $1,200,000 (50% fixed) Practical volume (direct labor hours): 120,000 hours Actual overhead: $1,150,000 (50% fixed) Actual hours worked: Weaving and Pattern Coloring and Bolting Grade Total Fabric FB60 20,000 12,000 32,000 Fabric FB70 28,000 14,000 42,000 Fabric FB80 26,000 18,000 44,000 Total 74,000 44,000 118,000 epartmental data on Fabric FB70 (actual costs and actual outcomes): Weaving and Pattern Coloring and Bolting Beginning inventories Units 20,000 400 Costs: Transferred in $0 $100,000 Materials $80,000 $8,000 Labor $18,000 $6,600 Overhead $22,000 $9,000 Current production: Units started 80,000 ? Units transferred out 80,000 3,200 Costs: Transferred in $0 ? Materials $320,000 $82,000 Labor $208,000 $99,400 Overhead 7 7 Overhead 7 Percentage completion: Beginning inventory 30% 40% Ending Inventory 40% 509 Units are measured in yards for the Weaving and Pattern Department and in bolts for the Coloring and Bolting Department. Note: With the exception of the cardboard bolt rods, materials are added at the beginning of each process. The cost of the rods is relatively insignificant and is included in overhead. Proposed standard cost sheet for Fabric FB70 (for the Coloring and Bolting Department only): Transferred-in materials (25 yards $10) $250.00 Other materials (100 ounces $0.20) 20.00 Labor (3.1 hours $9) 24.80 Flved overhead (3.1 hour's S5) 15.50 Variable averhead (3.1 hours a $5) 15.50 Standard cost per unit $325.80 Furniture Plant: Departmental data (budgeted): Service Departments Producing Departments General Factory Power Maintenance Cutting Assembly Receiving $450,000 $600,000 Overheed $300,000 5525,000 $750,000 $375,000 Machine hours 60,000 13,500 15,000 9,000 Receiving urders Square feet 1,000 5,000 4,000 15,000 10,000 Direct labor hours 50,000 200,000 After some discussion with the furniture plant controller, Gisela decided to use machine hours to calculate the overhead rate for the Cutting Department and direct labar hours for the Assembly Department rate (the Outting Department was more automated than the Assembly Department). As part of her report, she wanted to compare the effects of plantwide rates and departmental rates on the cost of jobs. She wanted to know if overhead casting could be the source of the pricing problems the company was experiencing. After some discussion with the furniture plant controller, Gisela decided to use machine hours to calculate the overhead rate for the Outting Department and direct labor hours for the Assembly Department rate (the Cutting Department was more automated than the Assembly epartment). As part of her report, she wanted to compare the effects of plantwide rates and departmental rates on the cost of jobs. She wanted to know if avaitead costing could be the source of the pricing problems the company was experiencing. To assess the effect of the different overhead assignment procedures, Gisela decided to examine two prospective jobs. One job, Job A500, could produce 500 sofas, using a frequently requested style and Fabric F870. Bids on this type of job were being lost more frequently to competitors. The second job, Job B75, would produce 75 specially designed recliners. This job involved a new design and was more difficult for the workers to build. It involved some special cutting requirements and an unfamiliar assembly. Recently, the company seemed to be winning more bids on ons of this type. Ta compute the costs of the twn Jobs, Gisela assembled the following information on the twojobs Job A500: Direct materials Fabric FB70 180 bolts $350 $ 20,000 board feet $0.12 Lumber (No. 1 commen) $26,600 Other components Direct labor Outting Department 400 hours @ $10 Assembly Department 1,600 hours $9.75 Machina ima Outting Department 350 machine hours Assembly Department SO machine hours Job B75: Direct materials: Fabric FB70 25 yards $350 Lumber first and seconds) 2,200 board feet $0.12 Other components $3,236 Direct labor 70 hours $10 Outting Department Assembly Department 240 hours 58.75 Machine time: on machine hours Outting Department Assembly Department 15 machine hours Required: 1. Complete the following table by calculating the sawmills cust per boerd for each grade using both the physical units method and the sales-value-at-split-off method. Begin by allocating the joint manufacturing costs to each grade, and calculate the cost per boerd foot for each grade using each method. Round unit cost answers to two decimal places. a. Physical units method of allocation: Grades Allocation Unit Cost Firsts and seconds No. 1 common No. 2 common No. 3 common Totais Sales-value-at-split-off method Grades Allocation Unit Cost Firsts and seconds $ No. 1 common No. 2 comman No. 3 common Total Grade Sawmill Cost and Production Data Physical Units Method: Sales-Value-at-Split-off Method: Cost per Board Foot Cost per Board Foot Firsts and seconds No. 1 common No. 2 common No. 3 common b. Given that the sawmill provides lumber at cost to the furniture plant, using the sales-value-at-split-off method the cost of Bob A500 by $ and the cost of ob 875 by s C. The physical units mechod, often used in the lumber industry, essentially assumes that it costs which grace is used. This approach has some drawbacks. Intuitively, the higher grades should cost lumber purchased, because the higher grades have a selling price to produce each beard foot the grade. Thus, . Certainly, if the company was buying this input from suppliers, there would be cost of lumber would be assigned to a sofa or chair for sofas and chairs the grade of The relative sales value method assigns cost to grades that have a market value. Thus, the cost assigned to sofas and chairs the grace of lumber used. b. Given that the sawmill provides lumber at cost to the furniture plant, using the sales-value-at-split-off method the cost of Job A500 by $ and the cost of Job B75 by $ c. The physical units method, often used in the lumber industry, essentially assumes that it costs which grade is used. This approach has some drawbacks. Intuitively, the higher grades should cost lumber purchased, because the higher grades have a selling price. to produce each board foot the grade. Thus, . Certainly, if the company was buying this input from suppliers, there would be cost of lumber would be assigned to a sofa or chair for sofas and chairs the grade of The relative sales value method assigns cost to grades that have a market value. Thus, the cost assigned to sofas and chairs the grade of lumber used. d. Review the data analytic concepts and metrics found in Exhibits 2.5 and 2.6, pp. 37, 40. What are the data analytic models being considered for the Sawmill? Which of the data analytic types is being used in Part a of Requirement 1? And for Part b? Part c