Question

Can you please answer the question in an excel with the calculation if possible.

T&J manufacturing has a factory that produces custom kitchen cabinets. It has multiple product lines. Materials and labor for the cabinets are determined by each job. To simplify the assignment, we will assume the following average costs. The materials include $1,000 for the wood and other direct materials of $200. Both items listed are on a per job basis. It requires 20 hours of labor on average for a custom kitchen. The hourly rate is $10. The sales price will be set at a markup of 65%. The company estimates that it will have 16,000 direct labor hours in total for all product lines. It assumes 800 units are sold on average per year. A breakdown of estimated yearly costs related to the kitchen cabinets follows:

Salaries- office & administrative $ 520,000

Salaries for factory personal: $ 220,000

Office Rent $ 125,000

Factory Rent $ 20,000

Office Utilities and Misc office expenses(based on units sold) $ 20,000

Sales Travel(based on units sold) $ 24,000

Insurance - office $ 12,000

Depreciation - office equipment $ 40,000

Depreciation for factory equipment $ 70,000

Advertising $ 20,000 Sales commissions(based on units sold) $ 45,000

Factory Property taxes: $ 10,000

Maintenance for factory equipment: $ 80,000

QUESTIONS: 1. Determine the cost of manufacturing one custom kitchen assuming the units given. Assume the MOH costs are allocated based on the direct labor hours per unit. Please show all calculations and round to the nearest dollar. I would recommend that you calculate the MOH per kitchen first. Discuss other options (at least 2 options) for the activity base and the importance of the MOH allocation. Do multiple product lines impact the MOH allocation? What happens if MOH is not allocated correctly?

2. What are the variable costs for this product line? What are the fixed costs? I would recommend that you show a schedule for each area on a yearly basis. For the variable costs, also, show them on a per unit (800 units) How does a company identify each type of cost? Can a cost classification be changed over time? If yes, explain how and give an least two examples. If no, explain why?

3. Prepare a Job Order Cost sheet for the following custom kitchen: Materials $3,500 and 30 hours of labor. What is the customer price? What other factors would impact the sales price for this type of company? Can a company rely on setting price based on just a % on cost?

4. What is the Contribution Margin (CM) in total dollars, CM% and per unit for the sale of 800 kitchen cabinets? Explain the importance of CM and how it can be used by companies to predict future income. Create some examples in excel with numbers to show how it can be used.

5. Prepare a traditional Income Statement assuming a volume of 800 units. For the cost of goods sold, please use the per unit cost you calculated in #1. You do not have to prepare any additional schedules. I would use a similar format to exhibit 16-8 on page 737 or from your lecture notes. I recommend that you list out all operating expenses given above. Do not use just Selling and General/Administrative Expenses for your categories. Points will be lost by not listing out all period costs. You can ignore interest and income tax expense.

6. Prepare three CVP Income Statements using the following yearly volumes: 400, 800 and 1,200. Link this schedule to question #2 for VC and FC calculated. Keep in mind how variable and fixed costs behave. The traditional income statement from #5 should be about the same net income as the 800 units for the CVP format.(use exhibit 20-12 page 893 as your example – please note that it is missing a title and your numbers are for a year.) a) Calculate Break-even in units and sales $ for the company b) Calculate units and sales $ if the company wants a profit of $1,000,000. c) Margin of safety $ for 800 units. Discuss the importance of these calculations to a company. Compare and contrast the traditional vs CVP format. Fully discuss the differences (at least 3) between the traditional vs CVP format. Give examples supported by numbers in excel of how you would use these calculations as the CFO of the company.

7. If the following changes were to be made, calculate a new CVP Income Statement: Direct Material costs decrease by 10%; fixed costs increase by 15% and sales price would increase by 5%. Assume you are selling the 800 units. Should the company consider these changes? Why or why not? This question is not just based on the new net income. Please review the full income statement for changes. What if the sales volume changes? Does this change your answer? I would recommend using volumes higher and lower to see how the changes impact your answer. Include CVP income statements in excel that are needed to support your answer. Discuss real examples of cost increases for fixed costs (at least 2) and decreases for direct materials (at least 2) that could be implemented for this business. Can the company increase price? What other areas might be impacted due to the price increase? You are the CFO of this business what is important to consider? Give 2 industry specific details that can impact this discussion. Do some research for this industry. It is always important to understand the industry that you are in as some industries have different factors that impact sales and profitability.

Additional information for another product line Assume another product line is also being considered – bathroom cabinets. Only use this information for the questions listed directly below. • Higher skilled workers would be required which will result in paying them $18 per hour. • Additional MOH costs for the year will be $170,000. These costs will be in addition to the costs already being incurred. These costs are due to the additional product line and also related to the current product lines for additional production abilities. The two lines will share all MOH costs.

1. Should the company consider using ABC? Advantages and disadvantages? Discuss why or why not? Areas to include in the discussion but not limited to the following: impact on product cost, implications of not using the right allocation and its impact on price if any, what type of companies use ABC etc….

2. How specifically would ABC help allocate MOH costs?

Answer 1

Q-1

COST SHEET OF T&J MANUFACTURING
PARTICULARS	PER UNIT-$	800 UNITS $
DIRECT MATERIALS	1200	960000
DIRECT LABOUR	200	160000
PRIME COST-A	1400	1120000
ADD: FACTORY OHS
FACTORY SALARIES	275	220000
FACTORY RENT	25	20000
DEPRECIATION OF FACTORY EQUIPMENT	87,5	70000
FACTORY PROPERTY TAXES	12,5	10000
MAINTANANCE FOR FACTORY	100	80000
TOTAL FOHS-B	500	400000
FACTORY COST-A+B	1900	1520000
ADD:OFFICE AND ADMINSTRATIVE OHS:
SALARY OF OFFICE STAFFS	650	520000
RENT OF OFFICE	156,25	125000
OFFICE UTILITIES	25	20000
INSURANCE	15	12000
DEPRECIATION OF OFFICE equipment	50	40000
TOTAL OF OFFICE OHS-C	896,25	717000
COST OF PRODUCTION-A+B+C	2796,25	2237000
ADD: SELLING AND DISTRIBUTION OHS:
TRAVELLING EXPENSES	30	24000
ADVERTISEMENTS	25	20000
COMMISSION	56,25	45000
TOTAL SELLING AND DIST OHS-D	111,25	89000
TOTAL COST-A+B+C+D	2908	2326000
PROFIT-65% MARKUP	1890	1512160
SALES-2908*1,65	4798	3838560

Q-2

1-FIXED COST AND VARIABLE COST

FIXED COST:

Fixed costs are those costs, which do not change according to the level of activity. here in the question the fixed costs are;

Salaries- office & administrative $ 520,000

Salaries for factory personal: $ 220,000

Office Rent $ 125,000

Factory Rent $ 20,000

Insurance - office $ 12,000

Depreciation - office equipment $ 40,000

Depreciation for factory equipment $ 70,000-( SEMI VARIABLE COST)

Factory Property taxes: $ 10,000

Maintenance for factory equipment: $ 80,000-( SEMI VARIABLE COST)

ADVERTISING- SEMI VARIABLE COST

VARIABLE COST:

these are the cost which changes to the direct proportion of the level of activity. in the questions the variable costs are:

1-DIRECT MATERIAL PER UNIT-$1200

2-DIRECT LABOUR PER UNIT-$200

3-Office Utilities and Misc office expenses(based on units sold) $ 20,000

4- Sales Travel(based on units sold) $ 24,000

5-commissions(based on units sold) $ 45,000

Q-3

JOB COST SHEET FOR A NEW KITCHEN
DIRECT MATERIALS	3500
DIRECT LABOUR-30*10	300
PRIME COST-A	3800
ADD: FACTORY OHS
FACTORY SALARIES	745,25
FACTORY RENT	67,75
DEPRECIATION OF FACTORY EQUIPMENT	237,125
FACTORY PROPERTY TAXES	33,875
MAINTANANCE FOR FACTORY	271
TOTAL FOHS-B	1355
FACTORY COST-A+B	5149
ADD:OFFICE AND ADMINSTRATIVE OHS:
SALARY OF OFFICE STAFFS	1761,5
RENT OF OFFICE	423,4375
OFFICE UTILITIES	67,75
INSURANCE	40,65
DEPRECIATION OF OFFICE equipment	135,5
TOTAL OF OFFICE OHS-C	2428,838
COST OF PRODUCTION-A+B+C	7577,838
ADD: SELLING AND DISTRIBUTION OHS:
TRAVELLING EXPENSES	81,3
ADVERTISEMENTS	67,75
COMMISSION	152,4375
TOTAL SELLING AND DIST OHS-D	301,4875
TOTAL COST-A+B+C+D	7879
PROFIT-65% MARKUP	5121
SALES-7879*1,65	13000

4-CONTRIBUTION= SALES - VARIABLE COST