Beauville Furniture Corporation produces sofas, recliners, and lounge chairs. Beauville is located in a medium-sized com

[answerhappygod]

Beauville Furniture Corporation produces sofas, recliners, and
lounge chairs. Beauville 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 to the four grades of lumber. All
four grades of lumber are used by the furniture plant. The mill
transfers everything it produces to the furniture plant, and the
grades are transferred at cost. Trucks 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 codes FB60, FB70, and FB80,
respectively), the plant has three separate production
operations—one for each fabric. Thus, production of all three
fabrics occurs 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, yarn is used to create yards of
fabric with different 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 bolts are transported by forklift 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: Cutting and Assembly. In the Cutting Department, the
fabric and wooden frame 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
Assembly Department. The Assembly Department takes the individual
components and assembles the sofas (or chairs).
Beauville Furniture has been in business for over two decades
and has a good reputation. However, during the past five years,
Beauville experienced eroding 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 common sofa job
involving 500 units, Beauville's bids were running $25 per unit, or
$12,500 per job more than the winning bids (on average). Yet, on
the more difficult items, Beauville's bids were running about $60
per unit less than the next closest 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. Perhaps the company was being
wasteful, and it was simply costing more to produce furniture than
it was costing its competitors.
Gisela prepared herself by reading recent literature on cost
management and product costing and attending several conferences
that explored the same issues. She then reviewed the costing
procedures of the company's mill and two plants and did a
preliminary assessment of their soundness. The production costs of
the mill 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 actual
costing, she decided to explore the effects of using the
sales-value-at-split-off method. Thus, cost and production data for
the mill were gathered so that an analysis could be conducted. The
two plants used normal costing systems. The fabric plant used
process costing, and the furniture plant used job-order costing.
Both plants used plantwide overhead rates based on direct labor
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 seemed
justified. What did concern her, though, was the material waste
that she observed in the plant. Maybe a standard cost 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 plant,
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 sawmill
and fabric plant into profit centers and changing the existing
transfer pricing policy.
Using the weighted average method, complete the following for
the Coloring and Bolting Department:
i. Physical flow schedule (measured in bolts) fill in the blank
3cff2e020ff0012_58
iii. Unit cost
4. Currently, the three types of fabrics
are produced simultaneously in different locations of the fabric
plant using similar processes. Process costing methods are used to
determine the unit cost of each fabric. Historically, the plant has
never fully utilized any of the three processes. The maximum
historical utilization of the capacity has been about 50 percent.
Juana Sandoval, the fabric plant manager, is confident that the
three operations can be consolidated in a way that there would be
sufficient capacity to produce all three fabrics while capturing
significant savings by reducing labor and overhead costs. In fact,
total direct labor and variable overhead costs would be reduced by
25 percent and fixed overhead costs by 50 percent. Production of
the three fabrics can be managed by using a batch production
approach; however, one problem is that the yarn used for each
fabric differs significantly in cost. Conversion activity is the
same for each fabric regardless of the type of yarn. The cost
accounting manager has assembled the following budgeted annual data
for each process that reflects the expected reductions:
a. Calculate the conversion rate for each process using direct
labor hours (round to whole dollars):
Weaving and Pattern Process: per hour
Coloring and Bolting Process: per hour
b. Assume a batch of 400 bolts of FB70 is produced. The cost of
yarn requisitioned for the batch is $40,000. The batch used 2,550
direct labor hours in Weaving and Pattern and 1,200 hours in
Coloring and Bolting. In Coloring and Bolting, another $10,000 of
materials (dyes) were requisitioned for the batch. Calculate the
cost per bolt for the production run of 400
bolts (round to the nearest cent)
i. Physical flow schedule (measured in bolts)
5b. Prepare the journal entries for
materials and labor:
i. Purchase of 400,000 ounces of other materials
ii. Usage of 400,000 ounces of other materials
iii. Assignment of direct labor costs
If an amount box does not require an entry, leave it
blank.
Materials
Materials Price Variance
Accounts Payable
Work in Process
Materials Usage Variance
Materials
Work in Process
Labor Efficiency Variance
Labor Rate Variance
Wages Payable
7. Calculate the following overhead rates
for the furniture plant: (1) plantwide rate and (2) departmental
rates. Use the direct method for assigning service costs to
producing departments. Round your answers to two
decimal places.
8. For each of the overhead rates computed
in Requirement 7, calculate unit bid prices for Jobs A500 and
B75. Round your answers to two decimal
places.