Reference no: EM13836111

CFV is a small company that produces fabric-based wardrobe accessories (such as, handbags, scarves, and headbands) and home accessories (such as placemats, pillows, and window treatments).   The company keeps a limited number of popular items in stock, but primarily produces custom orders.  Customers are able to choose from a wide selection of styles, sizes, and fabrics for each type of product.  Most of the company's customers are small boutiques, home décor shops, and home-decorators who serve clientele with discerning tastes.  As a result, customers expect high-quality products.

The sales staff of CFV has just received the following order:

CFV Customer Order Form Customer:  Katie's  Boutique Order Date: 10/2 Order Due Date: 10/15
Description:	Model  Number:	Quantity	Unit Sales Price	Total
Black & White Handbag	BW14923	7	$75	$525

Due to its popularity, the Black and White Handbag (BW14293) is normally a stock item.   However, the handbag is currently out of stock.   Rather than producing only enough units to fill Katie's order, management would like to produce a job (Job 114) that is large enough to fill Katie's order andreplenish stock.   The fabric used for this job can be stacked four layers deep for cutting, while still maintaining the quality and precision of the cut.  Therefore, the company is able to realize some economies of scale by producing the handbags in multiples of 4.   Management would like to produce enough units in this job to have a minimum of 30 and a maximum of 35 handbags left in stock after Katie's order has been filled.

Your primary task is to determine the cost of producing Job 114 so that you can calculate the gross profit on the sale to Katie's Boutique.    As part of this process, you will be Quired to schedule production, purchase any raw materials that aren't currently in stock, Quisition materials for the job, and complete the job cost record.   You will also be asked to consider relevant management and accounting issues and record the transactions related to this job in the company's accounting records.

The following step-by-step Quirements will guide you through the entire job costing process.   The documents you will encounter in this case are normally completed electronically rather than manually.  In addition, these documents often interface with each other electronically in order to transfer data in real-time, eliminate tedious calculations, and prevent errors.  However, the underlying process is the same regardless of whether the company uses electronic or manual documents.

Q. 1: Before the year began, CFV estimated the following costs for the year:

Type of Cost	Estimated total cost for the year
Selling and Administrative salaries and expenses	$210,000
Direct Labor (Estimated 40,000 DL hours @ average wage rate of $12 per hour)
Indirect plant labor	40,000
Plant utilities	50,000
Purchases of direct materials	1,400,000
Lease and property taxes on the plant	120,000
Marketing expenses	30,000
Depreciation on production equipment (equipment originally costing $700,000 three year ago is being depreciated over a 5 year useful life using straight-line depreciation.  No salvage value is expected.)
Indirect materials to be used in the plant	20,000

First, fill in the missing costs. Then, calculate the company's predetermined manufacturing overhead rate, assuming the company uses direct labor hours as its allocation base:

Q.2:  To realize maximum efficiency and meet management's desired level of stock, how many Black & White handbags should be produced in Job 114?___________

Q. 3:  The production engineers have given you the materials Quirements for each Black & White handbag.Assume that no efficiencies in materialscan be achieved by producing more than one unit per batch.Complete the Bill of Materials for Job #114 found below.  Be sure to include the number of units being produced in the Job as well as the total quantity needed for each direct material. 

BILL OF MATERIALS JOB 114 Model: BW14923                                      Quantity:__units
Part Number	Description	Quantity Needed per unit	Total Quantity needed
BWFF	Black and White Floral Fabric	1/2  yard
BWCheck	Black and White Checkered Fabric	3/4 yard
BFringe	Black Fringe Trim	1 yard
BStrap	Black shoulder strapping	1  and 3/4 yard
PlCan	Plastic Canvas	1/4  sheet
Int4	Interfacing: Level 4 sturdiness rating	1/2  yard

Q. 4:  The production engineers have also given you the production labor Quirements for each individual bag produced, assuming one bag is produced at a time:

Cutting time: 30 minutes per bag;

Sewing time: 70 minutes per bag;

Ironing time: 8 minutes per bag

Since each bag must be sewn and ironed individually, no sewing and ironing labor efficiencies can be achieved by producing larger batch sizes.  Recall, however, that fabric can be stacked for cutting purposes, such that the material for four bags can be cut in the same amount of time it would take to cut one individual bag.Compute the estimated labor time Quirement for producing Job 114.

               TOTAL hours Quired for Job 114: _________

Q. 5: Use the estimated labor time Quirement to schedule production of Job 114, including the start and end dates.  Assume the plant will already be operating at full capacity every day while completing Jobs 111, 112, and 113.  Also assume that only 4 direct laborers with the needed skill set will be available for this job.  These hourly employees are only allowed to work a maximum of 8 hours per day so that the company can avoid paying overtime premiums.

Production Schedule For the month of October
Job	Model Number	Stock or Customer	Quantity	Scheduled Start Date	Scheduled End date
111	Headbands - HB246	Perreth	200	10/1	10/3
112	14 inch pillows- P14	Slothower	30	10/4	10/5
113	Draperies- GB159	Stock	80	10/6	10/9
114	Black & White BW14923	Katie's & stock

Q. 6: In addition to the direct materials shown on the Bill of Materials, what indirect materials might be used in the factory while Job 114 is being produced? List at least 2 items

Q. 7:  What types of production equipment will be needed for producing Job #114?  List at least 5 items.

Q. 8: Consult the Raw Materials records to determine the types and quantities of materials you currently have in stock.  Determinewhich types of materialsyou need to purchase for Job 114 and how much of each you'll need. List the materials that need to be purchased, along with the quantity of each needed:

Q. 9: Complete the purchase orders (supplier, date needed, item number, quantity, cost, total, total for the whole order)  assuming you are only buying what you need for this job, and no other jobs.  Your purchasing agent will need to check with your authorized suppliers (JoAnne Fabrics and Hancack Fabrics) to determine the current sales price of the materials. No shipping is charged on purchases orders over $50. Note:  Both suppliers only allow you to order in increments of 5 yards at time, so you may have to buy a little more than what you need.  This is not a problem for your company, as it can always use large pieces of leftover material for other jobs.  CFV also has a standing contract with Mattel to produce clothing for the Barbie and Ken line of dolls.  Thus, small fabric remnants can always be used for the toy clothing line.

Purchase Order Supplier: Date ordered: 10/3 Date needed by:
Item Number	Quantity	Cost per yard	Total Cost
TOTAL			$

 

Purchase Order Supplier: Date ordered: 10/3 Date needed by:
Item Number	Quantity	Cost per yard	Total Cost
TOTAL			$

Briefly explain why you chose to purchase certain materials from each supplier:

Q. 10: Assume shipments of all supplies arrive on 10/9.  Your receiving personnel have checked the receipts against the Purchase Order and Invoice, and have noted no discrepancies in the ordered quantities or prices.  Since the company keeps perpetual inventory records, update the Raw Materials Records for the materials received and the new balance in stock.  Update both the physical quantities and costs.The company uses FIFO (first in, first out) as its inventory flow assumption.  If needed, keep track of separate inventory price layers.

Q. 11: Assume for a moment that the Raw Materials Records given to you represent a complete list of the raw materials carried by the company.  If you were to look at the Balance Sheet at the close of business on Oct. 9, what balance would be shown for Raw Materials Inventory?  (Show the total balance and how you arrived at it.)$__________________

Q. 12:  The scheduled start date for the job has arrived.  In order to begin production the materials for the job are needed in the plant. Production would like to Quisition all needed materials at one time.  Complete theMaterials Quisition (fill in the date, Job #, and quantity needed) so that the inventory storeroom personnel know the quantities and types of material to pick.

Materials Quisition Number: #6786 Date: Job:
Part number	Description	Quantity Needed	Unit Cost	Total Cost
BWFF	Black and White Floral Fabric
BWCheck	Black and White Checkered Fabric
BFringe	Black Fringe Trim
BStrap	Black shoulder strapping
PlCan	Plastic Canvas
Int4	Interfacing: Level 4 rating
	Total

Q. 13: The storeroom personnel correctly pick the direct materials and send them to production. Complete the cost information on the Materials Quisition above, assuming the company uses FIFO as its inventory flow assumption.

Q. 14: Since the company uses a perpetual inventory system, what else would normally be done at this point in time?

If you were to look at the Balance Sheet at the end of the day, what balance would be shown for Raw Materials Inventory?  Calculate the total balance and show how you arrived at it.  $_______________

Q. 15: Start a Job Cost Record for Job 114. Record the direct materials used by the job by recording the materials Quisition number and the total costof materials Quisitioned.

Q. 16: Obtain the Labor Time Records for the week to determine how much direct labor cost to assign to Job 114. Record the direct labor used by the job by recording the labor time record numbers, hours worked, and total DL cost on the job cost record.

Q. 17:  Calculate the amount of manufacturing overhead to allocate to Job 114.  Show your calculations on the job cost record.

Q. 18:  Complete the job cost record.  Determine the total job cost as well as the cost of each handbag in the job.

Q. 19:  The handbags have been moved out of the factory and into the finished goods warehouse to await shipment.  Before the handbags are completed, the job cost records served as a basis for valuing which inventory account on the balance sheet? ______________________________.  After the handbags are completed, the job cost records serve as a basis for valuing which inventory account?____________________

Q. 20:  The handbags ordered by Katie's Boutique are shipped out on 10/14.  Update the job cost record.  What is the new balance in Finished Goods Inventory for this item? ___________________

Q. 21:  Calculate the gross profit on the sale to Katie's Boutique: 

Q. 22: Assume for a moment that Katie's Boutique has found an overseas manufacturer that would charge $45 per unit for the same handbag.  Should Custom Fabric Ventures match the price of this competitor? Briefly explain your answer.

Q. 23:  Would the cost of Job 114, asreported on the job cost record, have been different had the company used LIFO or Weighted Average, rather than FIFO, as its inventory flow assumption? Explain.

Q. 24:  Would the cost of Job 114, as reported on the job cost record, have beendifferent had the company used "direct labor cost" as the MOH allocation base, rather than "direct labor hours"?  Explain.

Q. 25:  Would the cost of Job 114, as reported on the job cost record, have been different had the company's production equipment been 6 years old, rather than 3 years old? Explain.

Q. 26:  The budgeted data for the year did not include employment benefits, such as paid time off, company-paid health insurance, or company-sponsored retirement plans.From an accounting standpoint, how should these costs be treated if they relate to selling and administrative personnel? ______________________________ How should they be treated if they relate to plant personnel? ______________________________Through what mechanism(s) might these costs be assigned to jobs if they relate to employees working in the plant?

Q. 27:  As a manager, you always need to be thinking about how to decrease costs without sacrificing the quality of your products and services.    Generate 3-5 specificideas this company could possibly implement for decreasing costs on similar jobs in the future.  Note:  General answers such as "spend less on labor" or "be more efficient" will not count.  You must generate specific, realistic and actionable recommendations managers could take to possibly decrease production costs related to similar jobs in the future.

Q. 28:  Record the following journal entries associated with this case:

1.       Record the purchases of raw materials.

2.       Record the use of direct materials on Job 114.

3.       Record the use of direct labor on Job 114.

4.       Record the allocation of manufacturing overhead to Job 114.

5.       Record the completion of Job 114 and its movement out of the factory.

6.       Record the sale of 7 units from Job 114 to Katie's Boutique. Use a perpetual system.

7.       Record indirect labor which totaled $3,500 for the month.

8.       Record the use of indirect materials which totaled $1,500 for the month.

9.       Assume the total amount of manufacturing overhead (MOH) incurred during the month was $25,450 and the total amount allocated to jobs during the month was $28,934.  Was MOH over or under allocated? __________________________ Record the journal entry to close the MOH account to Cost of Goods Sold.