Reference no: EM132026939

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 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. Do not recalculate the MOH costs per unit. Keep in mind how variable and fixed costs behave. The traditional income statement from #4 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 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 any CVP income statements 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.

8. Explain what will happen to the MOH costs on a per unit basis if fewer units are sold. Could it impact per unit cost? (keep in mind the type of costs that MOH represents for this company) If another product line that would share the current MOH costs (no additional MOH costs) was added, how would it impact the MOH costs?

Additional information for another product line

Assume another product line is also being considered - bookshelves. Only use this information for the questions listed directly below.

Higher skilled workers would be required which will result in paying them $15 per hour.

Additional MOH costs for the year will be $150,000. 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? 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, etc.

2. How specifically would ABC help allocate MOH costs?

Information related to above question is enclosed below:

Attachment:- GroupProject.rar