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ACC500 Comprehensive Case Study




Question;ACC500 Comprehensive Case Study;Concord Company;manufactures hiking boots for three major retailers in the greater New;Hampshire area. It plans to grow by producing high-quality hiking boots at a;low cost that are delivered in a timely manner. There are a number of other;manufacturers who produce similar boots. Concord believes that continuously;improving its manufacturing processes and having satisfied employees are critical;to implementing its strategy. The company utilizes a balanced scorecard;approach to managing and monitoring the business.;For simplicity, assume that the company produces;a single product, sales are equal to production, and inventory levels are zero.;Below are the standard costs per boot;Standard Quantity;Standard Price;of Input Allowed;per Unit;per Unit of Output;of Input;Direct materials;3 pounds;$3 per pound;Direct labor;1 hour;$17 per hour;Below is the budgeted information for the;month of July;Units produced and sold;20,000;Average selling price per unit;$42;Direct materials ? based on the standards per;unit;Direct labor ? based on the standards per unit;Variable factory overhead per unit;$5 per direct;labor hour;Fixed factory overhead;$50,000;Variable shipping costs per unit;$3;Variable selling cost per unit;$1;Fixed selling costs;$15,000;Fixed administrative costs;$20,000;Below are the actual;results for the month of July;Units produced and sold;20,120;Actual sales revenue (see table below by;customer);$829,820;Direct materials;(65,000 lbs used);$191,750;Direct labor;(19,500 actual hours);$333,450;Variable factory overhead;$103,000;Fixed factory overhead;$54,000;Variable shipping costs *;$61,000;Variable selling;cost;$19,850;Fixed selling costs;$17,000;Fixed administrative costs;$21,000;Southern New Hampshire University ? ACC500;Comprehensive Case Study;Page 2;*include variable;shipping costs in cost of goods sold when preparing the income statement;Actual;sales units and selling prices by customerfor July;Units;Selling Price;Customer A;12,000;$39 per unit;Customer B;5,850;$44 per unit;Customer C;2,270;$46 per unit;Required;Prepare an income statement in the;traditional format for the month of July.;Prepare a flexible budget in the;contribution format for Concord Company for the following three activity;levels: 18,000 units, 22,000 units, and 25,000 units.;Prepare an operating income schedule;for July in the contribution format showing the actual results, flexible;budget variances, flexible budget, sales-activity variance, and static;budget.;Calculate the labor price and quantity;variances for July.;Calculate the materials price and quantity;variances for July.Calculate the variable factory overhead;efficiency and spending variances for July.;Comment on all of the variances;calculated in the previous four requirements. What might be causing these;variances?;Calculate the breakeven point in;terms of units and sales dollars for Concord based on budgeted numbers.;Calculate the breakeven point in terms of;units and sales dollars for Concord based on the actual July results.;Calculate the number of units and;sales dollars required to reach a target operating income of $80,000 based;on budgeted numbers.;Assuming that;variable costs per unit are the same regardless of customer and fixed;costs are allocated to the three customers based on units sold, prepare a;schedule showing the operating income per customer (show sales, variable;costs, contribution margin, fixed costs, operating income and operating;income as a percent of sales).;Based on the;above analysis should the company discontinue selling to one of its;customers assuming that no fixed costs can be eliminated if the company;discontinues selling to one customer and the company only produces enough;units to sell to the remaining two customers? Why, or why not?;If the company could eliminate;one-half of the fixed costs, would that change your answer to the previous;question? Why, or why not?;Now assume that variable costs per;unit are the same regardless of customer and budgeted fixed costs are;allocated to the three customers based on the ABC (Activity-Based Costing);schedule below, prepare a schedule showing the actual operating income per;customer (show sales, variable costs, contribution margin, fixed costs;operating income and operating income as a percent of sales);Customer A;Customer B;Customer;C;Fixed factory;overhead;Setup costs $34,000 (# of setups);50;40;60;Rent $20,000 (square feet);3,000;2,250;2,000;Fixed selling;(based on direct support);$3,873;$6,757;$4,370;Fixed admin (based on units sold);12,000;5,850;2,270;Southern;New Hampshire University ? ACC500 Comprehensive Case Study Page 3;Comment on how the change in;allocation impacted the profitability by customer. Which customer is now;the least profitable?;Going back to the original results;for the month of July, what if the company decides to raise the price to;Customer A by $2 per unit but sells 8% less units to Customer A as a;result, should they do it? Why, or why not?;Going back to;the original results for the month of July, what if the company received a;proposal from a subcontractor to manufacture all of units that were sold;to Customer B for $37 per unit and Concord would only manufacture enough;units related to the demand from Customer A and C, should they accept the;proposal or continue to manufacture the units in-house? Explain. (Assume;that Concord cannot reduce their fixed costs).;Would your answer change to the question;above if Concord was able to reduce their fixed costs by 50% as a result;of the decision to outsource Customer B units? Explain.;Prepare your response in accordance with the;grading rubric for a short paper/case study, and please show the detail of your;calculations used to arrive at your answers.


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