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Strayer JWI530 assignment 3

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Question;Assignment 3: Management Accounting Case: West;Island Products;Due Week 8, Day 7 (100 points);The specific course learning outcomes associated;with this assignment are;? Apply key techniques and concepts in measuring;the cost of producing goods and services.;? Apply management accounting concepts to;identify and process relevant financial information for decision-making;purposes.;? Use technology and information resources to;research issues in financial management.;? Write clearly and concisely about financial;management using proper writing mechanics.;Assignment;West Island Products (WIP) is a divisionalized;furniture manufacturer. The divisions are autonomous segments with each;division responsible for its own sales, cost of operations, and equipment;acquisition. Divisional performance is evaluated annually based on ROI. Each;division serves a different market in the furniture industry. Because the;markets and products of the divisions are so different, there have never been;any transfers between divisions.;The Commercial Division of WIP, manufacturers;furniture for the restaurant industry. The Commercial Division plans to introduce;a new line of counter chair units featuring a cushioned seat. Roberta Katz, the;Commercial Division manager, has discussed the manufacturing of the cushioned;seats with Nathan Danielson of the Office Division. They both believe a;cushioned seat currently made by the Office Division for use on its deluxe;office stool could be modified for use on the new counter chair. Consequently;Katz asked Danielson for a price for 100- unit lots of the cushioned seats. The;following conversation took place about the price to be charged for the;cushioned seats.;Danielson: ?Roberta, we can make the necessary modifications to the;cushioned seat easily. The raw materials used in the new counter chair seat are;slightly different and should cost about 10 percent more than those used in our;deluxe office stool. However, the labor time should be the same because the;seat fabrication process is the same. I would price the cushioned seat at our;regular rate: full cost plus a 30 percent mark-up. According to my;calculations, that would be $2,053 per lot of 100 seats.?;Katz: ?That?s higher than I expected, Nathan. I was thinking that;a good price would be your variable manufacturing cost. After all, your fixed;costs will be incurred regardless of this job. In addition, I have received a;quote from one of the Commercial Division?s regular suppliers to provide us;with the counter seats at $1,900 per lot of 100 seats.?;Danielson: ?Roberta, I am at full capacity. By making the cushioned;seats for you, I have to cut my production of deluxe office stools. The labor;time freed by not having to fabricate the frame and assemble the deluxe stool;can be shifted to the production of the economy stool. I?d like to sell the;cushioned seats to you at my variable cost, but I have excess demand for both;products. I don?t mind changing my product mix to the economy model and;producing the cushioned seats for you as long as I don?t change my division?s;overall profitability. Here are my standard costs for the two stools and a;schedule of my manufacturing overhead.? (See Exhibits 1 and 2.);Katz: ?I guess I see your point, Nathan, but I don?t want to price;myself out of the market. In addition to pricing, I am also concerned about;delivery. We?ll need the counter seats within two weeks of placing our order or;we risk losing some important potential customers. Our outside supplier claims;that they can meet our timing needs.?;Danielson: ?Oh - oh. That lead-time is a bit short considering the;production re -scheduling we need to do. I can?t promise you a lead-time;shorter than four weeks at the moment.?;Katz: ?There?s quite a few issues that need to be addressed here;Nathan. As we have no previous experience in transferring goods between our;divisions, I think we should speak with the controller at corporate headquarters;before we can agree on a transfer price.?;Exhibit 1 ? Office Division Standard Costs and Prices;Deluxe;Economy;Direct;materials;Office Stool;Office Stool;Framing.................................................................................;$ 7.35..........;$ 6.50;Cushioned seat.....................................................................;6.40;?;Molded seat (purchased).......................................................;?..........;6.00;Direct;Labor;Frame fabrication (0.5 hrs. @ $7.50/hr.)...............................;3.75..........;3.75;Cushion fabrication (0.5 hrs. @ $7.50/hr.)............................;3.75..........;?;Assembly (0.5 hrs.;$7.50/hr.)............................................;3.75..........;3.75;Manufacturing overhead ($10.00/DLH).......................................;15.00..........;10.00......................................................................Totalstandardcost;$ 40.00..........;$ 30.00.........................................Sellingprice(including30%mark-up);$ 52.00..........;$ 39.00;Exhibit 2 ? Office Division Manufacturing Overhead;Budget;Overhead Item;Description;Amount;Supplies.....................................;Variable....................................................................;$ 370,000;Indirect labor..............................;Variable....................................................................;375,000;Supervision................................;Fixed.........................................................................;150,000;Power.........................................;Variable....................................................................;180,000;Heat;and light.............................;Fixed.........................................................................;120,000;Property;tax & insurance...........;Fixed.........................................................................;130,000;Depreciation...............................;Fixed.........................................................................;1,100,000;Employee;benefits.....................;Variable....................................................................;575,000..........................................................Totaloverhead;$ 3,000,000........................Capacityindirectlaborhours(DLH);300,000;Overhead rate per direct labor hour.........................;$ 10.00;Required;Your goal is to examine this situation and;recommend a course of action for Roberta Katz and Nathan Danielson.;1. Re-examine Nathan Danielson?s calculation of;a transfer (selling) price for the cushioned seats to the Commercial Division.;Based on the information provided, determine/confirm the transfer price that;would meet Danielson?s objective regarding the profitability of the Office;Division.;2. Discuss the pros and cons of each option;(i.e., in-sourcing and out-sourcing). Include in your analysis what you believe;the corporate controller is likely to recommend and why.;3. How would you suggest that the company;handles such transfer disputes in the future (i.e., what policies would you;suggest putting in place)? Make sure your recommendation includes financial;policies around setting a transfer price range. Support your suggestion by;examining the advantages and disadvantages of its adoption.;Grading;Grades for this assignment will be based on;answer quality, logic/organization of the paper, and language and writing;skills, using the following rubric;Assignment Points;Percentage;Grade;90;? 100;90% ? 100%;A;80 ? 89;80% ? 89%;B;70 ? 79;70% ? 79%;C;0;? 69;0% ? 69%;F

 

Paper#49773 | Written in 18-Jul-2015

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