Question

Data Analysis Project Part 1

Custom Fabric Ventures 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 Custom Fabric Ventures has just received the following order:

See Excel file: Customer Order Form

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 and replenish 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 required to schedule production, purchase any raw materials that aren’t currently in stock, requisition 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 requirements 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.

Req. 1: Before the year began, Custom Fabric Ventures estimated the following costs for the year:

See Excel file: Estimated Annual Costs

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:

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

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

See Excel file: Bill of Materials

Req. 4: The production engineers have also given you the production labor requirements 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 requirement for producing Job 114.

            TOTAL hours required for Job 114: _________

Req. 5: Use the estimated labor time requirement 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.

See Excel file: Production Schedule

Req. 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

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

Req. 8: Consult the Raw Materials records to determine the types and quantities of materials you currently have in stock. Determine which types of materials you need to purchase for Job 114 and how much of each you’ll need.

See Excel file: Raw Materials Records

List the materials that need to be purchased, along with the quantity of each needed:

Req. 9: Complete the purchase orders (supplier, date needed, item number, quantity, cost per yard, total cost, 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. Custom Fabric Ventures also has a standing contract with another vendor to produce clothing for their line of children’s toys. Thus, small fabric remnants can always be used for the toy clothing line.

See Excel file: Suppliers

See Excel file: Purchase Order #1

See Excel file: Purchase Order #2

Req. 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 as its inventory flow assumption.

See Excel file: Raw Materials Records

Req. 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.) $__________________

Req. 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 requisition all needed materials at one time. Complete the Materials Requisition (fill in the date, Job #, and quantity needed) so that the inventory storeroom personnel know the quantities and types of material to pick.

See Excel file: Materials Requisition

Req. 13: The storeroom personnel correctly pick the direct materials and send them to production. Complete the cost information on the Materials Requisition above, assuming the company uses FIFO as its inventory flow assumption. Start a Job Cost Record for Job 114. Record the direct materials used by the job by recording the materials requisition number and the total cost of materials requisitioned.

See Excel file: Job Cost Record

Req. 14: Update the Raw materials records for the materials that were picked in Req. 13.

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. $_______________

Req. 15: 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.

See Excel file: Labor Time Records

See Excel file: Job Cost Record

Req. 16: Calculate the amount of manufacturing overhead to allocate to Job 114. Show your calculations on the job cost record.

See Excel file: Job Cost Record

Req. 17: Complete the job cost record. Determine the total job cost as well as the cost of each handbag in the job.

See Excel file: Job Cost Record

Req. 18: 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?

Req. 19: 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?

See Excel file: Job Cost Record

Req. 20: Calculate the gross profit on the sale to Katie’s Boutique:

Req. 21: 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.

Req. 22: Would the cost of Job 114, as reported on the job cost record, have been different had the company used “direct labor cost” as the MOH allocation base, rather than “direct labor hours”?_____ If so, by how much would the total job cost have differed?_______

Req. 23: 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?   If so, by how much would the total job cost have differed? ________

Req. 24: As a manager, you always need to be thinking about how to decrease costs without sacrificing the quality of your products and services.   Generate three specific ideas 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.

Answer 1

Answer:

Req. 1

Complete table for estimated total cost for the year is shown below:

Type of Cost	Estimated total cost for the year
Selling and Administrative salaries and expenses	210,000
Diret Labor (40,000 hours*$12 per hour)	480,000
Indirect plant labor	40,000
Plant Utilities	50,000
Purchase of direct materials	1,400,000
Lease and property taxes on plan	120,000
Marketing expenses	30,000
Depreciation on production equipment(700000/5)	140,000
Indirect material to be used in the plant	20,000

Direct labour cost = No. of labour hours * average wage per hour = 40000*12 = 480,000

Depreciation using straight line method = (Original cost - Salvage value) / Useful life of equipment = (700000 - 0) / 5 = $140,000

Calculation of predetermined manufacturing overhead rate:

We will only consider manufaction overheads only:

Type of Cost	Estimated total cost for the year
Indirect plant labor	40,000
Plant Utilities	50,000
Depreciation on production equipment(700000/5)	140,000
Indirect material to be used in the plant	20,000
Total Manufacturing overheads	250,000
Labor hours (allocation basis)	40,000
Predetermined manufacturing overhead rate	6.25

Predetermined manufacturing overhead rate = 250000/40000 = $6.25

Req 2.

Economies of scale is achieved by producing a multiple of 4.

Stock to be kept = 30 to 35 units

Customer Order = 7

So, we need to produce minimum of 37units (30 + 7) or maximum of 42 units (35 + 7). So, the number of units to be produced should be 40 units which is a multiple of 4 and the company will be able to keep the desired level of stock after selling customer order.

Thank you..and please give positive rating....If you have any doubts please comment me....