Challenge 1: Basic Cost Management ConceptsYour company,...

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Challenge 1: Basic Cost Management ConceptsYour company, Competitive Client Consulting, LLC, provides strategic consulting services. One of your clients, High-End Lifts, has asked for help in evaluating their strategic business opportunities. Currently, they provide design, installation, and maintenance services for residential elevators in luxury homes. High-End Lifts has been in business for two years. The production process is outsourced to another firm through a subcontracting arrangement. High-End Lifts pays the production company for the elevators and books the purchases as inventory until the elevators are installed. Once installed, High-End Lifts books the sale of the inventory to the customer on account, operating much like a merchandising firm. As a result of the arrangement, the inventory is held for very short periods of time as the elevators are installed shortly after they are purchased. High-End Lifts has used this arrangement for the last two years. Although there are many benefits to outsourcing the production process, there are also several drawbacks. Product quality, warranty and replacement parts, lead times and production scheduling and coordination have caused difficulties in the past. As a result of these concerns, High-End Lifts would like to evaluate the potential of manufacturing the units in-house. They have requested that your firm prepare a projected income statement and balance sheet for year 3 based on the change to in-house production. They have provided you with key information as well as the projected balance sheet and income statement for the upcoming year based on outsourcing the production process. They also need your help in tracing the production costs through the new general ledger accounts.Suggested Preparation: Define the terminology related to basic cost management concepts in the Challenge 1 Workbook found under “Resources”; compare service, merchandising and manufacturing business; and trace product costs through the general ledger accounts.

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