100%(1)1 out of 1 people found this document helpful
This preview shows page 3 - 5 out of 15 pages.
One store manager referred to Wall Décor’s computer on the counter as a “cash machine” for framed prints and a “lemonade stand” for unframed prints. In a conversation with the production manager, you learned that she believes that the relative profitability of framed and unframed prints is distorted because of improper product costing. She feels that the costs provided by the company’s traditional job order costing system are inaccurate. From the very beginning, she has carefully managed production and distribution costs. She explains, “Wall Décor is essentially giving away expensive framed prints, and it appears that it is charging the stores too much for unframed prints.” In her office she shows you her own product costing system, which supports her point of view.3
Your tour of the information technology (IT) department provided additional insight as to why Wall Décor is having financial problems. You discovered that to keep the website running requires separate computer servers and several information technology professionals. Two separate activities are occurring in the technology area. First, purchasing professionals and IT professionals spend many hours managing thousands of prints and frame and matting materials. Their tasks include selecting the prints and the types of framing material to sell. They also must upload, manage, and download prints and framing material onto and off of the website. The IT staff tells you much of their time is spent with framing and matting material. Only a highly skilled IT professional can properly scan a print and load it up to the site so that it graphically represents what the print will look like when properly matted and framed.In addition, you discover that a different team of IT professionals is dedicated to optimizing the operating performance of the website. These costs are classified as manufacturing overhead because a substantial amount of work is required to keep the site integrated with purchasing and production and to safeguard Wall Décor’s assets online. Most time-consuming is the effort to develop and maintain the site so that customers can view the prints as they would appear either unframed or framed and matted.A discussion with the IT professionals suggests that the time spent developing and maintaining the site for the unframed prints is considerably less than that required for the framed prints and in particular for the framed and matted prints. Developing and maintaining a site that can display the unframed prints is relatively straightforward. It becomes more complicated when the site must allow the customer to view every possible combination of print with every type of steel frame, and immensely more complicated when one considers all of the possible wood frames and different matting colors. Obviously, a very substantial portion of the IT professionals’ time and resources is required to present the over 1,000 different framing and matting options.