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Imagine you are the new CFO for a furniture manufacturer named American Furniture Company (AFC) that has only been in business for a few years. The...

Imagine you are the new CFO for a furniture manufacturer named American Furniture Company (AFC) that has only been in business for a few years. The company manufactures three products: wooden chairs, tables and dressers. AFC started off as a 'Mom & Pop' shop but has grown rapidly. AFC uses one assembly line to build all three products, and each product is hand-assembled before going through an automated painting process. You have been tasked with modernizing the company's accounting methods towards their future goals.

The four different parts of this assignment should be submitted together. While outside sources are NOT required for this assignment, formatting and citations for all parts of this assignment should be done in APA For more information on APA, please see the section on APA below.

Part #1

Justify to the CEO what type of costing method (job-order, process costing, variable costing and/or activity-based costing) you would recommend AFC use. Assume that all of the items produced are sold. Use the following accounting data in your analysis.

Annual Production 5000 chairs/10 batches, 4000 tables/20 batches, 3000 dressers/20 batches Raw materials (board feet (BF)/unit)chair 10, table 15, dresser 20 Raw materials price/unit$2/BF Assembly labor (hrs./unit)chair 5 hrs., table 7 hrs., dresser 10 hrs.Labor rate$15/hr.Assembly department overhead/direct labor hr.$5 Painting process machine hours (MH)chair 0.5, table 1.5, dresser 2.0 Painting department overhead/MH $20 Changeover cost/batch chair $100, table $150, dresser $200 Sales price chair $180, table $270, dresser $270 Fixed Cost$50,000 Variable SG&A$5/unit Fixed SG&A$25,000

Within your analysis, make sure to include the following:

  • Briefly discuss the advantages and disadvantages of the four costing methods.
  • Narrow the choice down to two cost methods you would most recommend and provide your justification.
  • Demonstrate how each of the two costing methods you chose would allocate overhead and administrative costs by calculating product costs using each method.
  • Provide an income statement for each of the two methods.
  • Recommend one of the two final costing methods, providing justification for your final costing method selection.

Your justification should be between 1,000 to 1,500 words in length.

Part #2

Determine what inventory cost flow assumption (weighted average, FIFO and/or LIFO) would be best suited for valuing inventory near the current replacement cost. You will make your analysis based on the following inventory transactions involving chairs only:

Sales price$180/unit1/1 Beginning Inventory 120 @ $120/unit1/15 Transferred into finished goods140 @ $130/unit3/15 Sold1104/15 Transferred into finished goods100 @ $140/unit6/15 Sold907/15 Transferred into finished goods130 @ $150/unit9/15 Sold12010/15 Transferred into finished goods140 @ $160/unit12/15 Sold110

Within your analysis, make sure to include the following:

  • Briefly discuss the advantages and disadvantages of each inventory costing assumption.
  • Calculate the cost of goods sold and ending inventory for each cost flow assumption.
  • Demonstrate which of these should be used to net the highest income during inflationary periods.
  • Provide justification on what inventory costing assumption you choose.
  • Record journal entries for each purchase and sales transaction listed.

Your justification should be between 500 to 750 words in length.

Part #3

You will need to submit a budget report to the CEO, including an explanation of the utility of master budgets. You will also submit a variance report that shows how the company is performing versus budgeted amounts. Use the following data:

Q1Q2Q3Q4Quarterly BudgetChairs11501200125014001300Tables900950100011501100Dressers650700750900800

Q1 beginning inventory:


Assume that the material and labor costs from Part 1 are standards.

Actual amount of wood purchased and used46,120 bd. ft.Actual cost of wood purchased and used$80,028Actual amount of direct labor hours17,900Actual cost of direct labor$275,550

Within your analysis, make sure to include the following:

  • Create variance reports for Q1, Q2, Q3, and Q4 against the Quarterly Budget.
  • Generate a quarterly budget for the upcoming year that includes sales, production, materials and labor budgets. Assume a 10% increase in sales.
  • Explain how a master budget can be a useful tool in aligning a company's operations to its long-term goals.
  • Discuss how a variance report can be used to direct management toward production issues.

Your explanations of master budgets and variance reports should be 500 to 750 words in length.

Part #4

Use the following data to generate a quote model for future business. This can be accomplished by performing a high-low or regression analysis to generate an equation relating direct labor hours to product cost:

YearQuarterDirect labor hrs.Manufacturing cost2014Q12,512$224,9502014Q22,432$214,1002014Q32,645$226,8402014Q42,723$228,7602015Q12,355$211,950

Within your analysis, make sure to include the following:

  • Explain how jobs can be estimated by using a quote model based on previous data.
  • Discuss the different methods of cost estimation.
  • Prepare a bid for a job that would require 2,700 direct labor hours.

Your justification should be between 350 to 500 words in length

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