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• 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. Thankfully, the labor time freed by not having to fabricate the frame and assemble the deluxe stool can be shifted to the production of an economy stool. I would 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.) Exhibit 1 – Office Division Standard Costs and Prices Deluxe Office Stool Economy Office Stool

 

• 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. Thankfully, the labor time freed by not having to

 

fabricate the frame and assemble the deluxe stool can be shifted to the production of an

 

economy stool. I would 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.)

 

 

 

Exhibit 1 – Office Division Standard Costs and Prices

 

 

 

 

 

 

 

Deluxe

 

 

 

Office Stool

 

 

 

Economy

 

 

 

Office Stool

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