Question

Golding Manufacturing, a division of Farnsworth Sporting, Inc., produces two different models of bows and eight models of knives. The bow-manufacturing process involves the production of two major subassemblies: the limbs and the handle. The limbs pass through four sequential processes before reaching final assembly: lay-up, molding, fabricating, and finishing. In the LayUp Department, limbs are created by laminating layers of wood. In Molding, the limbs are heat treated, under pressure, to form a strong resilient limb. In the Fabricating Department, any pro-truding glue or other processing residue is removed. Finally, in Finishing, the limbs are cleaned with acetone, dried, and sprayed with the final finishes The handles pass through two processes before reaching final assembly: pattern and finishing In the Pattern Department, blocks of wood are fed into a machine that is set to shape the handles. Different patterns are possible, depending on the machine's setting. After coming out of the machine, the handles are cleaned and smoothed. They then pass to the Finishing Department where they are sprayed with the final finishes. In Final Assembly, the limbs and handles are assembled into different models using purchased parts such as pulley assemblies, weight adjustment bolts, side plates, and string Golding, since its inception, has been using process costing to assign product costs. A predetermined overhead rate is used based on direct labor dollars (80 percent of direct labor dollars). Recently, Golding has hired a new controller, Karen Jenkins. After reviewing the product costing procedures, Karen requested a meeting with the divisional manager, Aaron Suhr. The following is a transcript of their conversation KAREN: Aaron, I have some concerns about our cost accounting system. We make two different models of bows and are treating them as if they were the same product. Now I know that the only real difference between the models is the handle. The processing of the handles is the same, but the handles differ significantly in the amount and quality of wood used. Our current costing does not reflect this difference in direct material input AARON: Your predecessor is responsible. He believed that tracking the difference in direct material cost wasn't worth the effort. He simply didn't believe that it would make much difference in the unit cost of either model KAREN: Well, he may have been right, but I have my doubts. If there is a significant difference, it could affect our views of which model is more important to the company. The additional bookkeeping isn't very stringent. All we have to worry about is the Pattern Department. The other departments fit what I view as a process-costing pattern AARON: Why don't you look into it? If there is a significant difference, go ahead and adjust the costing system After the meeting, Karen decided to collect cost data on the two models: the Deluxe model and the Econo model. She decided to track the costs for one week. At the end of the week, she had collected the following data from the Pattern Department: a. There were a total of 2,500 bows completed: 1,000 Deluxe models and 1,500 Econo models. b. There was no beginning work in process; however, there were 300 units in ending work in process: 200 Deluxe and 100 Econo models. Both models were 80 percent complete with respect to conversion costs and 100 percent complete with respect to direct materials. c. The Pattern Department experienced the following costs: Direct materials Direct labor d. On an experimental basis, the requisition forms for direct materials were modified to identify the dollar value of the direct materials used by the Econo and Deluxe models: $114,000 45,667 Econo model Deluxe model $30,000 84,000 4. In the past, the marketing manager has requested more money for advertising the Econo line Aaron has repeatedly refused to grant any increase in this product's advertising budget because its per-unit profit (selling price less manufacturing cost) is so low. Given the results in Requirements 1 through 3, was Aaron justified in his position?

Answer 1

age rto E model unde邛tating by appoo mately f 7z and -for dinaiel ovevstofing y ? in Cose of Cohent proceg stem