Last year he engaged a public accounting firm that completed a financial audit. The auditor recommended that George should set up a process cost-accounting system to better forecast and control expenses. He has done this; however, he is not happy with the results. George has reached out to you to help him better understand why the process cost accounting is not working. He gives you the following information for July:  

George states that the company buys wholesale lots of diamonds, but they vary in weight. His diamond supplier charges strictly on weight, with heavier diamonds costing more. George uses stones anywhere from .95-1.05ct in weight. It is not possible for him to order stones in a tighter weight range than this.
Gold is used commensurate with the size of the ring, larger rings needing more gold. George fills orders based on the requested size. He is disappointed that his costing system does not appear to help him run a better-controlled business. He has contracted you, as a professional managerial accountant, to help him run his business better.
Required:
1. For each item listed determine if it is fixed or variable. Remember: fixed means it does not change over the relevant range. Calculate the contribution margin and monthly profit/loss based on projected and actual numbers. Show all calculations in full detail with every line, revenue and expense labeled.
2. Based on George’s projections what is the break-even level of rings sold. Show all calculations.
3. What is the difference between actual July profit and Why is there a difference between the two? Give a minimum of 3 reasons. Explain in detail 300-400 words.
4. What is the difference between financial and managerial accounting? Is a financial auditor the person George should ask for advice on running this company? Explain in detail 200-300 words.
5. Would you recommend George change his cost accounting system? Why? What other business changes would you recommend to George? Explain in detail. 400-500 words. This must be in a formal memo format.

All calculations must be in excel. All calculations must be shown. All schedules are detailed in good form. You are putting this together for a paying client, it should look appropriate. All written items must be in the word. Each required item must be written as a separate item. The final memo must be in a
professional format. Please submit both a spreadsheet and word processor document.
 

Transcribed Image Text:

Projected Actual Rings Started and Finished Gold Used Oz 100 100 80 82 Diamonds Used 100 100 Gold Cost $100,000 $108,000 Diamond Cost $100,000 $125,000 Small Supplies $50,000 $ 51,000 Utilities $75,000 $80,000 Sales Comissions $20,000 $20,000 Advertising $50,000 $50,000 Salaries $100,000 $100,000 Insurance $25,000 $25,000 Rent $25,000 $25,000 Sales Price per Ring $6,000 $6,000 Projected Actual Rings Started and Finished Gold Used Oz 100 100 80 82 Diamonds Used 100 100 Gold Cost $100,000 $108,000 Diamond Cost $100,000 $125,000 Small Supplies $50,000 $ 51,000 Utilities $75,000 $80,000 Sales Comissions $20,000 $20,000 Advertising $50,000 $50,000 Salaries $100,000 $100,000 Insurance $25,000 $25,000 Rent $25,000 $25,000 Sales Price per Ring $6,000 $6,000

Answer rating: 100% (QA)

1 The difference between a variable cost and a fixed cost is that the variable cost changes with the ... View the full answer