The company manufactures three products: wooden chairs, tables and dressers. AFC started off as a 'Mom & Pop' shop but
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 methocfs towards their future goals
Justify to the CEO what type of costing method Gob-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.
Production & Cost Description
Production & Cost Amounts
5000 chairs/10 batches; 4000 tables/20 batches; 3000
Raw materials in board feet (BF) per unit
1 chair = 10 BF; 1 table = 15 BF; 1 dresser = 20 BF
Raw materials price per unit
$2 per BF
Assembly labor time (hours per unit)
1 chair = 5 hours; 1 table = 7 hours; 1 dresser = 10 hours
Labor pay rate
$15 per hour
Assembly department overhead per direct
Painting process machine hours (MH)
1 chair = 0.5 MH; 1 table = 1.5 MH; 1 dresser = 2 MH
Painting department overhead per MH
Changeover cost per batch
1 chair = $100; 1 table = $150; 1 dresser = $200
1 chair = $180; 1 table = $270; 1 dresser = $270
$5 per unit
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.