Wood Flooring Inc. (WFI) is an industry leader in wood flooring installed in new homes and sold
Question:
The relevant facts that Jeff has obtained are:
• The company spent $18,000 for additional, temporary administrative support personnel to handle the cancellation of the orders and return of deposits.
• WFI approximates its distribution costs at 12 percent of sales price; these costs include the cost of delivery to the customer, an allowance for returned items, and fees paid to vendors, such as Wal-Mart. The estimate of 12 percent is based on average results for the prior three years for WFI.
• WFI approximates its total variable manufacturing costs at 45 percent of sales; fixed manufacturing costs are allocated to the product based on labor hours and are approximately 25 percent of sales, based on averages of application rates used over the prior three years.
• WFI did receive and paid for $30,000 of coating that was used to complete some customer’s orders, but the orders were not ready for shipment when the customer canceled the order. The company sold these completed orders to building contractors at a salvage price that Jones says is approximately equal to manufacturing cost. There was also $45,000 of coating from Lucas that was received and paid for by WFI but has not been used.
Required
Develop the estimate of recoverable opportunity cost and other costs that Jeff Jones should present to top management and WFI's attorneys. In providing the estimate, be sure to include a discussion of which portions of the estimate are more subjective and therefore more easily denied by the defendant were the matter to go to trial.
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Related Book For
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins
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