Guillermo Furniture Store Scenario

It is a remarkable reality that the traditional costing systems use a solitary, volume-based cost driver. This is the motivation behind why the traditional product costing system misshapes the expense of items or products. By and large, this kind of costing system appoints the overhead expenses to items on the premise of their relative use of direct work. Thus, traditional cost systems frequently report incorrect product costs. The issue is in the basic technique of the traditional costing systems. They stick to the supposition that items reason cost. Every time a unit of product is produced, it is expected that cost be brought about.

It is important to explain some of the assumptions made in the pro forma statement, as they play a critical part in determining the forecasted revenues. Cost of sales was determined by the equation purchases + other outlays – change in inventory, other outlays = cost of sales. Other Expenses was calculated by adding depreciation costs and four months’ worth of interest, which came to $47,000

Tootsie Roll Industries is applying for a loan package that will help them achieve superior things. There are many opportunities that can be accomplished by allocating money to different areas. The different areas include healthier ingredients, expansion, and advertising. These areas will increase the production and success of the Tootsie Roll Industries, Inc. Within this loan package, there are many exciting things that will improve and perfect healthier candies at Tootsie Roll Industries all over the world.

Overall Theme We will explore fundamental assumptions of cost functions and discuss the relationships between cost behaviour, cost estimation and cost prediction. The concept of cost driver analysis and its application to cost estimation and cost management will also be discussed. We will also describe how to estimate cost behaviour using managerial judgment, engineering methods and other quantitative techniques.

This is an introduction to the case study of Somerset Furniture. The main talk of the event would be about global supply chain and its impact towards Somerset furniture. In this case study we reverse the history, background, and anatomy of Somerset Furniture. From the introduction of the company we learn about the journey needed in developing and manufacturing the product lines. The journey of Somerset Furniture will dictate on why the company started to outsource and also learn about the time frame involving in planning, processing, developing, shipment and manufacturing of the product lines.

1. Williams-Sonoma has experienced strong growth in the past year, but this is on the back of a strong economy and in particular a strong new home market. The furniture business is strongly correlated with the strength of the real estate market. In this respect, the company's strategy is largely irrelevant, because within the next five years the real estate bubble will burst and Williams-Sonoma will suffer a major downturn in its own results as a consequence. However, this reality shows that the company perhaps lacks sufficient differentiation, and can only be expected to perform roughly in line with the housing market. It is neither outperforming competitors nor is it underperforming. W-S has sufficient differentiation within the furnishings and home products segment, and has a fairly strong brand name in the segment. The company's status as a mass-market premium company allows it to grow strongly in strong economic times, but also makes it particularly vulnerable to economic downturn, because not only do consumers redecorate at greater intervals, but they will trade down to more affordable stores when they do.

In each of these alternatives notice both negative cash flow and negative NPV. What a manager views these performances there seems to be returns less than the cost of capital therefore investor’s value are whipped out.

Appropriately tracing costs is extremely important when creating segmented income statements. Traceable costs are those costs that are directly incurred by and traceable to a specific segment of an organization (Brewer, 2015). This figure is then used when computing the segment margin, which indicates the long-run profitability of that business segment (Brewer, 2015). If costs are traced inaccurately, the profitability of a business segment may be over or under valued which may lead managers to make potentially unfortunate business decisions regarding that segment. For example, if the fixed costs of segment A are inaccurately traced to segment B, segment B may look as though it requires more money to break-even. Based on this inaccurate information,

Bhimani, A., Horngren, C., Datar, S., Rajan, M. et al. (2012) Management and Cost Accounting. 5th ed. Edinburgh: Prentice Hall, p.369 - 378.

It can be inferred that there are committed fixed overhead costs in retailing, not short-term adapting to lower overall sales. Harrington shows a high level of vertical integration through the whole women’s clothing value chain (see Exhibit 4). The strong adherence to company-owned sale channels can be seen as a strong marketing advantage but is also a cost driver for Harrington. Through their committed fixed cost level the company is not able to adjust prices in reaction to the imported low cost clothing. The comparatively high operating profit of the manufacturing segment reflects that Harrington’s in-house Mexican production’s expenses aren’t a main reason for their current problems (see Exhibit 3). Also the company’s selection of external distribution channels is not a current problem, since department and merchandise stores still cover over 75% of the market. All in all, it can be summarized that Harrington is currently not mainly suffering from dropping sales but its overall weak efficiency.

It consists of weighting and combining the weights of the ten factors and to evaluate implementing ABC. The potential benefits of ABC can be analyzed in advance along two separate dimensions. And there are ten mediating factors (Pricing Diversity, Support Diversity, Common Processes, Cost Allocation, Growth of Indirect Costs, Pricing Freedom, Fixed Expense Ratio, Strategic Considerations, Cost Reduction Effort, Analysis Frequency) can guide management in determining the answers. The fist five factors (PD, SD, CP, CA, FG) based on the probability. The second dimension of the model seeks to establish decisions. lY axis potential for ABC due to cost distortion---PD.SD.CP.CA.FG lX axis proclivity to use cost information in decision---PF.FE.SC.CR.AF To start management must analyze and responses to two key questions: 1. For a given organization, is it likely that ABC will produce costs that are significantly different from those that are generated with conventional accounting, and does it seem likely that those costs will be "better"? 2. If information that is considered "better" is generated by the system, will the new information change the dependent decisions made by the management? After finish these questions managers of company can discuses the ten factors that support or reject implementation. Finally, the combined weighted scores are plotted as a point on one of the four quadrants of a graph.Plotting the Answers--- Use Contingency Grid Method The steps in the

The current method of apportioning production overheads based on direct labour hours can be described as a traditional approach to product costing. In a manufacturing company’s financial statements, each item produced must be allocated some of the production overheads to make the statements compliant. Sometimes the individual costs of these items can be calculated incorrectly based on overall production overhead and the system of allocating in place, however the overall financial statement can still be accurate. This traditional method of allocating the production

The goal of traditional accounting practices is to achieve the lowest possible cost per unit by maximizing employee and equipment productivity. However, the goal of the plant’s

In the case of Pedro and his peanut business, Pedro started a business of selling peanut bags and considered marginal costing approach for allocating cost, whereby he is making money but his accountant Mark Webb depicts a real picture of how he should allocate costs to his peanuts business that involves taking into account the fixed overheads by absorbing them, this process is known as absorption costing technique. Using absorption costing mark is able to tell Pedro that actually he is incurring a cost of $6,252 by doing the business of peanuts. He has also explained to him the advantages of using this techniques and how he can recover the cost and make profit out of peanut business.

In order to efficiently calculate cost or expenses, Mal Ltd should adopt a cost classification approach. Cost classification is the separation of costs or expenses into different categories. The main categories that is largely used in cost classification are direct and indirect costs which can be broken down into many different costs that are expensed in the business. Cost classification can improve a business in many ways. One of the main benefits is through cost classification, profits can be increased. This is done by having an effective cost control and cost reduction (Kaplan & Cooper, 1998. By breaking down costs into fixed and variable costs, it will be easier to control and reduce costs. Cost classification can also help in the fixation of selling price. As the cost of a product can be broken down into more specific costs, it enables the management of Mal Ltd to adopt the most suitable selling price. Classifying costs can help Mal Ltd disclose which activities are profitable and non-profitable. This enables management to decide whether they want to continue carrying out and expanding profitable activities or eliminating unprofitable activities. It also allows management to improve budgeting (Kaplan & Cooper, 1998). With cost classification, management of Mal Ltd can ascertain which costs belong to which department and this allows them to efficiently set budgets for different departments in accordance with the level of activity within the department.