JABC Inc.
"I can't figure out why we're loosing money on the deals we do accept, and yet we turn down deals that could be potentially very lucrative", shouted John Smith, Sales Manager for JABC, a manufacturer of premium sound systems designed for arenas and other large scale venues.
"We're one of the most respected players in our field, and since we moved to an ABC costing system, all hell has broken loose. This was supposed to be better than our previous job costing system.
JABC offers two customized audio solutions, JB1 and JB2, which account for 80% and 20% of the company's sales respectively.
"We seem to be loosing a lot of money on our JB1 sales, yet in hindsight; we've been turning down a lot of profitable JB2 business. What's going on here? Our markup percentages are very reasonable as well
We need better real-time cost information; otherwise we may as well shut our doors.
Also, based on recent forecasts put forth by the accounting team, it seems that as we shift our production focus from JB1 to JB2, the JB1 line starts looking more profitable.
"Can someone help me out here?" shouted John Smith.
It was also reported that most of the company's accounting records were destroyed due to accidental fire; however, the following partial information was salvaged:
Beginning Inventories, January 1st: 2008
Direct Materials $64.000
Work-in-Process $68,000
Finished Goods $30,000
Gross Profit %:20%
Prime Costs: 70% of manufacturing costs
Factory Overhead: 40% of Conversion Costs
Ending Work-in-Process is 10% of the monthly manufacturing costs.
Actual operations data for the month of December 2008:
Sales: $1,800,000
Direct Material Purchases: $640,000
Direct Labour Costs: $720,000
Required:
Prepare a brief Memo to Mr. Smith, outlining possible problems and solutions to JABC's cost allocation problems. Outline any other issues you think may be relevant.
Using the above information, prepare a Statement of Cost of Goods Manufactured in proper form.
JABC Inc. "I can't figure out why we're loosing money on the deals we do accept, and yet we turn down deals that could be potentially very lucrative", shouted John Smith, Sales Manager for JABC, a manufacturer of premium sound systems designed for arenas and other laree scale venues. "We're one of the most respected players in our field, and since we moved to an ABC costing system, all hell has broken loose. This was supposed to be better than our previous job costing system." JABC offers two customized audio solutions, JB1 and JB2, which account for 80% and 20% of the company's sales respectively. "We seem to be lansing a lot of money on our JB1 sales, yet in hindsight; we've been turning down a lot of profitable JB2 business. What's going on here? Our markup percentages are very reasonable as well. We need better real-time cost information; otherwise we may as well shut our doors. Also, based on recent forecasts put forth by the accounting team, it seems that as we shift our production focus from JB1 to JB2, the JB1 line starts looking more profitable "Can someone help me out here?" shouted John Smith. It was also reported that most of the company's accounting records were destroyed due to accidental fire; however, the following partial information was salvaged: Beginning Inventories, Jantary 1nat+2008 Direct Materials $64,000 Work-in-Process $68,000 Finished Goods $30.000 Gross Profit \%:20\% Prime Costs: 70% of manufacturing costs Factory Overhead: 40% of Conversion Costs Ending Work-in-Process is 10% of the monthly manufacturing costs. Actual operations data for the month of December 2008: Sales: $1,800,000 Direct Material Purchases; $640,000 Direct Labouk, Costs: $720,000 Required: Prepare a brief Memo to Mr. Smith, outlining possible problems and solutions to JABC's cost allocation problems. Outline any other issues you think may be relevant. Using the above information, prepare a Statement of Cost of Goods Manufactured in proper form 
