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Managerial Accounting Case - Common Stock

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Scenario:

Claire's Antiques, headquartered in Sarasota, Florida, builds reproductions of certain antique furniture. Claire's Antiques is beginning its 11th year of business. It continues to grow its product line and target customer market and it recently became a public company by issuing shares of its common stock with the NASDAQ exchange.

Claire's Antiques reproduces just three types of antiques. Those products are clocks, dinette sets, and bedroom suites. The bedroom suites have a higher profit margin when compared to the other products, but it also has a lower sales volume. The clocks have a lower profit margin when compared to the other products, but it also has a greater sales volume. Its antiques are sold directly by Claire's Antiques and through independent distributors (typically antique shops and mail-order companies).

Each antique is made of solid oak wood. A clock contains a glass door, clock mechanism, and a pendulum. The dinette sets include a table with four legs, one table extension, and six chairs. The bedroom suite contains one bed frame, two night stands, and a dresser with a mirror. Variable costs commonly include:

- Various component parts, packaging, etc.
- Production labor
- Sales commissions (percentage or per unit basis)
- Other costs allocated on a per unit basis

Claire's Antiques tries to produce approximately the same number of antiques it expects to sell in a given period of time. However, Claire's Antiques can not always accurately predict the market. If it manufactures too few antiques, the company loses sales. However, if Claire's Antiques manufactures too many antiques, it may not be saleable because of the changes in consumer preferences. Claire's Antiques may have to sell its products at a discount or even at a loss to liquidate its inventory. To reduce inventory costs, management is considering implementing a "Just In Time" (JIT) inventory management system.

Goals for the next year are to grow the business to other regions, increase profit margin, and expand its product distribution centers.
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Operations deals with how the company is performing. Operations may be refined into different manufacturing processes such as design, material acquisition, assembly, testing and so on.

A VP of operations has asked you to make a presentation at the weekly status meeting on how to improve the efficiency and effectiveness of each manufacturing sub processes individually and as a whole.

She states that to drive performance, you will need to examine accounting-based data on material, labor, and overhead costs. This type of information is not disclosed in financial reports used for lenders and owners. Rather product cost information relates to how the operation is now doing and moving forward in the future. External reports are more backward-looking about how an entity DID operate. While there will be a strong relation between operation profits and profit per the external financial statements, the way that profitability is measured can vary greatly especially since profits on an external financial report are defined according to strict definitions set by the accounting regulators. Nevertheless, the VP of operations finds the relation between operation profits and profit per the external financial statements most useful.

You are to present your findings and recommendation at this meeting.

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Solution Preview

STEP 1 Suggestions for material that may be used in Slide 1
Antique Manufacturing Process:

The efficiency and effectiveness of Claire's Antique's production process can be improved by using computer-aided systems like computer -aided design, computer-aided facilities and computer aided manufacturing. These will be helpful to me in the process of designing and operations improvement plan. Next, Claire's Antiques should use process control applications like flowcharts, computer aided process planning, control charts and setting control limits. Further, I can improve my operations planning process and the human dimensions of labor agreements, employee training and building teams. In addition, I would use more efficient means to design the batch sizes, production operations and milestone charts. Finally, I feel that Claire's Antiques should control critical elements of the process like product variance, timing of operations and delivery dates. This will go a long way in matching the demand for Claire's products, and avoiding mismatches between demand and supply.

Suggested improvements in the product:
Bedroom suites:
"The bedroom suite contains one bed frame, two nightstands, and a dresser with a mirror".
I suggest that Claire's Antique's bedroom suites should be finished in nitro-cellulose, light tea brown color. Wrapped in foam sheets and flexible corrugated single face wrapping paper with coding. All fittings and glasses should be an integral part of the bedroom suites. All glasses should be bevelled.

Clocks:
"A clock contains a glass door, clock mechanism, and a pendulum".

Claire's Antiques' clocks should have cases of oak with brass bezels and iron painted dials. They generally have good quality 8 day going Fusee weight driven movements with short, heavy pendulums. Good quality will help Claire's Antiques command even higher prices than what it is now. Especially the smaller 6,8 and 10" diameter dial versions rather than the most common 12" dial. Drop dial versions with a box below the dial for a longer pendulum and incorporating a window will command the best prices.

Dinette sets:
"The dinette sets include a table with four legs, one table extension, and six chairs". In addition, Claire's Antiques should focus on the classic solid wood table which would remain in 'fashion" for a longer period of time. The casual and informal design would fit well in any setup. The table should be built with a flow through drawer and should be featured in the black and oak finishes. The set should include Copenhagen chairs in the matching finishes. This will not only increase the period for which the dinette set will remain in fashion, it will also allow Claire's Antiques to increase the prices realized from the sale.

http://www.alibaba.com/
www.mass.gov/rmv/forms/20132.pdf -
www.azactiveresorts.com/mfghomes/index.php3 -
www.sortprice.com/search-C-Kitchen_and_Dining_Tables -
www.bizrate.com/.../furniture_finish--oak/ products__att278734--270352-__
www.snponline.com/CLASSIFIEDS/Class_Merch.htm -
www.kelleyfurniture.com/browseproducts/ Solid-Oak-Dinette-Set-with-Empire-Design-Table-Base.html -

STEP 2 Suggestions for material that may be used in Slide 2
Design:
What is required in the design of clocks, dinette sets and bedroom suites is that design, engineering and manufacturing co-operate at Claire's Antiques.
To give the project a quick start, an in-depth analysis of existing bedroom suites should be made. Why bedroom suites, these are having a higher profit margin and the design should justify the margin and discourage competitors. The bedroom suite, which had been designed in the 80s, is a utility product with properties that are so universal ...

Solution Summary

Important Managerial Accounting case is discussed in great detail in this solution. The composite cost is calculated in percentage.

$2.19