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    Nader Paints, Ken's Bicycle Shop, University Book Store

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    Nader Paints makes an environmentally sound paint. The following data are available for the month of April:

    Units Percentage
    Complete
    Costs
    Beginning WIP Inventory, April 11,000
    Direct Materials 75
    Conversion costs 70
    Units started in April 6,000
    Costs incurred in April:
    Direct materials $16,000
    Conversion costs $15,800
    Ending WIP inventory 3,000
    Direct Materials 80
    Conversion costs 60
    Spoilage 200
    Direct materials 100
    Conversion costs 100

    a. Prepare a production cost report using weighted-average costing.
    b. Show the flow of costs through the WIP Inventory T-account.

    Ken's Bicycle Shop sells mountain bikes. For purposes of a cost-volume-profit analysis, the shop owner has divided sales into two categories, as follows:

    Product Category Sales Price Invoice Cost Sales Commissions
    High quality $700 $375 20% of sales
    Medium quality $500 $235 20% of sales
    The shop anticipates selling 500 bicycles, 300 of which will be medium quality. Annual fixed costs are $80,000. Ignore taxes.

    a. What is the shop's sales mix?

    b. What is the shop's break-even sales volume in dollars? (Hint: Find the break-even sales volume first.)

    University Bookstore is a nonprofit retail outlet for textbooks, computers, and general merchandise (including trade books, supplies, and university-licensed apparel and gifts). It is located near the main campus of State University and controls the majority of the local market share for new and used textbooks. Other retail outlets, such as Barnes & Noble, University Drugstore (a private company), and CompUSA, have larger shares of the local market for other items. Tammy Waialua is a full-time accounting student and part-time employee of University Bookstore who recently studied the current chapter on managing constrained resources. She observed that the bookstore's primary constraints are floor and shelf space for fast selling items such as textbooks and market share for slow-selling items such as general merchandise. Average inventory levels and the most recent year's cost of goods sold in the three departments follow.

    Department Average Inventory Annual Cost of Goods Sold
    New and used textbooks $1,000,000 $4,000,000
    Computers 400,000 1,500,000
    General merchandise 1,200,000 1,400,000

    Tammy approached her boss, the bookstore's general manager, and suggested that they try to improve its efficiency by managing its constraints more effectively. The general manager thanked Tammy for her concern but assured her that this manufacturing technique was neither needed by nor applicable to the nonprofit bookstore.

    Required
    In small group, complete the following:

    a. Explain how University Bookstore's constraints can be both floor space (internal) and market share (external).
    b. Is Tammy or her boss correct about the relevance of the Theory of Constraints to the bookstore's operations? Explain.
    c. Prepare a short report with recommendations for managing the bookstore more efficiently.

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    Solution Preview

    Nader Paints makes an environmentally sound paint. The following data are available for the month of April:

    Units Percentage
    Complete
    Costs
    Beginning WIP Inventory, April 11,000
    Direct Materials 75
    Conversion costs 70
    Units started in April 6,000
    Costs incurred in April:
    Direct materials $16,000
    Conversion costs $15,800
    Ending WIP inventory 3,000
    Direct Materials 80
    Conversion costs 60
    Spoilage 200
    Direct materials 100
    Conversion costs 100

    a. Prepare a production cost report using weighted-average costing.
    b. Show the flow of costs through the WIP Inventory T-account.

    Ken's Bicycle Shop sells mountain bikes. For purposes of a cost-volume-profit analysis, the shop owner has divided sales into two categories, as follows:

    Product Category Sales Price Invoice Cost Sales Commissions
    High quality $700 $375 20% of sales
    Medium quality $500 $235 20% of sales
    The shop anticipates selling 500 bicycles, 300 of which will be medium quality. Annual fixed costs are $80,000. ...

    Solution Summary

    This solution is comprised of a detailed explanation to prepare a production cost report using weighted-average costing, show the flow of costs through the WIP Inventory T-account, answer what is the shop's sales mix, what is the shop's break-even sales volume in dollars, explain how University Bookstore's constraints can be both floor space (internal) and market share (external), is Tammy or her boss correct about the relevance of the Theory of Constraints to the bookstore's operations, and prepare a short report with recommendations for managing the bookstore more efficiently.

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