ACC500_Concord Company_Comprehensive Case Study

Concord Company manufactures hiking boots for three major retailers in the greater New Hampshirearea. It plans to grow by producing high-quality hiking boots at a low cost that are delivered in a timelymanner. There are a number of other manufacturers who produce similar boots. Concord believes thatcontinuously improving its manufacturing processes and having satisfied employees are critical toimplementing its strategy. The company utilizes a balanced scorecard approach to managing andmonitoring the business.For simplicity, assume that the company produces a single product, sales are equal to production, andinventory levels are zero.Below are the standard costs per boot: Standard Quantity Standard Price of Input Allowed per Unit per Unit of Output of Input______Direct materials 3 pounds $3 per poundDirect labor 1 hour $17 per hourBelow is the budgeted information for the month of July:Units produced and sold 20,000Average selling price per unit $42Direct materials – based on the standards per unitDirect labor – based on the standards per unitVariable factory overhead per unit $5 per direct labor hourFixed factory overhead $50,000Variable shipping costs per unit $3Variable selling cost per unit $1Fixed selling costs $15,000Fixed administrative costs $20,000Below are the actual results for the month of July:Units produced and sold 20,120Actual sales revenue (see table below by customer) $829,820Direct materials (65,000 lbs used) $191,750Direct labor (19,500 actual hours) $333,450Variable factory overhead $103,000Fixed factory overhead $54,000Variable shipping costs * $61,000Variable selling cost $19,850Fixed selling costs $17,000Fixed administrative costs $21,000 Actual sales units and selling prices by customer for July: Units Selling PriceCustomer A 12,000 $39 per unitCustomer B 5,850 $44 per unitCustomer C 2,270 $46 per unitRequired:1. Prepare an income statement in the traditional format for the month of July.2. Prepare a flexible budget in the contribution format for Concord Company for the followingthree activity levels: 18,000 units, 22,000 units, and 25,000 units.3. Prepare an operating income schedule for July in the contribution format showing the actualresults, flexible budget variances, flexible budget, sales-activity variance, and static budget.4. Calculate the labor price and quantity variances for July.5. Calculate the materials price and quantity variances for July.6. Calculate the variable factory overhead efficiency and spending variances for July.7. Comment on all of the variances calculated in the previous four requirements. What might becausing these variances?8. Calculate the breakeven point in terms of units and sales dollars for Concord based on budgetednumbers.9. Calculate the breakeven point in terms of units and sales dollars for Concord based on the actualJuly results.10. Calculate the number of units and sales dollars required to reach a target operating income of$80,000 based on budgeted numbers.11. Assuming that variable costs per unit are the same regardless of customer and fixed costs areallocated to the three customers based on units sold, prepare a schedule showing the operatingincome per customer (show sales, variable costs, contribution margin, fixed costs, operatingincome and operating income as a percent of sales).12. Based on the above analysis should the company discontinue selling to one of its customersassuming that no fixed costs can be eliminated if the company discontinues selling to onecustomer and the company only produces enough units to sell to the remaining two customers?Why, or why not?customer is now the least profitable?16. Going back to the original results for the month of July, what if the company decides to raise theprice to Customer A by $2 per unit but sells 8% less units to Customer A as a result, should theydo it? Why, or why not?17. Going back to the original results for the month of July, what if the company received a proposalfrom a subcontractor to manufacture all of units that were sold to Customer B for $37 per unitand Concord would only manufacture enough units related to the demand from Customer A andC, should they accept the proposal or continue to manufacture the units in-house? Explain.(Assume that Concord cannot reduce their fixed costs).18. Would your answer change to the question above if Concord was able to reduce their fixed costs by 50% as a result of the decision to outsource Customer B units? Explain.