Reference no: EM133344728

Case Study: High Street Reproduction Furniture (HSF) is a small producer of reproduction bedroom furniture. The product range consists of three pieces of bedroom furniture: a wardrobe, a chest of drawers and a dressing table. The furniture is hand-made to a very high standard. This requires a high degree of skill. The furniture is made from mahogany wood supplied by Sheffield Timber Company, which imports high quality seasoned timber from South America. Twelve people are now employed full time in the production process: ten are highly skilled cabinet makers and two are young apprentices. Part 1: Discontinuing the dressing tables The manager of the company has received a profit statement from his management accountant for the previous six months which itemize the performance of the company's three products (see table 1 below). Table 1: Management accountant's profit statement for the last six months (in K£) Wardrobes Dressing tables Chests Total Sales revenue 340 200 300 840 Direct materials 100 96 90 286 Direct labor 63 48 53 164 Variable workshop overheads 17 16 15 48 Apportioned fixed workshop overheads 60 70 68 198 Total manufacturing costs 240 230 226 696 Gross profit (loss) 100 (30) 74 144 Selling & distribution costs1 80 Net profit 64 Number of units sold 200 160 200 The manager was so appalled to see that the dressing tables had made a loss that he asked his management accountant for further information. Six months ago, the decision was made to buy in the mirror section of the dressing tables from a local firm 1 Including delivery costs to the customer. The amount paid to delivery contractor for the last six months is equal to £19,600. The average delivery cost per unit is £35 at a cost of £200 each. The original estimate of the cost if the company were to continue making the mirror section in house was as follows: Direct materials £120 Direct labor £ 40 Variable overheads £ 20 Fixed overheads £ 40 Total £220

Questions: Assignment questions Employing a relevant cost approach, prepare:

1. A new profit statement which clearly identifies both the contribution made by each product over the last six months and the overall profit.

2. A profit statement which shows the potential situation if production of the dressing tables is stopped and demand for the other products remains the same.

3. A statement which identifies the contribution which the dressing tables would have made in the last six months, had the mirror section not been sub-contracted.