Claire`s Antiques, headquartered in Sarasota, Florida, builds reproductions of certain antique furniture.

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Managerial Accounting Case - Common Stock


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.

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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