The Marshall Company is a large manufacturer of office furniture. The company ha

Question

The Marshall Company is a large manufacturer of office furniture. The company has recently adopted lean accounting and has identified two value streams—office chairs and office tables. Total sales in the most recent period for the two streams are $300 and $365 million, respectively.

   In the most recent accounting period, Marshall had the following operating costs, which were traced to the two value streams as follows (in thousands).

In addition to the traceable operating costs, the company had manufacturing costs of $171,750,000 and selling and administrative costs of $45 million that could not be traced to either value stream. Due to the implementation of lean methods, the firm has been able to reduce inventory in both value streams significantly and has calculated the fixed cost of prior period inventory that is included in the current income statement to be $6.5 million for the office chair stream and $25 million for the office table stream.

   In the most recent accounting period, Marshall had the following operating costs, which were traced to the two value streams as follows (in thousands).

Explanation / Answer

Below is Income statement for each value stream

(in $ Million) Streams Particulars Chair Table Sales 300 365 Less - Fixed cost of prior period inventory other income 6.5 25 293.5 340 Less - Variable Cost Materials 17.6 15.6 Labour 134 102 Equipment-related costs 45.6 65 Occupancy costs 11.9 13.7 209.1 196.3 Total Contribution 84.4 143.7

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