The Custom Shirt House Is Concerned About Its Declining Sales

question 57

Essay

The Custom Shirt House is concerned about its declining sales, especially the reduction in the number of customers. For the last two years, its shirts have won industry awards for high quality and trend-setting styles. At the latest executive managers' meeting, everyone was blaming everyone else for the decline. After much discussion and presenting some fact-finding information, it was determined that sales relationships were the cause of most of the problems.
Required:
What may be some of the causes and how can the causes be detected if product quality is not an issue?

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Definitions:

Overapplied

A situation where the overhead allocated to products is greater than the actual overhead incurred.

Underapplied

A situation where the allocated amount of manufacturing overhead costs is less than the actual overhead costs incurred.

Manufacturing Overhead

Costs related to the manufacturing process but not directly traceable to specific units produced, such as utility costs and salaries of maintenance personnel.

Overhead Variances

Differences between the estimated and actual overhead costs in manufacturing or business operations.