Giberson’s glass studio Harvard Case Solution & Analysis

Problem Statement

Mr. Edward Engelhard Gibersonis worried due to the deteriorating financial performance of his business. The accounts of his shop were maintained by his wife, but they were neglected due to their divorce in previous year.

Most of the records were missing like there was no information or records of productions, data of product costs were missing, there was no proper cash flow maintained, no data was maintained as to the allocation of financial resources. Hence, all the financial information was unorganized, vague and indefinite. The only records present were check book, un reconciled bank statement and several tax returns.

Due to the muddled accounts, Mr. Giberson is unable to analyze the current position of the company and is afraid that the business might plunge into bankruptcy. His financial resources are being wasted due to inefficient allocation of resources. He does not even know the costs of his products, although he knew that his product’s prices are too low to cover up the costs as well as margin but he is unable to find the actual amounts. Due to this, he is unable to set proper prices of his products.

Mr. Giberson has hired Felica Coates who is a first year MBA student at the University of Virginia’s Darden Graduate Business School to organize his mismanaged and bungled accounts.

BACKGROUND

Edward Engelhardt Giberson, the owner of Giberson’s Glass studio, is a skilled and expert glass blower, he initiated his studio in Charlotte, North Carolina and after some time he moved his studio to Charlottesville, Virginia. Giberson makes superior quality products from his own hands, he has observed the process of blowing honey at the end of the straw and by looking at this process he developed his own process to shape each vessel.

He produces fine hand blown glassware in the form of tumblers, paperweights, patterned glasses and vases.His product goes through five processes. The first process is a production process, in which molten glass is gathered on a long metal blow pipe, the lip is also reheated, trimmed, fire polished and formed.

The second process is a charging process in which 200 pound raw material and chemical is added into the furnace. Giberson is very conscious for his product’s quality. Therefore, he closely monitors the process of mixing of raw materials as per their default proportions, because   any slight mistake in mixing might result in the production of inferior goods which is unacceptable by Giberson.

The third process is the melting process in which materials are put into the furnace gradually this process keeps operational for the entire day. After melting process, materials goes to the blowing process in which the glory hole is lighted up to 2300F which takes about 2 hours in the meantime.Giberson engages himself into sundry errands which includes grinding and polishing of the previous day’s production, office work and general maintenance.

The final process is of finishing and shipping in which the solid glass pieces are finished by the Giberson himself but he hired a part time labor for packing and shipping his products.

FINANCIAL ANALYSIS.

The main problem of Giberson is to find the right price of the product in order to find the right price of each product. The cost of each product should be determined separately. First the overall cost of direct materials should be allocated to the products on the basis of the weight of products as showed in EXIBIT 1.The weight of the products has been calculated on the basis of their weekly output.

Giberson’s glass studio Case Solution

After allocating the cost of direct material, the cost of furnace shall also be allocated to the products separately. Since the cost of furnace is a significant cost and adds value directly to the product so it should be included in the cost of each product. The basis of allocation of furnace cost shall be the time consumed by each product separately. In EXIBIT 2, the furnace cost is allocated directly to the products on the basis of the time consumed by each product.

After allocating the Furnace cost, the next cost which shall be allocated directly to the product is their packing and shipping costs. This cost shall also be calculated separately for each product on the basis of the time consumed by each product. As for packing and shipping Giberson has hired a part time labor staff therefore,the cost to be allocated will be that labor cost. In EXIBIT 3 the labor cost is allocated on the basis of hours consumed by each product and added directly to the cost of the product..................

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