Rowe Long Version Essays

Submitted By xaccountingx
Words: 2871
Pages: 12

Case No. 98-05: Rowe Pottery Works Inc. ◆ 1

AICPA Case Development Program


Brian W. Mayhew, Assistant Professor
Georgia State University, Atlanta, Georgia
Gary G. Mayhew, Controller
Rowe Pottery Works, Inc., Cambridge, Wisconsin

At the end of 1996, Rowe Pottery Works, Inc. (RPW) had been losing money for over two and a half years
(see table 1).This case challenges students to identify and evaluate alternatives that lead to Rowe's return to profitability.RPW's pottery operation is the main source of the losses.The pottery operation provides a majority of the company's revenue leading the company to depend heavily upon its success. Attempts to control costs have reduced but not eliminated the continued losses. The losses perplex the company's president as he believes there is a strong market for RPW's products.
Management recently hired a new controller but is skeptical whether or not an accountant can help turn the company around. The previous controller told the president on numerous occasions: "I just report the results."
Nonetheless, the president hopes the new controller can help find a way to return the company to profitability.
Jim and Tina Rowe purchased a historic blacksmith shop in 1975. They turned it into an antique shop and soon discovered there was quite a demand for 19th-century salt-glazed pottery. Jim studied art in college and was familiar with the salt-glazed technique. He and Tina began producing handmade salt-glazed pottery and selling it in their store. As demand grew, the Rowe’s began selling their pottery to gift shops across the country. Today RPW sells more salt-glazed pottery than any other producer in the country.
RPW also operates a retail store and a wholesale decorative ironworks business. The focus of this case is on RPW’s salt-glazed pottery business. Information about the store and iron works has been removed from the financial data presented.
The company’s main product is salt-glazed pottery. Skilled artisans hand-make a majority of the pottery at a potter’s wheel. After forming, workers allow the pieces to air dry, then add a protective glaze and decoration before firing the pieces in a kiln. Salt added during the firing process produces a blue and gray color with unique “kiln” spots of brown and orange. The decorative and useful pottery is dishwasher, microwave, and oven safe. Products include crocks, plates, mugs, lamps and Christmas ornaments.
Artists decorate the pottery with traditional cobalt blue glaze prior to firing. Simple standard designs such as hearts, stars and blueberries adorn the pieces. Hand decorating also allows the production of cusCopyright 1999 by the American Institute of Certified Public Accountants (AICPA). Cases developed and distributed under the AICPA Case
Development Program are intended for use in higher education for instructional purposes only, and are not for application in practice.
Permission is granted to photocopy any case(s) for classroom teaching purposes only. All other rights are reserved. The AICPA neither approves nor endorses this case or any solution provided herein or subsequently developed.

AICPA Case Development Program

Case No. 98-05: Rowe Pottery Works Inc. ◆ 2

tomized pottery. For example, throughout the wedding season, customized wedding crocks decorated with the names of the bride and groom and their wedding date enjoy steady demand.
RPW also sells pottery especially designed for the Christmas season. The holiday line includes plates and crocks decorated with painted Christmas scenes and symbols, as well as Christmas ornaments and figures. The company prides itself in developing a few unique pieces each Christmas season. RPW’s artists date stamp their work to ensure authenticity and enhance collectibility.
Overview of the production process:
Step 1. Workers combine clay with water and ice in a large mixer.
Step 2. Potters form each piece on a potter’s wheel.
Step 3.