Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Textbook Question
Chapter 5, Problem 1MAD
Analyze Milkrageous, Inc.
Milkragcous, Inc., a large, private dairy products company, is determining cost allocations for performance evaluation purposes. Company bonuses are based on cost containment, so accurate costing numbers are imperative.
The general managers (GMs) over the cheese and yogurt divisions are being evaluated. Support department costs include Janitorial ($150,700) and Maintenance ($300,200). The Janitorial costs remain relatively fixed from quarter to quarter. Maintenance costs, however, vary with respect to the number of service calls made each quarter. The joint cost of processing milk before the split-off point for yogurt and cheese is $755,000 for the quarter. Yogurt sells at higher margins than cheese (at split-off as well as after further processing), but is equally difficult to produce as cheese.
- a. Which support department allocation method (direct, sequential, or reciprocal services) should be used to allocate support department costs for the GMs’ performance evaluation?
- b. What cost driver would be best for allocating Janitorial costs?
- c. What cost driver would be best for allocating Maintenance costs?
- d. Should Janitorial and Maintenance costs be considered when evaluating the general managers over cheese and yogurt?
- e. What joint cost allocation method should be used for performance evaluation purposes?
- f. Regardless of the correct answer to part (e), use the physical units method to allocate joint costs to yogurt and cheese assuming 198,000 pounds of yogurt and 102,000 pounds of cheese were produced during the quarter.
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Chocolate Bars, Inc. (CBI), manufactures creamy deluxe chocolate candy bars. The firm has developed three distinct products: Almond Dream, Krispy Krackle, and Creamy Crunch.
CBI is profitable, but management is quite concerned about the profitability of each product and the product costing methods currently employed. In particular, management questions whether the overhead allocation base of direct labor-hours accurately reflects the costs incurred during the production process of each product.
In reviewing cost reports with the marketing manager, Steve Hoffman, who is the cost accountant, notices that Creamy Crunch appears exceptionally profitable and that Almond Dream appears to be produced at a loss. This surprises both him and the manager, and after much discussion, they are convinced that the cost accounting system is at fault and that Almond Dream is performing very well at the current market price.
Steve decides to hire Jean Sharpe, a management consultant, to study the…
Analyze Milkrageous, Inc.
Milkrageous, Inc., a large, private dairy products company, is determining cost allocations for performance evaluation purposes. Company bonuses are based on cost containment, so accurate costing numbers are imperative.
The general managers (GMs) over the cheese and yogurt divisions are being evaluated. Support department costs include Janitorial ($150,700) and Maintenance ($300,200). The Janitorial costs remain relatively fixed from quarter to quarter. Maintenance costs, however, vary with respect to the number of service calls made each quarter. The joint cost of processing milk before the split-off point for yogurt and cheese is $755,000 for the quarter. Yogurt sells at higher margins than cheese (at split-off as well as after further processing), but is equally difficult to produce as cheese.
Regardless of the correct answer to part (e), use the physical units method to allocate joint costs to yogurt and cheese assuming 198,000 pounds of yogurt and 102,000…
Analyze Milkrageous, Inc.
Milkrageous, Inc., a large, private dairy products company, is determining cost allocations for performance evaluation purposes. Company bonuses are based on cost containment, so accurate costing numbers are imperative.
The general managers (GMs) over the cheese and yogurt divisions are being evaluated. Support department costs include Janitorial ($150,700) and Maintenance ($300,200). The Janitorial costs remain relatively fixed from quarter to quarter. Maintenance costs, however, vary with respect to the number of service calls made each quarter. The joint cost of processing milk before the split-off point for yogurt and cheese is $755,000 for the quarter. Yogurt sells at higher margins than cheese (at split-off as well as after further processing), but is equally difficult to produce as cheese.
a. Identify the method of support department cost allocation that matches the given situation.
a. Direct method.
b. Reciprocal services method.
c. Sequence method.
d.…
Chapter 5 Solutions
Managerial Accounting
Ch. 5 - Why are support department costs difficult to...Ch. 5 - Why does support department cost allocation matter...Ch. 5 - What are some drawbacks of applying support...Ch. 5 - Why is the diect method of support department cost...Ch. 5 - How does management determine the order in which...Ch. 5 - Are large or small companies more likely to use...Ch. 5 - What is the main difference between the physical...Ch. 5 - When would management most likely use the net...Ch. 5 - What are the two most often used ways of...Ch. 5 - How can support department and joint cost...
Ch. 5 - Charlies Wood Works produces wood products (e.g.,...Ch. 5 - Bucknum Boys, Inc., produces hunting gear for buck...Ch. 5 - Prob. 3BECh. 5 - Blakes Blacksmith Co. produces two types of...Ch. 5 - Garys Grooves Co. produces two types of carving...Ch. 5 - Prob. 6BECh. 5 - Yo-Down Inc. produces yogurt. Information related...Ch. 5 - Prob. 2ECh. 5 - Blue Africa Inc. produces laptops and desktop...Ch. 5 - Christmas Timber, Inc., produces Christmas trees....Ch. 5 - Crystal Scarves Co. produces winter scarves. The...Ch. 5 - Davis Snowflake Co. produces Christmas stockings...Ch. 5 - Prob. 7ECh. 5 - Prob. 8ECh. 5 - Prob. 9ECh. 5 - Support department cost allocation comparison...Ch. 5 - Prob. 11ECh. 5 - Prob. 12ECh. 5 - Joint cost allocation market value at split-off...Ch. 5 - Joint cost allocation net realizable value method...Ch. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Joint cost allocation-market value at split-off...Ch. 5 - Joint cost allocation net realizable value method...Ch. 5 - Support department cost allocation Blue Mountain...Ch. 5 - Support activity cost allocation Jakes Gems mines...Ch. 5 - Joint cost allocation Lovely Lotion Inc. produces...Ch. 5 - Joint cost allocation Florissas Flowers jointly...Ch. 5 - Support department cost allocation Hooligan...Ch. 5 - Support activity cost allocation Kizzles Crepes...Ch. 5 - Joint cost allocation McKenzies Soap Sensations,...Ch. 5 - Prob. 4PBCh. 5 - Analyze Milkrageous, Inc. Milkragcous, Inc., a...Ch. 5 - Analyze Horsepower Hookup, Inc. Horsepower Hookup,...Ch. 5 - Prob. 3MADCh. 5 - Prob. 4MADCh. 5 - Joint cost allocation and performance evaluation...Ch. 5 - Prob. 3TIFCh. 5 - Prob. 1CMACh. 5 - Adam Corporation manufactures computer tables and...Ch. 5 - Breegle Company produces three products (B-40,...Ch. 5 - Tucariz Company processes Duo into two joint...
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