Cost Management
Cost Management
8th Edition
ISBN: 9781259917028
Author: BLOCHER, Edward
Publisher: Mcgraw-hill Education,
Question
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Chapter 7, Problem 49P

1.

To determine

Ascertain the product cost for all the products using all three methods.

1.

Expert Solution
Check Mark

Explanation of Solution

Compute the joint production and manufacturing costs:

Physical Measure Method:

ParticularsY64G22X17Total
Price$10.50$6.75$4.22 
Units produced22,00045,50018,00085,500
Separable Processing Costs$65,500$34,250$55,400$155,150
Sales price at split-off$2.24$2.88$0.44 
Sales value$231,000$307,125$75,960$614,085
Sales value at split-off$49,280$131,040$7,920$188,240
Increase in sales value$116,220$141,835$12,640 
     
Units produced22,00045,50018,000$85,500
Percentage of Total25.7310%53.2164%21.0526% 
Joint cost allocation$91,602$189,450$74,947$356,000
Add: Separable Costs$65,500$34,250$55,400$155,150
Total costs$157,102$223,700$130,347 
(÷) Units produced22,00045,50018,000 
Cost per Unit$7.1410$4.9165$7.2415 
     
Sales$231,000$307,125$75,960$614,085
Allocated Costs$91,602$189,450$74,947$356,000
Add: Separable Costs$65,500$34,250$55,400$155,150
Total costs$157,102$223,700$130,347$511,150
Gross Margin$73,898$83,425($54,387)$102,936

Table (1)

Sales value at split-off Method:

ParticularsY64G22X17Total
Price$10.50$6.75$4.22 
Separable Processing Costs$65,500$34,250$55,400$155,150
Units produced22,00045,50018,00085,500
Total Joint Cost   $356,000
Sales price at split-off$2.24$2.88$0.44 
Sales value$231,000$307,125$75,960$614,085
Sales value at split-off$49,280$131,040$7,920$188,240
     
Sales Value at split-off$49,280$131,040$7,920$188,240
Percentage of Total sales value26.1793%69.6133%4.2074%100.0000%
Joint cost allocation$93,198$247,823$14,978$356,000
Add: Separable Costs$65,500$34,250$55,400$155,150
Total costs$158,698$282,073$70,378 
(÷) Units produced22,00045,50018,000 
Cost per Unit$7.2135$6.1994$3.9099 
     
Sales$231,000$307,125$75,960$614,085
Allocated Costs$93,198$247,823$14,978$356,000
Add: Separable Costs$65,500$34,250$55,400$155,150
Total costs$158,698$282,073$70,378$511,150
Gross Margin$72,302$25,052$5,582$102,936

Table (2)

Net Realizable Value Method:

ParticularsY64G22X17Total
Price$10.50$6.75$4.22 
Separable Processing Costs$65,500$34,250$55,400$155,150
Units produced22,00045,50018,00085,500
Total Joint Cost$356,000  $356,000
Sales value$231,000$307,125$75,960$614,085
     
Sales Value of production$231,000$307,125$75,960$614,085
Less: Separable Costs$65,500$34,250$55,400$155,150
Sales Value at split-off$165,500$272,875$20,560$458,935
Percentage of Total sales value36.0618%59.4583%4.4799%100.0000%
Joint cost allocation$128,380$211,672$15,949$356,000
Add: Separable Costs$65,500$34,250$55,400$155,150
Total costs$193,880$245,922$71,349$511,150
(÷) Units produced22,00045,50018,000 
Cost per Unit$8.8127$5.4049$3.9638 
     
Sales$231,000$307,125$75,960$614,085
Allocated Costs$128,380$211,672$15,949$356,000
Add: Separable Costs$65,500$34,250$55,400$155,150
Total costs$193,880$245,922$71,349$511,150
Gross Margin$37,120$61,203$4,611$102,935

Table (3)

2.

To determine

Ascertain the most appropriate method of cost allocation.

2.

Expert Solution
Check Mark

Explanation of Solution

The Net Realizable Method would be the most preferred as all the products are further processed and this method records all the separable costs.

3.

To determine

Ascertain the products to be processed beyond the split off point and comment on the decision of Person Y.

3.

Expert Solution
Check Mark

Explanation of Solution

The decision made by Person Y is acceptable as all the three products have better revenue after the further processing. Thus, its acceptable to process all the products.

4.

To determine

Ascertain the effectiveness of the strategy of Person Y.

4.

Expert Solution
Check Mark

Explanation of Solution

The decision made by Person Y to reduce the recycling costs would be encouraged by the management. The customers are growing more aware of the environmental issues and are happy to pay a higher price, if the products are environmental friendly. Making use of the recycled product itself is an unique selling point for the company, and shall bring in more customers.

5.

To determine

Identify the issues Person Y should consider to execute the strategy effectively.

5.

Expert Solution
Check Mark

Explanation of Solution

The issues faced by Person Y include:

  • Source of raw materials and the quality of the goods
  • Transportation charges involved in transit of raw materials
  • Environmental risks related to transport of raw materials
  • Changes in the foreign exchange prices and losses due to them

6.

To determine

Identify the steps to be taken by Person Y, to improve the overall operational efficiency.

6.

Expert Solution
Check Mark

Explanation of Solution

Person Y may try the following steps to improve the overall operational efficiency:

  • Reduce the waste resulting from the process of recycling
  • Reducing the energy consumption in the production process

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Chapter 7 Solutions

Cost Management

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