Chapter 22: Q22-8DQ (page 1012)
What is the difference between direct and indirect expenses?
Expensesdirectly associated with production are direct expenses, and the expenses not directly associated with the production or costs incurred to manage the operations are known as indirect expenses.
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Georgia Orchards produced a good crop of peaches this year. After preparing the following income statement, the company is concerned about the net loss on its No. 3 peaches
GEORGIA ORCHARDS | ||||
INCOME STATEMENT | ||||
For Year Ended December 31, 2017 | ||||
Particular | No 1 | No 2 | No 3 | Combined |
Sales (by grade) | ||||
No 1. | \(450,000 | |||
No 2. | \)300,000 | |||
No 3 | \(187,500 | |||
Total sales | \)937,500 | |||
Costs | ||||
Tree pruning and care @ \(0.30/lb | 90,000 | 90,000 | 225,000 | 405,000 |
Picking, sorting, and grading | 45,000 | 45,000 | 112,500 | 202,500 |
Delivery Cost | 15,000 | 15,000 | 37,500 | 67,500 |
Total cost | 150,000 | 150,000 | 375,000 | 675,000 |
Net income (Loss) | \)300,000 | \(150,000 | (\)187,500) | \(262,500 |
In preparing this statement, the company allocated joint costs among the grades on a physical basis as an equal amount per pound. The company’s delivery cost records show that \)30,000 of the \(67,500 relates to crating the No. 1 and No. 2 peaches and hauling them to the buyer. The remaining \)37,500 of delivery costs is for crating the No. 3 peaches and hauling them to the cannery.
Required
1. Prepare reports showing cost allocations on a sales value basis to the three grades of peaches. Separate the delivery costs into the amounts directly identifiable with each grade. Then allocate any shared delivery costs on the basis of the relative sales value of each grade. (Round percents to the nearest onetenth and dollar amounts to the nearest whole dollar.)
2. Using your answers to part 1, prepare an income statement using the joint costs allocated on a sales value basis.
Analysis Component
3. Do you think delivery costs fit the definition of a joint cost? Explain.
In responsibility accounting, why are reports to higher-level managers usually summarized?
How are decisions made in decentralized organizations?
Oakwood Company produces maple bookcases. The following information is available for the production of a recent order of 500 bookcases.
Process time | 6.0 days | Move time | 3.2 days |
Inspection time | 0.8 days | Wait time | 5.0 days |
1. Compute the company’s manufacturing cycle time.
2. Compute the company’s manufacturing cycle efficiency. Interpret your answer.
3. Management believes it can reduce move time by 1.2 days and wait time by 2.8 days by adopting lean manufacturing techniques. Compute the company’s manufacturing cycle efficiency assuming the company’s predictions are correct.
Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).
Investment Center | Sales | Income | Average Invested Assets |
Electronic goods | \(40,000,000 | \)2,880,000 | 16,000,000 |
Sporting goods | 20,000,000 | 2,040,000 | 12,000,000 |
1. Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company?
2. Assume a target income level of 12% of average invested assets. Compute residual income for each department. Which department generated the most residual income for the company?
3. Assume the electronics department is presented with a new investment opportunity that will yield a 15% return on investment. Should the new investment opportunity be accepted? Explain.
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