Chapter 22: Q5DQ (page 1012)
In responsibility accounting, why are reports to higher-level managers usually summarized?
Under responsibility accounting, higher levels of managers are provided with a summary of the reports tosave time and increase decision-making efficiency.
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Haver Company currently produces component RX5 for its sole product. The current cost per unit to manufacture the required 50,000 units of RX5 follows.
Direct materials . \( 5.00
Direct labor 8.00
Overhead . 9.00
Total cost per unit \)22.00
Check (1) Incremental cost
to make RX5, \(740,000
Direct materials and direct labor are 100% variable. Overhead is 80% fixed. An outside supplier has offered to supply the 50,000 units of RX5 for \)18.00 per unit.
Required
1. Determine whether the company should make or buy the RX5.
2. What factors besides cost must management consider when deciding whether to make or buy RX5?
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.
Mervyn Company has two operating departments: mixing and bottling. Mixing has 300 employees and bottling has 200 employees. Indirect factory costs include administrative costs of $160,000. Administrative costs are allocated to operating departments based on the number of workers. Determine the administrative costs allocated to each operating department.
Rita and Rick Redding own and operate a tomato grove. After preparing the following income statement, Rita and Rick are concerned about the loss on the No. 3 tomatoes.
RITA AND RICK REDDING | ||||
INCOME STATEMENT | ||||
For Year Ended December 31, 2017 | ||||
Particular | No 1 | No 2 | No 3 | Combined |
Sales (by grade) | ||||
No. 1: 500,000 Ibs. @ \(1.80/lb | \)900,000 | |||
No. 2: 400,000 Ibs. @ \(1.25/lb | \)500,000 | |||
No. 3: 100,000 Ibs. @ \(0.40/lb | \)40,000 | |||
Total sales | \(1,440,000 | |||
Costs | ||||
Land preparation, seeding, and cultivating @ \)0.70/Ib | 350,000 | 280,000 | 70,000 | 700,000 |
Harvesting, sorting, and grading @ \(0.04/Ib | 20,000 | 16,000 | 4,000 | 40,000 |
Delivery Cost | 10,000 | 7,000 | 3,000 | 20,000 |
Total cost | 380,000 | 303,000 | 77,000 | 760,000 |
Net income (Loss) | \)520,000 | \(197,000 | (\)37,000) | \(680,000 |
In preparing this statement, Rita and Rick allocated joint costs among the grades on a physical basis as an equal amount per pound. Also, their delivery cost records show that \)17,000 of the \(20,000 relates to crating the No. 1 and No. 2 tomatoes and hauling them to the buyer. The remaining \)3,000 of delivery costs is for crating the No. 3 tomatoes and hauling them to the cannery.
Required
1. Prepare reports showing cost allocations on a sales value basis to the three grades of tomatoes. 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 one-tenth 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.
Question: What are controllable costs?
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