ACCY 122 Fall 2009

Strategic Costing #2 Miscellaneous Costing Methods

Topic #1 Relevant Costing Lewis Auto Company manufactures a part for use in its production of automobiles. When 10,000 items are produced, the costs per unit are: Direct materials Direct manufacturin! labor #ariable manufacturin! o$erhead &i'ed manufacturin! o$erhead )otal $ 1 "0 % ( $1 *

+onty Company has offered to sell Lewis Auto Company 10,000 units of the part for $1 0 per unit. )he plant facilities could be used to manufacture another part at a sa$in!s of $1*0,000 if Lewis Auto accepts the supplier,s offer. -n addition, $ 0 per unit of fi'ed manufacturin! o$erhead on the ori!inal part would be eliminated. Re uired! a. What is the rele$ant per unit cost for the ori!inal part. b. Which alternati$e is best for Lewis Auto Company. /y how much. "ere is the per#unit relevant cost $%T& T"AT T"& '1(0)000 *S $%T *$C+,-&- AS *T *S $%T A .&R ,$*T C%ST /,T A +,M. S,M0 Direct materials $1 Direct manufacturin! labor "0 #ariable manufacturin! o$erhead % A$oidable fi'ed manufacturin! o$erhead 0 )otal rele$ant per unit costs $11" "ere is the alternative anal1sis! $%T& T"AT 2& -% T"*S *$ C%+,MS 2*T" T"& -*FF&R&$C&S *$C+,-&- AS A C%+,M$ Ma3e 0urchase price 3a$in!s in space Direct materials Direct manufacturin! labor #ariable o$erhead &i'ed o$erhead sa$ed )otals $1 0,000 "00,000 %0,000 $4"0,000 1 00,0002 $* 0,000 /u1 $1, 00,000 11*0,0002 &44ect o4 /u1ing1 $11, 00,0002 1*0,000 1 0,000 "00,000 %0,000 00,000 $1%0,000

Topic #2! Cost Allocation 4or 5oint .roduct and /1products 1. )erms a. 5oint cost b. 3plitoff point c. 3eparable costs d. /yproducts . 6eed to cost out in$entory so we need a number (. +ethods 7 )wo mar8et based and one physical 7 in order of !eneral preference:
1

)his is the differential cost 7 the cost differences between the two options.

212982309.doc

ACCY 122 Fall 2009

Strategic Costing #2 Miscellaneous Costing Methods

a. 3ales $alue methods if there is a sales $alue that can be determined at the splitoff point b. 6et reali9able $alue method if the separable cost are hi!h and different relati$e to other costs )he difference between a. and b. is that a. use the separable costs to !et the 6:#: $R6 7 Final sales price separa8le cost vs0 Sales price at the splito44 point0 c. Allocate on pounds, !allons and the li8e 7 wor8s of products are similar after the splitoff point ;a8ima +anufacturin! purchases trees from Cascade Lumber and processes them up to the splitoff point where two products 1paper and pencil casin!s2 are obtained. )he products are then sold to an independent company that mar8ets and distributes them to retail outlets. )he followin! information was collected for the month of 6o$ember: )rees processed: <0 trees 1yield is (0,000 sheets of paper and (0,000 pencil casin!s and no scrap2 0roduction: paper (0,000 sheets and pencil casin!s (0,000 3ales: paper: 4,000 at $0.0% per pa!e and pencil casin!s:(0,000 at $0.10 per casin! )he cost of purchasin! <0 trees and processin! them up to the splitoff point to yield (0,000 sheets of paper and (0,000 pencil casin!s is $1,<00. ;a8ima,s accountin! department reported no be!innin! in$entories and an endin! in$entory of 1,000 sheets of paper. A. What is the sales $alue at the splitoff point for paper. 0aper: 90)000 sheets : '000; 7 '1)200000 /. What is the sales $alue at the splitoff point of the pencil casin!s. 0encils: 90)000 casings : '0010 7 '9)000000 C. -f the sales $alue at splitoff method is used, what are the appro'imate =oint costs assi!ned to endin! in$entory for paper. $1, 00>1$1, 00 ? $(,0002 @ *.<AB so 2(0<=> : '1)<00 : 1)000?90)000 7 '1;029 D. -f the sales $alue at splitoff method is used, what is the appro'imate production cost for each pencil casin!. $(,000>1$1, 00 ? $(,0002 ' $1,<00 @ $1,0A1 so '1)0=1?90)000 casings 7 '0009<= C. What are the paperDs and the pencilsD appro'imate wei!hted cost proportions usin! the sales $alue at splitoff method, respecti$ely. 1(<,000 ' $0.0%2 ? 1(0,000 ' $0.102 @ $%,%00 so '1);00?';);00 7 910(2> and '9)000?';);00 7 @(01(>

/yproducts! either contra#costs or additional revenue

212982309.doc

ACCY 122 Fall 2009 .

Strategic Costing #2 Miscellaneous Costing Methods

)he Carolina Company prepares lumber for companies who manufacture furniture. )he main product is finished lumber with a byproduct of wood sha$in!s. )he byproduct is sold to plywood manufacturers. &or 5uly, the manufacturin! process incurred $(( ,000 in total costs. Ci!hty thousand board feet of lumber were produced and sold alon! with ",*00 pounds of sha$in!s. )he finished lumber sold for $".00 per board foot and the sha$in!s sold for $0."0 a pound. )here were no be!innin! or endin! in$entories. 0repare an income statement showin! the byproduct 112 as a cost reduction durin! production, and 1 2 as a re$enue item when sold. Cost reduction Ahen produced $%*0,000 $%*0,000 $(( ,000 %,0*0 ( A,4 0 $1< ,0*0 Revenue Ahen sold $%*0,000 %,0*0 %*%,0*0 $(( ,000 0 (( ,000 $1< ,0*0

Sales: Lumber 3ha$in!s )otal 3ales: Cost of Good Sold: )otal manufacturin! costs /yproduct )otal CEF3 Gross Margin

Topic #9! $orBal Spoilage or Shrin3age) A8norBal Spoilage) ReAor3 and Scrap 1. 6ormal 3poila!e or 3hrin8a!e included in Cost of Foods +anufactured on a set rate . Abnormal 3poila!e accounted for in a loss account (. )he abo$e items are usually found in processGcostin!, the followin! two are found in =obGcostin!. %. :ewor8 7 similar to spoila!e accountin! <. 3crap 7 usually a contraGcost account Topic #; Capital /udgeting on class Ae8 page

212982309.doc