A company produces products type: A, B and C in three separate departments (production hall). Product lines crate segments in the company. Segment managers (segment A manager and segment B manager, segment C manager) are responsible for profitability of their departments. Asses the profitability of each segments (A, B and C) using variable costing method. Additional information: Department A sales 1000 items of product A priced $23 each (including 100 items for department B). Variable costs of department B equals $14,000 In the production process of type B product, product A is used as a semi-finished product. Variable costs of department A which are included as a cost of goods sold of product A equals $19,000 Department B sells on average 110 items of B product, priced $ 400 per item. Sales revenues form product C equals $70,000 Fixed costs of direct labour connected with segment (department) A – $2,000 Variable cost of units sold of product C is $25,000 Fixed cost of direct labour connected with segment (department) B – $10,000 Fixed cost of employee salary connected with segment (department) C – $13,000 Common fixed administrative expanses connected with board members salary $12,500. Only for internal porpoise they decided to assign this costs into segments using direct labor cost as a base. Fixed overhead costs for depreciation of machines used in department A equal $3,500; in department B equal $3,500 in department C equal $5,000. Required: Calculate the possible results for particular segments and for the whole company using segment income statement. Should the company give up the production of one of the product? Should they withdraw one of three products from the market? Justify the answer. Consider that department B manager received an offer of semi-finished products purchase out of the company for $ 20 per item, necessary for the production of B products form external supplier. It is also established that fixed costs generated during production process of unprofitable product will be assign to the rest of the products produced in a proportion of 50 by 50 % Comment usefulness of variable costing method

A company produces products type: A, B and C in three separate departments (production hall). Product lines crate segments in the company. Segment managers (segment A manager and segment B manager, segment C manager) are responsible for profitability of their departments. Asses the profitability of each segments (A, B and C) using variable costing method. Additional information: Department A sales 1000 items of product A priced $23 each (including 100 items for department B). Variable costs of department B equals $14,000 In the production process of type B product, product A is used as a semi-finished product. Variable costs of department A which are included as a cost of goods sold of product A equals $19,000 Department B sells on average 110 items of B product, priced $ 400 per item. Sales revenues form product C equals $70,000 Fixed costs of direct labour connected with segment (department) A – $2,000 Variable cost of units sold of product C is $25,000 Fixed cost of direct labour connected with segment (department) B – $10,000 Fixed cost of employee salary connected with segment (department) C – $13,000 Common fixed administrative expanses connected with board members salary $12,500. Only for internal porpoise they decided to assign this costs into segments using direct labor cost as a base. Fixed overhead costs for depreciation of machines used in department A equal $3,500; in department B equal $3,500 in department C equal $5,000. Required: Calculate the possible results for particular segments and for the whole company using segment income statement. Should the company give up the production of one of the product? Should they withdraw one of three products from the market? Justify the answer. Consider that department B manager received an offer of semi-finished products purchase out of the company for $ 20 per item, necessary for the production of B products form external supplier. It is also established that fixed costs generated during production process of unprofitable product will be assign to the rest of the products produced in a proportion of 50 by 50 % Comment usefulness of variable costing method

Name: A company produces products type: A, B and C in three separate departm
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Description: A company produces products type: A, B and C in three separate departments (production hall). Product lines crate segments in the company. Segment managers (segment A manager and segment B manager, segment C manager) are responsible for profitability

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 16E

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Additional information:

Department A sales 1000 items of product A priced $23 each (including 100 items for department B).
Variable costs of department B equals $14,000
In the production process of type B product, product A is used as a semi-finished product.
Variable costs of department A which are included as a cost of goods sold of product A equals $19,000
Department B sells on average 110 items of B product, priced $ 400 per item.
Sales revenues form product C equals $70,000
Fixed costs of direct labour connected with segment (department) A – $2,000
Variable cost of units sold of product C is $25,000
Fixed cost of direct labour connected with segment (department) B – $10,000
Fixed cost of employee salary connected with segment (department) C – $13,000
Common fixed administrative expanses connected with board members salary $12,500. Only for internal porpoise they decided to assign this costs into segments using direct labor cost as a base.
Fixed overhead costs for depreciation of machines used in department A equal $3,500; in department B equal $3,500 in department C equal $5,000.

Required:

Calculate the possible results for particular segments and for the whole company using segment income statement.
Should the company give up the production of one of the product? Should they withdraw one of three products from the market? Justify the answer. Consider that department B manager received an offer of semi-finished products purchase out of the company for $ 20 per item, necessary for the production of B products form external supplier. It is also established that fixed costs generated during production process of unprofitable product will be assign to the rest of the products produced in a proportion of 50 by 50 %
Comment usefulness of variable costing method

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