Concept explainers
Cost Allocation with Cost Flow Diagram
Wayne Casting, Inc., produces a product made from a metal alloy. Wayne buys the alloy from two different suppliers, Chillicothe Metals and Ames Supply, in approximately equal amounts because of supply constraints at both vendors. The material from Chillicothe is less expensive to buy, but more difficult to use, resulting in greater waste. The metal alloy is highly toxic and any waste requires costly handling to avoid environmental accidents. Last year the cost of handling the waste totaled $300,000. Additional data from last year’s operations are shown below.
Required
- a. Allocate the cost of the waste handling to the two suppliers based on:
- 1. Amount of material purchased.
- 2. Amount of waste.
- 3. Cost of material purchased.
- b. Draw a cost flow diagram to illustrate your answer to requirement (a), part (1).
a.
Allocate the cost of the waste handling to the two suppliers based on:
1. Amount of material purchased.
2. Amount of waste.
3. Cost of material purchased.
Explanation of Solution
Calculate the allocation of the cost of handling the waste on the basis of given variables:
Chillicothe Ames | Ames Supply |
Total Cost | |||
Particulars | % | Amount | % | Amount | |
1. Based on amount of material purchased: | |||||
Cost of handling the waste |
52% (1) | $156,000 (3) |
48% (2) | $144,000 (4) | $300,000 |
2. Based on amount waste: | |||||
Cost of handling the waste |
85.33% (5) | $256,000 (7) |
14.67% (6) | $44,000 (8) | $300,000 |
3. Based on the cost of material purchased | |||||
Cost of handling the waste |
41.6% (9) | $124,000 (11) |
58.4% (10) |
$175,200 (12) | $300,000 |
Table: (1)
Calculate the allocation of cost of handling the waste on the basis of the amount of material purchased:
Working note 1:
Allocation for Chillicothe Ames:
Working note 2:
Allocation for Ames Supply:
Working note 3:
Calculate the cost of Chillicothe Ames:
Working note 4:
Calculate the cost of Ames Supply:
Calculate the allocation of cost of handling the waste on the basis of the amount of waste:
Working note 5:
Allocation for Chillicothe Ames:
Working note 6:
Allocation for Ames Supply:
Working note 7:
Calculate the cost of Chillicothe Ames:
Working note 8:
Calculate the cost of Ames Supply:
Calculate the allocation of cost of handling the waste on the basis of cost purchases:
Working note 9:
Allocation for Chillicothe Ames:
Working note 10:
Allocation for Ames Supply:
Working note 11:
Calculate the cost of Chillicothe Ames:
Working note 12:
Calculate the cost of Ames Supply:
b.
Draw a cost flow diagram to illustrate your answer to requirement (a), part (1).
Explanation of Solution
The cost flow diagram to illustrate your answer to requirement (a), part (1):
Figure (1)
Want to see more full solutions like this?
Chapter 2 Solutions
FUNDAMENTALS OF COST ACCOUNTING
- Product Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass that it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $234,000 for the company as a whole. In addition, the following information is available about the three products: Large Medium Small Unit selling price $122 $446 $382 Unit variable cost 96 365 336 Unit contribution margin $ 26 $ 81 $ 46 Autoclave hours per unit 2 6 4 Total process hours per unit 4 12 12 Budgeted units of production 3,400 3,400 3,400 a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production. Large Medium…arrow_forwardProduct Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $167,000 for the company as a whole. In addition, the following information is available about the three products: Large Medium Small Unit selling price $381 $209 $199 Unit variable cost 300 171 175 Unit contribution margin $ 81 $ 38 $ 24 Autoclave hours per unit 6 4 2 Total process hours per unit 18 8 6 Budgeted units of production 2,600 2,600 2,600 a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production. Large Medium Small Total Units…arrow_forwardProduct Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass that it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $91,000 for the company as a whole. In addition, the following information is available about the three products: Unit selling price Unit variable cost Unit contribution margin Autoclave hours per unit Total process hours per unit Budgeted units of production Large Medium Small $240 $94 $199 (189) (77) (175) $ 51 $ 17 $ 24 6 2 4 18 4 8 2,200 2,200 2,200 a. Determine the contribution margin by glass type and the total company operating income for the budgeted units of production. Large Medium Small Units produced Revenues Variable costs Contribution margin Fixed costs…arrow_forward
- Mozaic Inc. has decided to introduce a new product, which can be manufactured by either a computer-assisted manufacturing system (CAM) or a labor-intensive production system (LIP). The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows: CAM System LIP System Direct Material $5.00 $5.60 Direct Labor (DLH) 0.5 DLH x $12 $6.00 0.8 DLH x $9 $7.20 Variable Overhead 0.5 DLH x $6 $3.00 0.8 DLH x $6 $4.80 Fixed Overhead* $2,440,000 $1,320,000 * These costs are directly traceable to the new product line. They would not be incurred if the new product were not produced. The company's marketing research department has recommended an introductory unit sales price of $30. Selling expenses are estimated to be $500,000 annually plus $2 for each unit sold. (Ignore income taxes.) Required: 1. Calculate the estimated break-even point in annual unit sales of the new product if the company uses the (a) computer-assisted…arrow_forwardProduct Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass that it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $154,000 for the company as a whole. In addition, the following information is available about the three products: Large Medium Small Unit selling price $6 $413 $448 Unit variable cost (52) (338) (394) Unit contribution margin $ 14 $ 75 $ 54 Autoclave hours per unit 2 6 4 Total process hours per unit 6 12 8 Budgeted units of production 2,400 2,400 2,400 a. Determine the contribution margin by glass type and the total company operating income for the budgeted units of production. Large Medium Small Total Units produced Revenues $4 Variable costs Contribution margin %4 Fixed…arrow_forwardProduct Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass that it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $148,000 for the company as a whole. In addition, the following information is available about the three products: Large Medium Small Unit selling price $226 $165 $208 Unit variable cost 178 135 183 Unit contribution margin $ 48 $ 30 $ 25 Autoclave hours per unit 6 4 2 Total process hours per unit 18 8 6 Budgeted units of production 3,200 3,200 3,200 a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production. Large Medium…arrow_forward
- Product Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass that it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $176,000 for the company as a whole. In addition, the following information is available about the three products: Line Item Description Large Medium Small Unit selling price $254 $143 $266 Unit variable cost (200) (117) (234) Unit contribution margin $ 54 $ 26 $ 32 Autoclave hours per unit 6 2 4 Total process hours per unit 12 4 12 Budgeted units of production 3,500 3,500 3,500 a. Determine the contribution margin by glass type and the total company operating income for the budgeted units of production. Line Item Description Large…arrow_forwardProduct Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $296,000 for the company as a whole. In addition, the following information is available about the three products: Large Medium Small Unit selling price $324 $286 $158 Unit variable cost 255 234 139 Unit contribution margin $ 69 $ 52 $ 19 Autoclave hours per unit 6 4 2 Total process hours per unit 18 8 6 Budgeted units of production 4,700 4,700 4,700 a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production. Large Medium Small Total Units…arrow_forwardCarla Vista Company has decided to introduce a new product that can be manufactured by either a capital-intensive method or a labour-intensive method. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs under the two methods are as follows: Capital-Intensive Labour-Intensive Direct materials $5.50 per unit $10.75 per unit Direct labour $4.00 per unit $9.00 per unit Variable overhead $3.50 per unit $7.25 per unit Fixed manufacturing costs $2,423,040 $1,488,000 Carla Vista's market research department has recommended an introductory unit sales price of $32. The incremental selling expenses are estimated to be $481,920 annually, plus $2 for each unit sold, regardless of the manufacturing method. (a) * Your answer is incorrect. Calculate the estimated break-even point in annual unit sales of the new product if Carla Vista Company uses (1) the capital- intensive manufacturing method, or (2) the labour-intensive manufacturing method.arrow_forward
- Carla Vista Company has decided to introduce a new product that can be manufactured by either a capital-intensive method or a labour-intensive method. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs under the two methods are as follows: Capital-Intensive Labour-Intensive Direct materials $5.50 per unit $10.75 per unit Direct labour $4.00 per unit $9.00 per unit Variable overhead $3.50 per unit Fixed manufacturing costs $2,423,040 $7.25 per unit $1,488,000 Carla Vista's market research department has recommended an introductory unit sales price of $32. The incremental selling expenses are estimated to be $481,920 annually, plus $2 for each unit sold, regardless of the manufacturing method. (a) Your Answer Correct Answer (Used) Your answer is partially correct. Calculate the estimated break-even point in annual unit sales of the new product if Carla Vista Company uses (1) the capital- intensive manufacturing method, or (2) the…arrow_forwardProduct Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $85,000 for the company as a whole. In addition, the following information is available about the three products: Large Medium Small Unit selling price $184 $160 $100 Unit variable cost 130 120 76 Unit contribution margin $ 54 $ 40 $ 24 Autoclave hours per unit 3 2 1 Total process hours per unit 5 4 2 Budgeted units of production 3,000 3,000 3,000 a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production. Round the "Unit contribution margin per…arrow_forwardProduct Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass that it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $339,000 for the company as a whole. In addition, the following information is available about the three products: Large Medium Small Unit selling price $216 $116 $647 Unit variable cost (170) (95) (569) Unit contribution margin $ 46 $ 21 $ 78 Autoclave hours per unit 4 2 6 Total process hours per unit 12 4 12 Budgeted units of production 5,200 5,200 5,200arrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub