Solution manual for cornerstones of cost management 3rd edition sample chapter7

CHAPTER 7 Download Full “Solution Manual for Cornerstones of Cost Management 3rd Edi-tion” at: https://getbooksolutions.com/download/solution-manual-for-cornerstones-of-cost-managemen

CHAPTER 7

Download Full “Solution Manual for Cornerstones of Cost Management 3rd

Edi-tion” at:

https://getbooksolutions.com/download/solution-manual-for-cornerstones-of-cost-management-3rd-edition

Allocating Costs of Support Departments and Joint Products

COLLABORATIVE LEARNING EXERCISE SOLUTION

1 a Direct method

Packaging

Machine hours 0.6667 0.3333

Kilowatt-hours 0.5556 0.4444

Maintenance:

(0.6667 × $340,000) $ 226,678

Power:

(0.5556 × $200,000) 111,120

Direct costs 75,000 55,000

Cooking: $412,798/40,000 = $10.32 per machine hour

Packaging and freezing: $257,202/30,000 = $8.57 per direct labor hour

Prime costs $ 16.00

Cooking ($10.32 × 2) 20.64

Packaging and freezing ($8.57 × 0.5) 4.29

Total cost $ 40.93

Markup (20%) 8.19

Bid price $ 49.12

b Sequential method:

Maintenance Power Cooking Freezing Machine hours — 0.4000 0.4000 0.2000

Direct costs $ 340,000 $ 200,000 $ 75,000 $ 55,000 Maintenance:

(0.4000 × $340,000) (136,000) 136,000

Power:

$ 0 $ 0 $ 397,682 $ 272,318

7–37 Continued

Cooking: $397,682/40,000 = $9.94 per machine hour

Packaging and freezing: $272,318/30,000 = $9.08 per direct labor hour

Prime costs $ 16.00

Cooking ($9.94 × 2) 19.88

Packaging and freezing ($9.08 × 0.5) 4.54

Total cost $ 40.42

Markup (20%) 8.08

Bid price $ 48.50

c Reciprocal method:

Packaging

Maintenance Power Cooking Freezing

M = $340,000 + 0.1($200,000 + 0.4M) P = $200,000 + 0.4($375,000)

M = $340,000 + $20,000 + 0.04M P = $200,000 + $150,000

M = $375,000

Packaging Total Cooking and Freezing From:

(0.4 × $375,000) $ 150,000

(0.5 × $350,000) 175,000

Direct costs 75,000 55,000

$ 400,000 $ 270,000 Cooking: $400,000/40,000 = $10 per machine hour

Packaging and freezing: $270,000/30,000 = $9 per direct labor hour

Prime cost $ 16.00

Cooking ($10 × 2) 20.00

Pack/freeze ($9 × 0.5) 4.50

Total cost $ 40.50

Markup (20%) 8.10

Bid price $ 48.60

2 No, the direct method did not produce a winning bid The direct method fails to consider the in-terrelationships of the support centers and, as a consequence, assigns too much of the support center costs to the cooking department Since the job spends more time in the cooking depart-ment than in the packaging and freezing departdepart-ment, it receives too much overhead and is over-priced The reciprocal method is the most accurate as it takes into account the use of support de-partments by other support dede-partments