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

CHAPTER Download Full “Solution Manual for Cornerstones of Cost Management 3rd Edition” at: https://getbooksolutions.com/download/solution-manual-for-cornerstones-of-costmanagement-3rd-edition Allocating Costs of Support Departments and Joint Products COLLABORATIVE LEARNING EXERCISE SOLUTION a Direct method Machine hours Kilowatt-hours Maintenance: (0.6667 × $340,000) (0.3333 × $340,000) Power: (0.5556 × $200,000) (0.4444 × $200,000) Direct costs Packaging and Freezing 0.3333 0.4444 Cooking 0.6667 0.5556 $ 226,678 $ 113,322 111,120 88,880 55,000 $ 257,202 75,000 $ 412,798 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 Cooking ($10.32 × 2) Packaging and freezing ($8.57 × 0.5) Total cost Markup (20%) Bid price b $ 16.00 20.64 4.29 $ 40.93 8.19 $ 49.12 Sequential method: Machine hours Kilowatt hours Direct costs Maintenance: Maintenance — — $ 340,000 Power 0.4000 — $ 200,000 Cooking 0.4000 0.5556 $ 75,000 © 2015 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Packaging and Freezing 0.2000 0.4444 $ 55,000 (0.4000 × $340,000) (0.4000 × $340,000) (0.2000 × $340,000) Power: (0.5556 × $336,000) (0.4444 × $336,000) (136,000) (136,000) (68,000) $ 136,000 136,000 68,000 (186,682) $ (149,318) $ 186,682 $ 397,682 © 2015 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 149,318 $ 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 Cooking ($9.94 × 2) Packaging and freezing ($9.08 × 0.5) Total cost Markup (20%) Bid price c $ 16.00 19.88 4.54 $ 40.42 8.08 $ 48.50 Reciprocal method: Machine hours Kilowatt-hours M M M 0.96M M Maintenance — 0.1 Power 0.4 — = $340,000 + 0.1P = $340,000 + 0.1($200,000 + 0.4M) = $340,000 + $20,000 + 0.04M = $360,000 = $375,000 Total Cooking 0.4 0.5 Packaging and Freezing 0.2 0.4 P = $200,000 + 0.4M P = $200,000 + 0.4($375,000) P = $200,000 + $150,000 P = $350,000 Cooking Packaging and Freezing From: Maintenance: (0.4 × $375,000) (0.2 × $375,000) Power: (0.5 × $350,000) (0.4 × $350,000) Direct costs $375,000 $ 150,000 $ 350,000 175,000 75,000 $ 400,000 Cooking: $400,000/40,000 = $10 per machine hour Packaging and freezing: $270,000/30,000 = $9 per direct labor hour Prime cost Cooking ($10 × 2) Pack/freeze ($9 × 0.5) Total cost Markup (20%) Bid price 7–37 75,000 $ 16.00 20.00 4.50 $ 40.50 8.10 $ 48.60 Concluded © 2015 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 140,000 55,000 $ 270,000 No, the direct method did not produce a winning bid The direct method fails to consider the interrelationships 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 department than in the packaging and freezing department, it receives too much overhead and is overpriced The reciprocal method is the most accurate as it takes into account the use of support departments by other support departments © 2015 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part