A-1 complete the table under the current cost system. A-2 determine which products, if any, should be dropped. C-1 Assume that CBI drops the product(s) identified in requirement (a) above. Calculate the gross profit margin percentage for the remaining products. Assume that CBI can sell all products that it manufactures and that it will use the excess capacity from dropping a product to produce more of the most profitable product.
A-1 complete the table under the current cost system. A-2 determine which products, if any, should be dropped. C-1 Assume that CBI drops the product(s) identified in requirement (a) above. Calculate the gross profit margin percentage for the remaining products. Assume that CBI can sell all products that it manufactures and that it will use the excess capacity from dropping a product to produce more of the most profitable product.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
A-1 complete the table under the current cost system.
A-2 determine which products, if any, should be dropped.
C-1 Assume that CBI drops the product(s) identified in requirement (a) above. Calculate the gross profit margin percentage for the remaining products. Assume that CBI can sell all products that it manufactures and that it will use the excess capacity from dropping a product to produce more of the most profitable product.
Transcribed Image Text:Required:
-1. Complete the table under the current cost system.
2. Determine which product(s), If any, should be dropped.
c-1. Assume that CBI drops the product(s) Identifled in requirement (a) above. Calculate the gross profit margin percentage for the
remaining products. Assume that CBI can sell all products that it manufactures and that it will use the excess capacity from dropping a
product to produce more of the most profitable product.
c-2. If CBI maintalns Its current rule about dropping products, which additional products, if any, should CBI drop under the existing cost
system?
d-1. Assume that CBI drops the products identifled in requirements (a) and (c) above. Recalculate the gross profit margin percentage
for the remaining productis) and ascertain whether any additional product(s) should be dropped.
d-2. Which additional products, If any, should CBI drop under the existing cost system?
Complete this question by entering your answers in the tabs below.
Req A1
Reg A2
Req C1
Reg C2
Reg D1
Reg D2
Complete the table under the current cost system. (Round your intermediate calculations and final answers to 2 decimal
places. Negative values should be indicated with a minus sign.)
Krispy
Krackle
Creamy Crunch
Almond Dream
Product costs:
8.30
4.30
1.00
Labor-hours per case
Total cases produced
1,000
1,000
1,000
3.30
$ 25.80
Material cost per case
9.30
%2.
9.80
49.80
%24
6.00
Direct labor cost per case
Labor-hours per product
8,300
4,300
1,000
Total overhead
$ 76,000
Total labor-hours
13,600
Direct labor costs per hour
6.00
Allocation rate per labor-hour
Costs of products:
Material cost per case
9.30
%24
3.30
9.80
Direct labor cost por caso
49.80
25.80
6.00
Allocated overhead per case
Product cost
Seling price
Gross profit margin percentage
![In reviewing cost reports with the marketing manager, Steve Hoffman, who is the cost accountant, notices that Creamy Crunch appears
exceptionally profitable and that Almond Dream appears to be produced at a loss. This surprises both him and the manager, and after
much discussion, they are convinced that the cost accounting system is at fault and that Almond Dream is performing very well at the
current market price.
Steve decides to hire Jean Sharpe, a management consultant, to study the firm's cost system over the next month and present her
findings and recommendations to senior management. Her objective is to identify and demonstrate how the cost accounting system
might be distorting the firm's product costs.
Jean begins her study by gathering information and documenting the existing cost accounting system. It is rather simplistic, using a
single overhead allocation base-direct labor-hours-to calculate and apply overhead rates to all products. The rate is calculated by
summing varlable and fixed overhead costs and then dividing the result by the number of direct labor-hours. The product cost is
determined by multiplying the number of direct labor-hours required to manufactute the product by the overhead rate and adding this
amount to the direct labor and direct material costs.
CBI engages in two distinct production processes for each product. Process 1 is labor Intensive, using a high proportion of direct
materials and labor. Process 2 uses special packing equipment that wraps each individual candy bar and then packs it into a box of 24
bars. The boxes are then packaged into cases, each of which has six boxes. Special packing equipment is used on all three products
and has a monthly capacity of 3,000 cases, each containing 144 candy bars ( 6 boxes 24 bars).
To illustrate the source of the distortions to senior management, Jean collects the cost date for the three products, Almond Dream,
Krispy Krackle, and Creamy Crunch.
Almond
Xrispy
Krackle
Creamy
Drean
Crunch
Product costa
Labor-hours per case
Total cases produced
Material cost per ease
Direct labor eost per ease
Labor-hours per product
Total overhead $76,000
Total labor-hours 13,600
Direct labor costa per hour 6.00
Allocation rate per labor-bour (a).
Costa of produets
Material cost per case
Direct labor cost per case
Allocated overhead per case(to be computed)
8.3
4.3
1.0
1,000
$9.30
$ 49.80
1,000
$3.30
1,000
$9.80
$25.80
$4.00
1.000
8,300
4.300
$9.30
$ 3.30
$9.80
49.80
25.80
6.00
(b)
(e)
Froduct cost
(e)
(9)
CBI recently adopted a general policy to discontinue all products whose gross profit margin percentages ((Gross margin Selling
price) 100] were less than 10 percent. By comparing the selling prices to the firm's costs and then calculating the gross margin
percentages, Jean could determine which products, under the current cost system, should be dropped. The current selling prces of
Almond Dream, Krispy Krackle, and Creamy Crunch are $98.00, $61.00, and $30.00 per case, respectively. Overhead will remain
$76,000 per month under all alternatives.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F17a3837c-98d9-4df5-be63-77cb6b351343%2F3d4cbb03-0845-4872-8766-de5ebb58c850%2Fi1bdeut_processed.jpeg&w=3840&q=75)
Transcribed Image Text:In reviewing cost reports with the marketing manager, Steve Hoffman, who is the cost accountant, notices that Creamy Crunch appears
exceptionally profitable and that Almond Dream appears to be produced at a loss. This surprises both him and the manager, and after
much discussion, they are convinced that the cost accounting system is at fault and that Almond Dream is performing very well at the
current market price.
Steve decides to hire Jean Sharpe, a management consultant, to study the firm's cost system over the next month and present her
findings and recommendations to senior management. Her objective is to identify and demonstrate how the cost accounting system
might be distorting the firm's product costs.
Jean begins her study by gathering information and documenting the existing cost accounting system. It is rather simplistic, using a
single overhead allocation base-direct labor-hours-to calculate and apply overhead rates to all products. The rate is calculated by
summing varlable and fixed overhead costs and then dividing the result by the number of direct labor-hours. The product cost is
determined by multiplying the number of direct labor-hours required to manufactute the product by the overhead rate and adding this
amount to the direct labor and direct material costs.
CBI engages in two distinct production processes for each product. Process 1 is labor Intensive, using a high proportion of direct
materials and labor. Process 2 uses special packing equipment that wraps each individual candy bar and then packs it into a box of 24
bars. The boxes are then packaged into cases, each of which has six boxes. Special packing equipment is used on all three products
and has a monthly capacity of 3,000 cases, each containing 144 candy bars ( 6 boxes 24 bars).
To illustrate the source of the distortions to senior management, Jean collects the cost date for the three products, Almond Dream,
Krispy Krackle, and Creamy Crunch.
Almond
Xrispy
Krackle
Creamy
Drean
Crunch
Product costa
Labor-hours per case
Total cases produced
Material cost per ease
Direct labor eost per ease
Labor-hours per product
Total overhead $76,000
Total labor-hours 13,600
Direct labor costa per hour 6.00
Allocation rate per labor-bour (a).
Costa of produets
Material cost per case
Direct labor cost per case
Allocated overhead per case(to be computed)
8.3
4.3
1.0
1,000
$9.30
$ 49.80
1,000
$3.30
1,000
$9.80
$25.80
$4.00
1.000
8,300
4.300
$9.30
$ 3.30
$9.80
49.80
25.80
6.00
(b)
(e)
Froduct cost
(e)
(9)
CBI recently adopted a general policy to discontinue all products whose gross profit margin percentages ((Gross margin Selling
price) 100] were less than 10 percent. By comparing the selling prices to the firm's costs and then calculating the gross margin
percentages, Jean could determine which products, under the current cost system, should be dropped. The current selling prces of
Almond Dream, Krispy Krackle, and Creamy Crunch are $98.00, $61.00, and $30.00 per case, respectively. Overhead will remain
$76,000 per month under all alternatives.
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