Carleigh, Inc., is a pork processor. Its plants, located in the Midwest, produce several products from a common process: sirloin roasts, chops, spare ribs, and the residual. The roasts, chops, and spare ribs are packaged, branded, and sold to supermarkets. The residual consists of organ meats and leftover pieces that are sold to sausage and hot dog processors. The joint costs for a typical week are as follows: Direct materials $83,000 Direct labor 27,400 Overhead 19,000 The revenues from each product are as follows: sirloin roasts, $67,000; chops, $79,000; spare ribs, $36,000; and residual, $8,800. Carleigh’s management has learned that certain organ meats are a prized delicacy in Asia. They are considering separating those from the residual and selling them abroad for $52,600. This would bring the value of the residual down to $2,900. In addition, the organ meats would need to be packaged and then air freighted to Asia. Further processing cost per week is estimated to be $25,300 (the cost of renting additional packaging equipment, purchasing materials, and hiring additional direct labor). Transportation cost would be $10,900 per week. Finally, resource spending would need to be expanded for other activities as well (purchasing, receiving, and internal shipping). The increase in resource spending for these activities is estimated to be $2,950 per week. Required: 1. What is the gross profit earned by the original mix of products for one week? $fill in the blank 1 2. Should the company separate the organ meats for shipment overseas or continue to sell them at split-off? What is the effect of the decision on weekly gross profit? by $fill in the blank 4 Jason Rogers works full-time for UPS and runs a lawn-mowing service part-time after work during the warm months of April through October. Jason has two men working with him, each of whom is paid $6.00 per lawn mowing. Jason has 25 residential customers who contract with him for once-weekly lawn mowing during the months of May through September, and twice-per-month mowings during April and October. On average, Jason charges $40 per lawn mowed. Recently, LStar Property Management Services asked Jason to mow the lawn at each of its 28 rental houses every two weeks during the months of May through September. LStar has offered to pay $28 per lawn mowing, and would forego the lawn edging that normally takes Jason’s team about half of its regular mowing time. If Jason accepts the job, he can assign a one-man team to mow the rental house yards, and will have to buy an additional power lawn mower for about $325 used. Fuel to run the additional mower will be about $0.40 per yard. 1. If Jason accepts the special order, by how much will his income increase or decrease? by $fill in the blank 2 Each year, Basu Company produces 14,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.28. The unit cost is: Direct materials $0.83 Direct labor 0.33 Variable overhead 0.06 Fixed overhead 2.65 Total unit cost $3.87 Required: 1. What are the alternatives for Basu Company? 2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production. List the relevant cost(s) of external purchase. 3. Which alternative is more cost effective and by how much? by $fill in the blank 5 4. What if $21,520 of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component is purchased? Which alternative is more cost effective and by how much? by $fill in the blank 7
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Carleigh, Inc., is a pork processor. Its plants, located in the Midwest, produce several products from a common process: sirloin roasts, chops, spare ribs, and the residual. The roasts, chops, and spare ribs are packaged, branded, and sold to supermarkets. The residual consists of organ meats and leftover pieces that are sold to sausage and hot dog processors. The joint costs for a typical week are as follows:
| Direct materials | $83,000 |
| Direct labor | 27,400 |
| 19,000 |
The revenues from each product are as follows: sirloin roasts, $67,000; chops, $79,000; spare ribs, $36,000; and residual, $8,800.
Carleigh’s management has learned that certain organ meats are a prized delicacy in Asia. They are considering separating those from the residual and selling them abroad for $52,600. This would bring the value of the residual down to $2,900. In addition, the organ meats would need to be packaged and then air freighted to Asia. Further
Required:
1. What is the gross profit earned by the original mix of products for one week?
$fill in the blank 1
2. Should the company separate the organ meats for shipment overseas or continue to sell them at split-off?
What is the effect of the decision on weekly gross profit?
by $fill in the blank 4
Jason Rogers works full-time for UPS and runs a lawn-mowing service part-time after work during the warm months of April through October. Jason has two men working with him, each of whom is paid $6.00 per lawn mowing. Jason has 25 residential customers who contract with him for once-weekly lawn mowing during the months of May through September, and twice-per-month mowings during April and October. On average, Jason charges $40 per lawn mowed. Recently, LStar Property Management Services asked Jason to mow the lawn at each of its 28 rental houses every two weeks during the months of May through September. LStar has offered to pay $28 per lawn mowing, and would forego the lawn edging that normally takes Jason’s team about half of its regular mowing time. If Jason accepts the job, he can assign a one-man team to mow the rental house yards, and will have to buy an additional power lawn mower for about $325 used. Fuel to run the additional mower will be about $0.40 per yard.
1. If Jason accepts the special order, by how much will his income increase or decrease?
by $fill in the blank 2
Each year, Basu Company produces 14,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.28. The unit cost is:
| Direct materials | $0.83 |
| Direct labor | 0.33 |
| Variable overhead | 0.06 |
| Fixed overhead | 2.65 |
| Total unit cost | $3.87 |
Required:
1. What are the alternatives for Basu Company?
2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production.
List the relevant cost(s) of external purchase.
3. Which alternative is more cost effective and by how much?
by $fill in the blank 5
4. What if $21,520 of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component is purchased? Which alternative is more cost effective and by how much?
by $fill in the blank 7
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