Cheyenne, Inc. produces three products from a common input. The joint costs for a typical quarter follow: Direct materials $48,000 Direct labor 58,000 Overhead 63,000 The revenues from each product are as follows: Product A $74,000 Product B 79,000 Product C 29,000 Management is considering processing Product A beyond the split-off point, which would increase the sales value of Product A to $116,000. However, to process Product A further means that the company must rent some special equipment costing $17,500 per quarter. Additional materials and labor also needed would cost $12,650 per quarter. a. What is the gross profit currently being earned by the three products for one quarter? $Answer b. What is the effect on quarterly profits if the company decides to process Product A further? $Answer
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.
Cheyenne, Inc. produces three products from a common input. The joint costs for a typical quarter follow:
| Direct materials | $48,000 | |
| Direct labor | 58,000 | |
| 63,000 |
The revenues from each product are as follows:
| Product A | $74,000 | |
| Product B | 79,000 | |
| Product C | 29,000 |
Management is considering processing Product A beyond the split-off point, which would increase the sales value of Product A to $116,000. However, to process Product A further means that the company must rent some special equipment costing $17,500 per quarter. Additional materials and labor also needed would cost $12,650 per quarter.
a. What is the gross profit currently being earned by the three products for one quarter?
$Answer
b. What is the effect on quarterly profits if the company decides to process Product A further?
$Answer
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