Questions are located in the attachments* You have been asked to assist the management of Ironwood Corporation in arriving at certain decisions. Ironwood has its home office in Michigan and leases factory buildings in Wisconsin, Minnesota, and North Dakota, all of which produce the same product. Ironwood's management provided you with a projection of operations for next year, as follows. Total Wisconsin Minnesota North Dakota Sales revenue $892,000 $443,000 $286,000 $163,000 Fixed costs Factory 222,000 114,000 58,000 50,000 Administration 72,000 41,000 24,000 7,000 Variable costs 293,000 133,000 85,000 75,000 Allocated home office costs 99,000 46,000 34,000 19,000 Total $686,000 $334,000 $201,000 $151,000 Operating profit $206,000 $109,000 $85,000 $12,000 The sales price per unit is $5. Due to the marginal results of operations of the factory in North Dakota, Ironwood has decided to cease its operations and sell that factory's machinery and equipment by the end of this year. Ironwood expects that the proceeds from the sale of these assets would equal all termination costs. Ironwood, however, would like to continue serving most of its customers in that area if it is economically feasible and is considering one of the following three alternatives: • Expand the operations of the Minnesota factory by using space presently idle. This move would result in the following changes in that factory's operations. Increase over Minnesota factory's current operations Sales revenue 49% Fixed costs Factory 19 Administration 9 Under this proposal, variable costs would be $2 per unit sold. • Enter into a long-term contract with a competitor that will serve that area's customers. This competitor would pay Ironwood a royalty of $0.8 per unit based on an estimate of 30,000 units being sold. • Close the North Dakota factory and not expand the operations of the Minnesota factory. Total home office costs of $99,000 will remain the same under each situation. Required: To assist the management of Ironwood Corporation, complete the following schedule computing Ironwood's estimated operating profit from each of the following options: a. Expansion of the Minnesota factory. b. Negotiation of the long-term contract on a royalty basis. c. Shutdown of the North Dakota operations with no expansion at other locations.
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.
*Questions are located in the attachments*
You have been asked to assist the management of Ironwood Corporation in arriving at certain decisions. Ironwood has its home office in Michigan and leases factory buildings in Wisconsin, Minnesota, and North Dakota, all of which produce the same product. Ironwood's management provided you with a projection of operations for next year, as follows.
| Total | Wisconsin | Minnesota | North Dakota | |||||||||
| Sales revenue | $892,000 | $443,000 | $286,000 | $163,000 | ||||||||
| Fixed costs | ||||||||||||
| Factory | 222,000 | 114,000 | 58,000 | 50,000 | ||||||||
| Administration | 72,000 | 41,000 | 24,000 | 7,000 | ||||||||
| Variable costs | 293,000 | 133,000 | 85,000 | 75,000 | ||||||||
| Allocated home office costs | 99,000 | 46,000 | 34,000 | 19,000 | ||||||||
| Total | $686,000 | $334,000 | $201,000 | $151,000 | ||||||||
| Operating profit | $206,000 | $109,000 | $85,000 | $12,000 | ||||||||
The sales price per unit is $5.
Due to the marginal results of operations of the factory in North Dakota, Ironwood has decided to cease its operations and sell that factory's machinery and equipment by the end of this year. Ironwood expects that the proceeds from the sale of these assets would equal all termination costs. Ironwood, however, would like to continue serving most of its customers in that area if it is economically feasible and is considering one of the following three alternatives:
• Expand the operations of the Minnesota factory by using space presently idle. This move would result in the following changes in that factory's operations.
| Increase over Minnesota factory's current operations | ||
| Sales revenue | 49% | |
| Fixed costs | ||
| Factory | 19 | |
| Administration | 9 | |
Under this proposal, variable costs would be $2 per unit sold.
• Enter into a long-term contract with a competitor that will serve that area's customers. This competitor would pay Ironwood a royalty of $0.8 per unit based on an estimate of 30,000 units being sold.
• Close the North Dakota factory and not expand the operations of the Minnesota factory.
Total home office costs of $99,000 will remain the same under each situation.
Required:
To assist the management of Ironwood Corporation, complete the following schedule computing Ironwood's estimated operating profit from each of the following options:
a. Expansion of the Minnesota factory.
b. Negotiation of the long-term contract on a royalty basis.
c. Shutdown of the North Dakota operations with no expansion at other locations.
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