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Business Accounting Cost Accounting, Student Value Edition (15th Edition)

1. To compute: The operating income for each distribution channel as percentage of revenue after assigning customer level cost, distribution channel cost and corporate cost. Answer: The total operating income as percentage of revenue is 6.72%, 8.35%, 3.57% and 12.56% for the division A, B, C and D respectively. Explanation: Customer Cost Hierarchy: Customer cost hierarchy is a method that helps in the categorization of cost on the basis of customer with the help of cost allocation basis and the cost drivers. Customer cost hierarchy is specifically used in activity based costing. Income Statement: Income statement is a statement that gives the information related to the net income of the company. Income statement is the part of financial statement of the company. It gives the information about the income earn or loss suffered by the company during a year. Cost Allocation: The process of assigning the cost to the cost object is cost allocation. The cost allocation is done by the accountant to allocate the manufacturing overhead cost to different divisions. Statement that shows the calculation of operating income, Particulars A ($) B ($) B ($) D ($) Total ($) Revenue (A) 1,054,286 1,544,680 2,210,162 480,332 5,289,460 Customer level Cost (B) 675,378 951,669 1,517,895 266,058 3,411,000 Customer level operating income (C) 379,448 593,011 692,267 214,274 1,879,000 Wholesale-channel cost pool (D) C × $ 740 , 000 $ 1 , 879 , 000 149,437 233,543 272,633 84,387 740,000 Marketing cost (E) A × $ 560 , 000 $ 5 , 289 , 460 111,618 163,537 233,992 50,853 560,000 Administration cost (F) B × $ 240 , 000 $ 3 , 411 , 000 47,520 66,960 106,800 18,720 240,000 Total distribution channel cost (G) ( D + E + F ) 308,575 464,040 613,425 153,960 1,540,000 Operating income (H) ( C − G ) 70,873 128,971 78,842 60,314 339,000 Operating income as percentage of revenue H A 6.72% 8.35% 3.57% 12.56% 6.41% Table (1) Conclusion: Thus, the total operating income as percentage of revenue is 6.72%, 8.35%, 3.57% and -12.56% for the division A, B, C and D respectively . 2. To explain: The advantage and disadvantage of allocating wholesale cost and division cost to customers. Answer: The advantage of allocating indirect cost is that, the company can easily calculate the cost and profitability of each customer. The disadvantage of allocating indirect cost is that it is time consuming and costly. Explanation: After the allocation of indirect cost to the specific customer the manager can easily see the unprofitable customer and can take necessary action to eliminate the customer or increase the profit from that customer. Disadvantage of allocating indirect cost is it take extra time for it and relatively more costly as compare to the other method in which cost will not allocate.

1. To compute: The operating income for each distribution channel as percentage of revenue after assigning customer level cost, distribution channel cost and corporate cost. Answer: The total operating income as percentage of revenue is 6.72%, 8.35%, 3.57% and 12.56% for the division A, B, C and D respectively. Explanation: Customer Cost Hierarchy: Customer cost hierarchy is a method that helps in the categorization of cost on the basis of customer with the help of cost allocation basis and the cost drivers. Customer cost hierarchy is specifically used in activity based costing. Income Statement: Income statement is a statement that gives the information related to the net income of the company. Income statement is the part of financial statement of the company. It gives the information about the income earn or loss suffered by the company during a year. Cost Allocation: The process of assigning the cost to the cost object is cost allocation. The cost allocation is done by the accountant to allocate the manufacturing overhead cost to different divisions. Statement that shows the calculation of operating income, Particulars A ($) B ($) B ($) D ($) Total ($) Revenue (A) 1,054,286 1,544,680 2,210,162 480,332 5,289,460 Customer level Cost (B) 675,378 951,669 1,517,895 266,058 3,411,000 Customer level operating income (C) 379,448 593,011 692,267 214,274 1,879,000 Wholesale-channel cost pool (D) C × $ 740 , 000 $ 1 , 879 , 000 149,437 233,543 272,633 84,387 740,000 Marketing cost (E) A × $ 560 , 000 $ 5 , 289 , 460 111,618 163,537 233,992 50,853 560,000 Administration cost (F) B × $ 240 , 000 $ 3 , 411 , 000 47,520 66,960 106,800 18,720 240,000 Total distribution channel cost (G) ( D + E + F ) 308,575 464,040 613,425 153,960 1,540,000 Operating income (H) ( C − G ) 70,873 128,971 78,842 60,314 339,000 Operating income as percentage of revenue H A 6.72% 8.35% 3.57% 12.56% 6.41% Table (1) Conclusion: Thus, the total operating income as percentage of revenue is 6.72%, 8.35%, 3.57% and -12.56% for the division A, B, C and D respectively . 2. To explain: The advantage and disadvantage of allocating wholesale cost and division cost to customers. Answer: The advantage of allocating indirect cost is that, the company can easily calculate the cost and profitability of each customer. The disadvantage of allocating indirect cost is that it is time consuming and costly. Explanation: After the allocation of indirect cost to the specific customer the manager can easily see the unprofitable customer and can take necessary action to eliminate the customer or increase the profit from that customer. Disadvantage of allocating indirect cost is it take extra time for it and relatively more costly as compare to the other method in which cost will not allocate.

Cost Accounting, Student Value Edition (15th Edition)

Cost Accounting, Student Value Edition (15th Edition)

15th Edition

ISBN: 9780133428858

Author: Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan

Publisher: PEARSON

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Chapter 14 Solutions

Cost Accounting, Student Value Edition (15th Edition)

Ch. 14 - Prob. 14.1Q Ch. 14 - Why is customer-profitability analysis an...Ch. 14 - Prob. 14.3Q Ch. 14 - A customer-profitability profile highlights those...Ch. 14 - Give examples of three different levels of costs...Ch. 14 - What information does the whale curve provide?Ch. 14 - A company should not allocate all of its corporate...Ch. 14 - What criteria might managers use to guide...Ch. 14 - Once a company allocates corporate costs to...Ch. 14 - A company should not allocate costs that are fixed...

Ch. 14 - How should a company decide on the number of cost...Ch. 14 - Show how managers can gain insight into the causes...Ch. 14 - How can the concept of a composite unit be used to...Ch. 14 - Explain why a favorable sales-quantity variance...Ch. 14 - How can the sales-quantity variance be decomposed...Ch. 14 - Prob. 14.16E Ch. 14 - Prob. 14.17E Ch. 14 - Prob. 14.18E Ch. 14 - Prob. 14.19E Ch. 14 - Prob. 14.20E Ch. 14 - Prob. 14.21E Ch. 14 - Prob. 14.22E Ch. 14 - Prob. 14.23E Ch. 14 - Prob. 14.24E Ch. 14 - Prob. 14.25E Ch. 14 - Prob. 14.26E Ch. 14 - Prob. 14.27P Ch. 14 - Prob. 14.28P Ch. 14 - Prob. 14.29P Ch. 14 - Prob. 14.30P Ch. 14 - Prob. 14.31P Ch. 14 - Prob. 14.32P Ch. 14 - Prob. 14.33P Ch. 14 - Prob. 14.34P Ch. 14 - Prob. 14.35P Ch. 14 - Prob. 14.36P Ch. 14 - Prob. 14.37P Ch. 14 - Prob. 14.38P Ch. 14 - Customer profitability and ethics. KC Corporation...

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