Horngren's Cost Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText - Access Card Package (16th Edition)
16th Edition
ISBN: 9780134642468
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 15, Problem 15.17E
Single-rate method, budgeted versus actual costs and quantities. Chocolat Inc. is a producer of premium chocolate based in Palo Alto. The company has a separate division for each of its two products: dark chocolate and milk chocolate. Chocolat purchases ingredients from Wisconsin for its dark chocolate division and from Louisiana for its milk chocolate division. Both locations are the same distance from Chocolat’s Palo Alto plant.
Chocolat Inc. operates a fleet of trucks as a cost center that charges the divisions for variable costs (drivers and fuel) and fixed costs (vehicle
- 1. Using the single-rate method, allocate costs to the dark chocolate division and the milk chocolate division in these three ways.
- a. Calculate the budgeted rate per round-trip and allocate costs based on round-trips budgeted for each division.
- b. Calculate the budgeted rate per round-trip and allocate costs based on actual round-trips used by each division.
- c. Calculate the actual rate per round-trip and allocate costs based on actual round-trips used by each division.
- 2. Describe the advantages and disadvantages of using each of the three methods in requirement 1. Would you encourage Chocolat Inc. to use one of these methods? Explain and indicate any assumptions you made.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
AZChen Company manufactures one particular type of washing machine and has two divisions, the Compressor Division, and the Fabrication Division. The Compressor Division manufactures compressors for the Fabrication Division, which completes the washing machine and sells it to retailers. The Compressor Division "sells" compressors to the Fabrication Division. The market price for the Fabrication Division to purchase a compressor is $40.00. (Ignore changes in inventory.) The fixed costs for the Compressor and Fabrication Divisions are assumed to be the same over the range of 1,000 - 5,000 units. Compressor's costs per compressor are: Direct materials $15 Direct labour $7.30 Variable overhead $2.69 Division fixed costs $7.48 Fabrication's costs per completed washing machine are: Direct materials $140.00 (excluding the transfer price of the compressor) Direct labour $57.50 Variable overhead $23.00 Division fixed costs $8.00 Assume the transfer price for a compressor is 149% of total costs…
Health Products is a cranberry cooperative that operates two divisions, a harvesting division and a processing
division. Currently, all of harvesting's output is converted into cranberry juice by the processing division, and
the juice is sold to large beverage companies that produce cranberry juice blends. The processing division has a
produce of 500 gallons of juice per 1,000 pounds of cranberries. Cost and market price data for the two
divisions are as follows:
Harvesting Division
Processing Division
Variable cost per pound of cranberries
$0.10
Variable cost per gallon of juice produced $0.18
Fixed cost per pound of cranberries
$0.30 Fixed cost per gallon of juice produced
$0.35
Selling price per pound of cranberries in $0.68 Selling price per gallon of juice
outside market
$2.45
If processing division purchases cranberries from outside supplier, the price will be $0.15 per pound.
Required:
1. What is the minimum transfer price at which the harvesting division willing to accept to…
Teslum Inc. has a number of divisions, including the Machina Division, a producer of high-endespresso makers, and the Java Division, a chain of coffee shops.Machina Division produces the EXP-100 model espresso maker that can be used by JavaDivision to create various coffee drinks. The market price of the EXP-100 model is $950, andthe full cost of the EXP-100 model is $475.Required:1. If Teslum has a transfer pricing policy that requires transfer at full cost, what will thetransfer price be? Do you suppose that Machina and Java divisions will choose to transferat that price?2. If Teslum has a transfer pricing policy that requires transfer at market price, what wouldthe transfer price be? Do you suppose that Machina and Java divisions would choose totransfer at that price?3. Now suppose that Teslum allows negotiated transfer pricing and that Machina Divisioncan avoid $135 of selling expense by selling to Java Division. Which division sets theminimum transfer price, and what is it? Which…
Chapter 15 Solutions
Horngren's Cost Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText - Access Card Package (16th Edition)
Ch. 15 - Prob. 15.1QCh. 15 - Describe how the dual-rate method is useful to...Ch. 15 - How do budgeted cost rates motivate the...Ch. 15 - Give examples of allocation bases used to allocate...Ch. 15 - Why might a manager prefer that budgeted rather...Ch. 15 - To ensure unbiased cost allocations, fixed costs...Ch. 15 - Prob. 15.7QCh. 15 - What is conceptually the most defensible method...Ch. 15 - Distinguish between two methods of allocating...Ch. 15 - What are the challenges of using the incremental...
Ch. 15 - Prob. 15.11QCh. 15 - What is one key way to reduce cost-allocation...Ch. 15 - Describe how companies are increasingly facing...Ch. 15 - Distinguish between the stand-alone and the...Ch. 15 - Identify and discuss arguments that individual...Ch. 15 - Single-rate versus dual-rate methods, support...Ch. 15 - Single-rate method, budgeted versus actual costs...Ch. 15 - Dual-rate method, budgeted versus actual costs and...Ch. 15 - Support-department cost allocation; direct and...Ch. 15 - Support-department cost allocation, reciprocal...Ch. 15 - Direct and step-down allocation. E-books, an...Ch. 15 - Reciprocal cost allocation (continuation of...Ch. 15 - Allocation of common costs. Evan and Brett are...Ch. 15 - Allocation of common costs. Gordon Grimes, a...Ch. 15 - Revenue allocation, bundled products. Couture Corp...Ch. 15 - Allocation of common costs. Jim Dandy Auto Sales...Ch. 15 - Single-rate, dual-rate, and practical capacity...Ch. 15 - Prob. 15.28PCh. 15 - Fixed-cost allocation. Central University...Ch. 15 - Allocating costs of support departments; step-down...Ch. 15 - Support-department cost allocations;...Ch. 15 - Common costs. Tate Inc. and Booth Inc. are two...Ch. 15 - Prob. 15.33PCh. 15 - Support-department cost allocations;...Ch. 15 - Revenue allocation, bundled products. Boca Resorts...Ch. 15 - Support-department cost allocations; direct,...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Cran Health Products is a cranberry cooperative that operates two divisions, a harvesting division and a processing division. Currently, all of harvesting’s output is converted into cranberry juice by the processing division, and the juice is sold to large beverage companies that produce cranberry juice blends. The processing division has a yield of 500 gallons of juice per 1,000 pounds of cranberries. Cost and market price data for the two divisions are as follows: Assume that Pat Borges, CEO of Cran Health, had mandated a transfer price equal to 225% of full cost. Now he decides to decentralize some management decisions and sends around a memo that states the following: “Effective immediately, each division of Cran Health is free to make its own decisions regarding the purchase of direct materials and the sale of finished products.” Q. Borges feels that a dual transfer-pricing policy will improve goal congruence. He suggests that transfers out of the harvesting division be made at…arrow_forwardThe Mandalorian Company has two divisions, Production and Marketing. Production manufactures Beskar Head Armour for Knights of the Old Republic, which it sells to both the Marketing Division and to other retailers (the latter under a different brand name). Marketing operates several small armour stores in shopping centers throughout Corruscant. Marketing sells both Beskar Head Armour and other brands. Relevant facts for Production are as follows: Sales Price to Outsiders.............................................................$28.50 per Pcs Variable Cost to Produce...........................................................$18.00 per Pcs Fixed Costs ................................................................................$100,000 per Month The following data pertain to the sale of Mandalorian Company Beskar Head Armour by Marketing: Marketing is operating far below its capacity. Sales…arrow_forwardThe Mandalorian Company has two divisions, Production and Marketing. Production manufactures Beskar Head Armour for Knights of the Old Republic, which it sells to both the Marketing Division and to other retailers (the latter under a different brand name). Marketing operates several small armour stores in shopping centers throughout Corruscant. Marketing sells both Beskar Head Armour and other brands. Relevant facts for Production are as follows: Sales Price to Outsiders.............................................................$28.50 per Pcs Variable Cost to Produce...........................................................$18.00 per Pcs Fixed Costs ................................................................................$100,000 per Month The following data pertain to the sale of Mandalorian Company Beskar Head Armour by Marketing: Marketing is operating far below its capacity. Sales…arrow_forward
- Cran Health Products is a cranberry cooperative that operates two divisions, a harvesting division and a processing division. Currently, all of harvesting’s output is converted into cranberry juice by the processing division, and the juice is sold to large beverage companies that produce cranberry juice blends. The processing division has a yield of 500 gallons of juice per 1,000 pounds of cranberries. Cost and market price data for the two divisions are as follows: Q.Compute Cran Health’s operating income from harvesting 480,000 pounds of cranberries during June 2017 and processing them into juice.arrow_forwardSignature Scents has two divisions: the Cologne Division and the Bottle Division. The Bottle Division produces containers that can be used by the Cologne Division. The Bottle Division's variable manufacturing cost is $2, shipping cost is $0.10, and the external sales price is $3. No shipping costs are incurred on sales to the Cologne Division, and the Cologne Division can purchase similar containers in the external market for $2.60.The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Cologne Division. Using the general rule, the transfer price from the Bottle Division to the Cologne Division would be: Select one: a. $2.00. b. $2.10. c. $2.60. d. $2.90. e. $3.00.arrow_forwardSpringer Company produces and sells home-ground wheat flour. The flour mill division sells to the general public in its outlet store located at the mill. The mill division also is the supplier of flour for its bakery division located across the street from the flour mill. The following information has been collected by Springer’s controller: Production capacity 20,000 pounds Selling price $0.90 per pound Variable production cost $0.20 per pound Variable selling cost $0.08 per pound Number of pounds needed by the bakery 6,000 If the flour mill transfers flour to the baker, it can avoid $0.03 of the variable selling cost. Required: a. if the flour mill can only sell 12,000 pounds at its outlet store to outside customers, what is the lowest acceptable transfer price per pound that the flour mill division should accept? b. If the flour mill can sell all 20,000 pounds at its outlet store to outside customers, what is the lowest acceptable transfer price per pound the flour mill division…arrow_forward
- Coffee Bean Incorporated (CBI) processes and distributes high-quality coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers 2 coffees to gourmet shops in 1-pound bags. The major cost is direct materials; however, a substantial amount of factory overhead is incurred in the predominantly automated roasting and packing process. The company uses relatively little direct labor. CBI prices its coffee at full product cost, including allocated overhead, plus a markup of 30%. If its prices are significantly higher than the market, CBI lowers its prices. The company competes primarily on the quality of its products, but customers are price conscious as well. Data for the current budget include factory overhead of $3,238,000, which has been allocated on the basis of each product’s direct labor cost. The budgeted direct labor cost for the current year totals $600,000. The firm budgeted $6,000,000 for purchase and use of…arrow_forwardCoffee Bean Incorporated (CBI) processes and distributes high-quality coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers 2 coffees to gourmet shops in 1-pound bags. The major cost is direct materials; however, a substantial amount of factory overhead is incurred in the predominantly automated roasting and packing process. The company uses relatively little direct labor. CBI prices its coffee at full product cost, including allocated overhead, plus a markup of 30%. If its prices are significantly higher than the market, CBI lowers its prices. The company competes primarily on the quality of its products, but customers are price conscious as well. Data for the current budget include factory overhead of $3,140,000, which has been allocated on the basis of each product's direct labor cost. The budgeted direct labor cost for the current year totals $600,000. The firm budgeted $6,000,000 for purchase and use of…arrow_forwardCoffee Bean Incorporated (CBI) processes and distributes high-quality coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers 2 coffees to gourmet shops in 1-pound bags. The major cost is direct materials; however, a substantial amount of factory overhead is incurred in the predominantly automated roasting and packing process. The company uses relatively little direct labor. CBI prices its coffee at full product cost, including allocated overhead, plus a markup of 30%. If Its prices are significantly higher than the market, CBI lowers its prices. The company competes primarily on the quality of its products, but customers are price conscious as well. Data for the current budget Include factory overhead of $3,056,000, which has been allocated on the basis of each product's direct labor cost. The budgeted direct labor cost for the current year totals $600,000. The firm budgeted $6,000,000 for purchase and use of…arrow_forward
- Coffee Bean Incorporated (CBI) processes and distributes high-quality coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers 2 coffees to gourmet shops in 1-pound bags. The major cost is direct materials; however, a substantial amount of factory overhead is incurred in the predominantly automated roasting and packing process. The company uses relatively little direct labor. CBI prices its coffee at full product cost, including allocated overhead, plus a markup of 30%. If its prices are significantly higher than the market, CBI lowers its prices. The company competes primarily on the quality of its products, but customers are price conscious as well Data for the current budget include factory overhead of $3,028,000, which has been allocated on the basis of each product's direct labor cost. The budgeted direct labor cost for the current year totals $600,000. The firm budgeted $6,000,000 for purchase and use of…arrow_forwardCoffee Bean Incorporated (CBI) processes and distributes high-quality coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers 2 coffees to gourmet shops in 1-pound bags. The major cost is direct materials; however, a substantial amount of factory overhead is incurred in the predominantly automated roasting and packing process. The company uses relatively little direct labor. CBI prices its coffee at full product cost, including allocated overhead, plus a markup of 30%. If its prices are significantly higher than the market, CBI lowers its prices. The company competes primarily on the quality of its products, but customers are price conscious as well. Data for the current budget include factory overhead of $3,168,000, which has been allocated on the basis of each product's direct labor cost. The budgeted direct labor cost for the current year totals $600,000. The firm budgeted $6,000,000 for purchase and use of…arrow_forwardCoffee Bean Incorporated (CBI) processes and distributes high-quality coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers 2 coffees to gourmet shops in 1-pound bags. The major cost is direct materials; however, a substantial amount of factory overhead is incurred in the predominantly automated roasting and packing process. The company uses relatively little direct labor. CBI prices its coffee at full product cost, including allocated overhead, plus a markup of 30%. If its prices are significantly higher than the market, CBI lowers its prices. The company competes primarily on the quality of its products, but customers are price conscious as well. Data for the current budget include factory overhead of $3,126,000, which has been allocated on the basis of each product's direct labor cost. The budgeted direct labor cost for the current year totals $600,000. The firm budgeted $6,000,000 for purchase and use of…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
What is Cost Allocation? Definition & Process; Author: FloQast;https://www.youtube.com/watch?v=hLhvvHvZ3JM;License: Standard Youtube License