
1.
Calculate the effect of change in inventory on the value stream profits of DVD.
1.

Answer to Problem 60P
Option c.
Explanation of Solution
Calculate the ending inventory.
Particulars | DVD Group | TV Group |
Beginning inventory | 200 | 700 |
Price | $55 | $46 |
Sold | $13,500 | $15,600 |
Actual production | 14,000 | 15,000 |
Budgeted production | 14,000 | 15,000 |
Ending inventory | 700 (1) | 100 (2) |
Table (1)
Therefore, the ending inventory is 700 units for DVD group and 100 units for TV group respectively.
Working notes:
1) Calculate the ending inventory of DVD group:
2) Calculate the ending inventory of TV group:
Calculate the effect of change in inventory.
Particulars | DVD group ($) | TV group ($) | Total |
Unit variable cost | |||
Manufacturing | 30 | 16 | |
Selling and administrative | 5 | 5 | |
Traceable fixed cost | |||
Manufacturing | 140,000 | 258,000 | 398,000 |
Selling and administrative | 10,000 | 10,000 | 20,000 |
Non traceable fixed cost | |||
Manufacturing | 130,000 | ||
Selling and administrative | 85,000 | ||
Change in inventory (3) | 5,000 | (10,320) |
Table (2)
Therefore, the effect change in inventory is $5,000 increase in DVD group and $10,320 decrease in TV group.
Working note:
3) Calculate the change in inventory of DVD and TV group:
For DVDs
For TVs
Hence, the correct option is c which is $5,000 increase.
2.
Determine the value stream profit of TV groups.
2.

Answer to Problem 60P
Option b.
Explanation of Solution
Determine the value stream profits of TV groups.
Table (3)
Therefore, the value stream profit of TVs is $236,680.
Working notes:
4) Calculate the sales for DVDs:
5) Calculate the sales for TVs
6) Calculate the beginning inventory for DVDs:
7) Calculate the beginning inventory for TVs:
8) Calculate the cost of goods produced for DVDs:
9) Calculate the cost of goods produced for TVs:
10) Calculate the ending inventory for DVDs:
11) Calculate the ending inventory for TVs
Hence, the correct option is b which is $111,680.
3.
Provide information on the results obtained from the value stream income statement.
3.

Explanation of Solution
The value stream income statement is prepared with the full costing income statement. The value of change in inventory has increased by $5,000 for the DVDs and decreased by $10,320 for the TVs. Non traceable fixed cost are not allocated but are subtracted from the profits to get a operating income of $21,680.
The income statement show that both are profitable but the TVs are relatively less when compared to DVDs, the reason is that there is a negative change in the value of inventory that is $10,320 while DVDs have an increase of $5,000.
4.
Describe the benefits of using value stream for evaluating profits.
4.

Explanation of Solution
The value stream income statement comprises of both variable and full costing income statement, which shows the effect of change in inventory. This provides the management the additional information for more complete and informative evaluation of products.
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Chapter 18 Solutions
Cost Management
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