15th Edition

ISBN: 9781337955423

Author: WARREN, JONES

Publisher: CENGAGE L

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Textbook Question

Chapter 19, Problem 4MAD

Analyze William’s Ball & Jersey Shop

William’s Ball & Jersey Shop is a small athletic products company currently trying to determine cost allocations. Accurate costing numbers are important but not crucial; no employee bonuses depend on them, and the company wants to keep the cost allocation process simple and cost-effective.

The company produces and sells footballs, basketballs, baseballs, and jerseys for each of those sports. The jerseys of each sport go through a joint production process before they are dyed, embroidered, and printed with the appropriate colors and logos for whatever team they are to represent. William Lind, the owner, believes an adjustment might need to be made to the company’s current physical units method of joint cost allocation. Presently, youth- and adult-size jerseys go through the same joint production process, but the adult-size jerseys require more material, cutting, and sewing than youth-size jerseys. William is also considering the addition of a toddler-size jersey to his baseball jersey joint product line. The market value at the split-off point of the toddler-size jersey is expected to be barely less than its share of the joint production cost (based on the company’s current joint cost allocation method), but it will only incur a S3 per jersey additional production process cost.

a. Which support department cost allocation method should be used to allocate support department cost?
b. What adjustment could be made to improve the company’s current joint cost allocation method?
c. What other information does William need to consider before deciding whether to add the toddler-size jersey to his product line?
d. If the market value at split-off of the toddler-size jersey is $10, and its market price after further processing is estimated to be $17.99, should William add the jersey?
e. Suppose William provides the following information:

Chapter 19, Problem 4MAD, Analyze Williams Ball Jersey Shop Williams Ball Jersey Shop is a small athletic products company

What percentage of each support department’s cost should be allocated to each production department using the direct method?

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Chapter 19, Problem 3MAD

Chapter 19, Problem 1TIF

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Chapter 19 Solutions

FINANCIAL & MANAGERIAL ACCW/CENGAGENOWV

Ch. 19 - Why are support department costs difficult to...Ch. 19 - Why does support department cost allocation matter...Ch. 19 - What are some drawbacks of applying support...Ch. 19 - Why is the diect method of support department cost...Ch. 19 - How does management determine the order in which...Ch. 19 - Are large or small companies more likely to use...Ch. 19 - What is the main difference between the physical...Ch. 19 - When would management most likely use the net...Ch. 19 - What are the two most often used ways of...Ch. 19 - How can support department and joint cost...

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Solution Summary: The author identifies the cost allocation method to be used to allocate the support department costs. The direct method is cost-effective and easy to use.

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