MANAGERIAL ACCOUNTING FOR MANAGERS
5th Edition
ISBN: 9781264196456
Author: Noreen
Publisher: MCG
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Question
Chapter 6, Problem 1AE
1.
To determine
Introduction: Absorption costing is a technique for calculating cost of product by taking indirect expense and direct cost into consideration.
To check: Worksheet and complete the calculation
1.
Expert Solution

Answer to Problem 1AE
Complete worksheet is given below
Explanation of Solution
Data | Amount $ | `Amount $ |
Cost of wool | 200,000 | |
Cost of separation process | 40,000 | |
Sales value of intermediate product at split off point | ||
Un-dyed coarse wool | 120,000 | |
Un-dyed fine wool | 150,000 | |
Un-dyed superfine wool | 60,000 | |
Cost of further processing | ||
Un-dyed coarse wool | 50,000 | |
Un-dyed fine wool | 60,000 | |
Un-dyed superfine wool | 10,000 | |
Sales value of end products | ||
Un-dyed coarse wool | 160,000 | |
Un-dyed fine wool | 240,000 | |
Un-dyed superfine wool | 90,000 | |
Calculation of requirement using formula | ||
Analysis of the profitability of the overall operation | ||
Combine final sale value | 490,000 | |
Less: costs of production the ending products. | ||
Un-dyed coarse wool | 200,000 | |
Un-dyed fine wool | 40,000 | |
Un-dyed superfine wool | 120,000 | 360,000 |
130,000 |
Analysis of sell or process further | Coarse | Fine | Super fine |
Final sales value after further processing | 160,000 | 240,000 | 90,000 |
Less: sales value at the split off point | 120,000 | 150,000 | 60,000 |
Incremental revenue from further processing | 40,000 | 90,000 | 30,000 |
Less: cost of further processing | 50,000 | 60,000 | 10,000 |
Profit or loss of further processing | (10,000) | 30,000 | 20,000 |
Profit or loss:
Data | Amount $ | `Amount $ |
Cost of wool | 200,000 | |
Cost of separation process | 40,000 | |
Sales value of intermediate product at split off point | ||
Un-dyed coarse wool | 120,000 | |
Un-dyed fine wool | 150,000 | |
Un-dyed superfine wool | 60,000 | |
Cost of further processing | ||
Un-dyed coarse wool | 50,000 | |
Un-dyed fine wool | 60,000 | |
Un-dyed superfine wool | 10,000 | |
Sales value of end products | ||
Un-dyed coarse wool | 160,000 | |
Un-dyed fine wool | 240,000 | |
Un-dyed superfine wool | 90,000 | |
Calculation of requirement using formula | ||
Analysis of the profitability of the overall operation | ||
Combine final sale value | 490,000 | |
Less: costs of production the ending products. | ||
Un-dyed coarse wool | 200,000 | |
Un-dyed fine wool | 40,000 | |
Un-dyed superfine wool | 120,000 | 340,000 |
150,000 |
Analysis of sell or process further | Coarse | Fine | Super fine |
Final sales value after further processing | 160,000 | 240,000 | 90,000 |
Less: sales value at the split off point | 120,000 | 150,000 | 60,000 |
Incremental revenue from further processing | 40,000 | 90,000 | 30,000 |
Less: cost of further processing | 30,000 | 60,000 | 10,000 |
Profit or loss of further processing | 10,000 | 30,000 | 20,000 |
2.
To determine
Introduction: Absorption costing is a technique for calculating cost of product by taking indirect expense and direct cost into consideration.
To prepare: Traditional format income statement and Contribution format income statement
2.
Expert Solution

Answer to Problem 1AE
Income statement and Contribution format income statement is given below:
Explanation of Solution
Data | Amount $ | `Amount $ |
Cost of wool | 290,000 | |
Cost of separation process | 40,000 | |
Sales value of intermediate product at split off point | ||
Un-dyed coarse wool | 100,000 | |
Un-dyed fine wool | 110,000 | |
Un-dyed superfine wool | 90,000 | |
Cost of further processing | ||
Un-dyed coarse wool | 50,000 | |
Un-dyed fine wool | 60,000 | |
Un-dyed superfine wool | 10,000 | |
Sales value of end products | ||
Un-dyed coarse wool | 180,000 | |
Un-dyed fine wool | 210,000 | |
Un-dyed superfine wool | 90,000 | |
Calculation of requirement using formula | ||
Analysis of the profitability of the overall operation | ||
Combine final sale value | 480,000 | |
Less: costs of production the ending products. | ||
Un-dyed coarse wool | 290,000 | |
Un-dyed fine wool | 40,000 | |
Un-dyed superfine wool | 120,000 | 450,000 |
30,000 |
Analysis of sell or process further | Coarse | Fine | Super fine |
Final sales value after further processing | 180,000 | 210,000 | 90,000 |
Less: sales value at the split off point | 100,000 | 110,000 | 90,000 |
Incremental revenue from further processing | 80,000 | 100,000 | 0 |
Less: cost of further processing | 50,000 | 60,000 | 10,000 |
Profit or loss of further processing | 30,000 | 40,000 | (10,000) |
- Thus the overall profit of operation is $30,000 if final products are from intermediate products
- Thus, further processing profit of coarse wool is $30,000. Fine wools $40,000 and super fine wool is $10,000
- Overall operation profit:
Particular | Amount | Amount |
Combined sales value ( | 480000 | |
Less: costs of product the end products | 290000 | 440,000 |
Cost of wool | 40000 | |
Cost of separation process | 110000 | |
Combined cost dyeing ( | ||
Profit | 40,000 |
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Chapter 6 Solutions
MANAGERIAL ACCOUNTING FOR MANAGERS
Ch. 6 - Prob. 6.1QCh. 6 - Prob. 6.2QCh. 6 - Prob. 6.3QCh. 6 - Prob. 6.4QCh. 6 - Prob. 6.5QCh. 6 - Prob. 6.6QCh. 6 - Prob. 6.7QCh. 6 - Prob. 6.8QCh. 6 - Prob. 6.9QCh. 6 - Prob. 6.10Q
Ch. 6 - Prob. 6.11QCh. 6 - Prob. 6.12QCh. 6 - Prob. 6.13QCh. 6 - Prob. 6.14QCh. 6 - Prob. 6.15QCh. 6 - Prob. 6.16QCh. 6 - Prob. 1AECh. 6 - Prob. 6.1ECh. 6 - Prob. 6.2ECh. 6 - Prob. 6.3ECh. 6 - Prob. 6.4ECh. 6 - Prob. 6.5ECh. 6 - Prob. 6.6ECh. 6 - Prob. 6.7ECh. 6 - Prob. 6.8ECh. 6 - Prob. 6.9ECh. 6 - Prob. 6.10ECh. 6 - Prob. 6.11ECh. 6 - Prob. 6.12ECh. 6 - Prob. 6.13ECh. 6 - Prob. 6.14ECh. 6 - Prob. 6.15ECh. 6 - Prob. 6.16ECh. 6 - Prob. 6.17ECh. 6 - Prob. 6.18PCh. 6 - Prob. 6.19PCh. 6 - Prob. 6.20PCh. 6 - Prob. 6.21PCh. 6 - Prob. 6.22PCh. 6 - Prob. 6.23PCh. 6 - Prob. 6.24PCh. 6 - Prob. 6.25PCh. 6 - Prob. 6.26PCh. 6 - Prob. 6.27PCh. 6 - Prob. 6.28PCh. 6 - Prob. 6.29CCh. 6 - Prob. 6.30CCh. 6 - Prob. 6.31CCh. 6 - Prob. 6.33C
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