Allocating Joint Costs Using the Weighted Average Method

Orchard Fresh, Inc., purchases apples from local orchards and sorts them into four categories. Grade A are large blemish-free apples that can be sold to gourmet fruit sellers. Grade B apples are smaller and may be slightly out of proportion. These are packed in boxes and sold to grocery stores. Apples for slices are even smaller than Grade B apples and have blemishes. Apples for applesauce are of lower grade than apples for slices, yet still suitable for canning.

Information on a recent purchase of 20,000 pounds of apples is as follows: Assume that Orchard Fresh, Inc., uses the weighted average method of joint cost allocation and has assigned the following weights to the four grades of apples:

Total joint cost is $19,000.

Required:

1. Allocate the joint cost to the four grades of apples using the weighted average method. Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar.

(Note: The joint cost allocation does not equal $19,000 due to rounding.)

2. What if the factory found that Grade A apples were being valued less by customers and decided to decrease the weight factor for Grade A apples to 3.0? How would that affect the allocation of cost to Grade A apples? How would it affect the allocation of cost to the remaining grades? Round your allocation percentages to four decimal places and round the allocated costs to the nearest dollar.

The worksheet title “Table 1” in the Excel file “Dayton Software Inc Table 1” provides an overview of the market research data K2 generated. The table shows the four market segments, the anticipated size of each segment, and each segment’s willingness to pay for the two different versions of Integrated. It also includes projected costs of production and marketing. You can see the estimated production completion
cost for each version, the variable cost per unit sold for each version and the segment development costs for each market segment.
After looking at Table 1, Peyton and Becky realized they had multiple, dynamic questions to answer. Should Dayton Software Inc. keep only one version of integrated? If so, which one? How should they price the products if they offer multiple versions?

Assignment:

Calculate the profit Dayton Software Inc. will realize from each “Willingness-to-pay” (price) listed in Table 1, for each version of Integrated, assuming only that version is offered. Please place these calculations into the tables included in the worksheet titled “Q3” within the Excel file “Dayton Software Inc Table 1.” Hints: (i) the prices will be different for the Standard and Enterprise versions of Integrated; (ii) assume the firm is unable to price discriminate within a given version of the software (meaning all customers must pay the same price for that version).

Product Cost Report—Weighted Average Method

Riley Manufacturing Corporation produces a cosmetic product in three consecutive processes. The costs of Department 1 for May 2019 were as follows:

Department 1 handled the following units during May:

On average, the May 1 units were 30% complete. The May 31 units were 60% complete. Materials are added at the beginning of the process, and conversion costs occur evenly throughout the process in Department 1. Riley uses the weighted average method for process costing.

Required

Prepare the product cost report for Department 1 for May.

Round average cost per equivalent unit to two decimal places. Use rounded answers for subsequent calculations. Round other answers to the nearest whole number.

Show work

Resource Usage and Supply, Activity Rates, Service Organization

EcoBrite Labs performs tests on water samples supplied by outside companies to ensure that their waste water meets environmental standards. Customers deliver water samples to the lab and receive the lab reports via the Internet. The EcoBrite Labs facility is built and staffed to handle the processing of 100,000 tests per year. The lab facility cost $180,000 to build and is expected to last 10 years and will have no salvage value. Processing equipment cost $210,000 and has a life expectancy of five years and will have no salvage value. Both facility and equipment are depreciated on a straight-line basis. EcoBrite Labs has five salaried laboratory technicians, each of whom is paid $28,000. In addition to the salaries, facility, and equipment, EcoBrite Labs expects to spend $52,000 for chemicals and other supplies (assuming 100,000 tests are performed). Last year, 90,000 tests were performed.

Required:

1. Classify the resources associated with the water testing activity into one of the following types: (1) committed resources and (2) flexible resources.

committed resources: - Select your answer -Equipment, technician salaries and suppliesLab facility, equipment and chemicalsLab facility, equipment and suppliesLab facility, equipment and technician salariesItem 1  
flexible resources:      - Select your answer -Chemicals and suppliesEquipment, technician salaries and suppliesLab facility, equipment and chemicalsLab facility, equipment and suppliesLab facility, equipment and technician salariesItem 2

2. Calculate the total annual activity rate for the water testing activity. Break the activity rate into fixed and variable components. (Round your answers to three significant digits.)

3. Compute the total activity availability, and break this into activity output and unused activity.

4. Calculate the total cost of resources supplied, and break this into the cost of activity used and the cost of unused activity.

Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,480, and a new model, the Majestic, which sells for $1,270. The production cost computed per unit under traditional costing for each model in 2020 was as follows.

In 2020, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $39 per direct labor hour was determined by dividing total estimated manufacturing overhead of $7,887,400 by the total direct labor hours (200,000) for the two models.

Under traditional costing, the gross profit on the models was Royale $486 ($1,480 – $994) and Majestic $545 ($1,270 – $725). Because of this difference, management is considering phasing out the Royale model and increasing the production of the Majestic model.

Before finalizing its decision, management asks Schultz’s controller to prepare an analysis using activity-based costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2020.

The cost drivers used for each product were:

Calculate cost per unit of each model using ABC costing. (Round answers to 2 decimal places, e.g. 12.25.)

Q1:

Equivalent Units of Materials Cost

The Bottling Department of Rocky Springs Beverage Company had 3,000 ounces in beginning work in process inventory (60% complete). During the period, 49,400 ounces were completed. The ending work in process inventory was 2,500 ounces (50% complete).

What are the total equivalent units for direct materials if materials are added at the beginning of the process?
_ units

Q2:

Equivalent Units of Conversion Costs

The Bottling Department of Rocky Springs Beverage Company had 4,390 ounces in beginning work in process inventory (80% complete). During the period, 43,900 ounces were completed. The ending work in process inventory was 3,512 ounces (20% complete).

What are the total equivalent units for conversion costs? Note: Round to the nearest whole unit.

units

Q3:

Cost per Equivalent Unit

The cost of direct materials transferred into the Bottling Department of Rocky Springs Beverage Company is $473,900. The conversion cost for the period in the Bottling Department is $366,080. The total equivalent units for direct materials and conversion are 67,700 ounces and 70,400 ounces, respectively.

Determine the direct materials and conversion costs per equivalent unit. If required, round to the nearest cent.

Q4:

Cost of Units Transferred Out and Ending Work in Process

The costs per equivalent unit of direct materials and conversion in the Bottling Department of Rocky Springs Beverage Company are $1.55 and $2.6, respectively. The equivalent units to be assigned costs are as follows:

The beginning work in process inventory had a cost of $1,060. Determine the cost of completed and transferred-out production and the ending work in process inventory. If required, round to the nearest dollar.

7.  Suppose your firm’s short-run production function is given as

                                      Labor                                      Total Output

                                          0                                                   0

                                          1                                                   5

                                          2                                                  12

                                          3                                                  20

                                          4                                                  28

                                          5                                                  34

                                          6                                                  39

                                          7                                                  43

                                          8                                                  46

Assume that labor can be hired for $50 per worker and that your fixed cost is $1,000.

     a.  What is the total variable cost of producing 5 units of output?

     b.  What is the average variable cost of producing 12 units of output?

     c.  What is the total cost of producing 20 units of output?

     d.  What is the average total cost of producing 28 units of output?

     e.  What is the marginal cost of producing 34 units of output?

8.  With the table below, answer the questions which follow.

                                      Labor                                      Output

                                          0                                               0

                                          1                                           1,500

                                          2                                           3,400

                                          3                                           5,100

                                          4                                           6,500

                                          5                                           7,400

                                          6                                           8,000

                                          7                                           8,300

                                          8                                           8,300

                                          9                                           8,200

     a.  Diminishing returns begins with which unit of labor?

     b.  What is the marginal product of the fourth unit of labor?

     c.  What is the average product if the sixth unit of labor?

     d.  Stage 3 of production begins with which unit of labor?

     e.  What is the marginal product of the ninth unit of labor?

9.   Answer each of the following as True or False.

      a.  A good Manager, i.e., one who wants to maximize profit or minimize loss, will not

           operate in Stage III of production.

      b.  In the market period, the supply curve is perfectly elastic.

      c.  When increasing returns to scale exist, long-run average cost increases as output

           increases.

      d.  The law of diminishing returns is relevant for the short-run.

      e.  Average fixed cost always decreases as output increases.

10.  a.  What is the difference between fixed proportions and variable proportions production?

       b.  What is the price elasticity of supply?

       c.  What does it mean if supply is price inelastic?

       d.  Why is supply more elastic in the long-run than the short-run?

White Company has two departments, Cutting and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The Cutting Department bases its rate on machine-hours, and the Finishing Department bases its rate on direct labor-hours. At the beginning of the year, the company made the following estimates:

Required:

1. Compute the predetermined overhead rate for each department.

2. The job cost sheet for Job 203, which was started and completed during the year, showed the following:

Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 203.

3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide predetermined overhead rate based on direct labor-hours, rather than using departmental rates?

Required 1. Compute the predetermined overhead rate for each department. (Round your answers to 2 decimal places.)

• Required 2

Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 203. (Round your intermediate calculations to 2 decimal places and your final answer to the nearest dollar amount

• Required 3

Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide predetermined overhead rate based on direct labor-hours, rather than using departmental rates? yes or no

1. On January 1, Revis Consulting entered into a contract to complete a cost reduction program for Green Financial over a six-month period. Revis will receive $68,000 from Green at the end of each month. If total cost savings reach a specific target, Revis will receive an additional $34,000 from Green at the end of the contract, but if total cost savings fall short, Revis will refund $34,000 to Green. Revis estimates an 80% chance that cost savings will reach the target and calculates the contract price based on the expected value of future payments to be received.

Required:
Prepare the following journal entries for Revis:

1. to 3. Prepare the journal entry on January 31 to record the collection of cash and recognition of the first month’s revenue. Also record the entry on June 30 for receipt of the bonus assuming total cost savings exceed target. And record the entry on June 30 for payment of the penalty assuming total cost savings fall short of target. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer’s home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for $2,130 and sells the remote separately for $290, and offers the entire package for $2,660. VP does not sell the installation service separately. VP is aware that other similar vendors charge $340 for the installation service. VP also estimates that it incurs approximately $290 of compensation and other costs for VP staff to provide the installation service. VP typically charges 30% above cost on similar sales.

Required:
1. to 3. Calculate the stand-alone selling price of the installation service using each of the following approaches.
a) adjusted market assessment, b) expected cost plus margin, c) residual