Physical Units Method, Relative Sales-Value-at-Split-off Method, Net Realizable Value Method, Decision Making

Sonimad Sawmill, Inc. (SSI), purchases logs from independent timber contractors and processes them into the following three types of lumber products:

1. Studs for residential construction (e.g., walls and ceilings)
2. Decorative pieces (e.g., fireplace mantels and beams for cathedral ceilings)
3. Posts used as support braces (e.g., mine support braces and braces for exterior fences around ranch properties)

These products are the result of a joint sawmill process that involves removing bark from the logs, cutting the logs into a workable size (ranging from 8 to 16 feet in length), and then cutting the individual products from the logs, depending upon the type of wood (pine, oak, walnut, or maple) and the size (diameter) of the log.

The joint process results in the following costs and output of products during a typical month:

Product yield and average sales value on a per-unit basis from the joint process are as follows:

The studs are sold as rough-cut lumber after emerging from the sawmill operation without further processing by SSI. Also, the posts require no further processing. The decorative pieces must be planed and further sized after emerging from the SSI sawmill. This additional processing costs SSI $100,000 per month and normally results in a loss of 10 percent of the units entering the process. Without this planing and sizing process, there is still an active intermediate market for the unfinished decorative pieces where the sales price averages $60 per unit.

Required:

1. Based on the information given for Sonimad Sawmill, Inc., allocate the joint processing costs of $1,000,000 to each of the three product lines using the:

a. Relative sales-value-at-split-off method. When required, round decimal values to four places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as "88.35" percent.

b. Physical units method at split-off.

c. Estimated net realizable value method. When required, round decimal values to four places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as "88.35" percent.

2. Prepare an analysis for Sonimad Sawmill, Inc., to compare processing the decorative pieces further as it presently does, with selling the rough-cut product immediately at split-off.

Physical Units Method, Relative Sales-Value-at-Split-off Method, Net Realizable Value Method, Decision Making

Sonimad Sawmill, Inc. (SSI), purchases logs from independent timber contractors and processes them into the following three types of lumber products:

1. Studs for residential construction (e.g., walls and ceilings)
2. Decorative pieces (e.g., fireplace mantels and beams for cathedral ceilings)
3. Posts used as support braces (e.g., mine support braces and braces for exterior fences around ranch properties)

These products are the result of a joint sawmill process that involves removing bark from the logs, cutting the logs into a workable size (ranging from 8 to 16 feet in length), and then cutting the individual products from the logs, depending upon the type of wood (pine, oak, walnut, or maple) and the size (diameter) of the log.

The joint process results in the following costs and output of products during a typical month:

Product yield and average sales value on a per-unit basis from the joint process are as follows:

The studs are sold as rough-cut lumber after emerging from the sawmill operation without further processing by SSI. Also, the posts require no further processing. The decorative pieces must be planed and further sized after emerging from the SSI sawmill. This additional processing costs SSI $100,000 per month and normally results in a loss of 10 percent of the units entering the process. Without this planing and sizing process, there is still an active intermediate market for the unfinished decorative pieces where the sales price averages $60 per unit.

Required:

1. Based on the information given for Sonimad Sawmill, Inc., allocate the joint processing costs of $1,000,000 to each of the three product lines using the:

a. Relative sales-value-at-split-off method. When required, round decimal values to four places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as "88.35" percent.

b. Physical units method at split-off.

c. Estimated net realizable value method. When required, round decimal values to four places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as "88.35" percent.

2. Prepare an analysis for Sonimad Sawmill, Inc., to compare processing the decorative pieces further as it presently does, with selling the rough-cut product immediately at split-off.

Physical Units Method, Relative Sales-Value-at-Split-off Method, Net Realizable Value Method, Decision Making Sonimad Sawmill, Inc. (SSI), purchases logs from independent timber contractors and processes them into the following three types of lumber products: Studs for residential construction (e.g., walls and ceilings) Decorative pieces (e.g., fireplace mantels and beams for cathedral ceilings) Posts used as support braces (e.g., mine support braces and braces for exterior fences around ranch properties) These products are the result of a joint sawmill process that involves removing bark from the logs, cutting the logs into a workable size (ranging from 8 to 16 feet in length), and then cutting the individual products from the logs, depending upon the type of wood (pine, oak, walnut, or maple) and the size (diameter) of the log. The joint process results in the following costs and output of products during a typical month: Joint production costs: Materials (rough timber logs) $500,000 Debarking (labor and overhead) 50,000 Sizing (labor and overhead) 200,000 Product cutting (labor and overhead) 260,000 Total joint costs $1,010,000 Product yield and average sales value on a per-unit basis from the joint process are as follows: Product Monthly Output Fully Processed Sales Price Studs 80,000 $8 Decorative pieces 5,000 100 Posts 15,000 20 The studs are sold as rough-cut lumber after emerging from the sawmill operation without further processing by SSI. Also, the posts require no further processing. The decorative pieces must be planed and further sized after emerging from the SSI sawmill. This additional processing costs SSI $120,000 per month and normally results in a loss of 10 percent of the units entering the process. Without this planing and sizing process, there is still an active intermediate market for the unfinished decorative pieces where the sales price averages $60 per unit. Required: 1. Based on the information given for Sonimad Sawmill, Inc., allocate the joint processing costs of $1,010,000 to each of the three product lines using the: a. Relative sales-value-at-split-off method. When required, round decimal values to four places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as "88.35" percent. Monthly Unit Output Sales Price per Unit Relative Sales Value at Split-Off Percent of Sales Allocated Joint Costs Studs $ $ % $ Decorative pieces % Posts % Total $ % $ (Note: Difference due to rounding.) b. Physical units method at split-off. Units Percent x Joint Cost = Allocated Joint Costs Studs % $ $ Decorative pieces % Posts % Total $ c. Estimated net realizable value method. When required, round decimal values to four places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as "88.35" percent. Fully Processed Monthly Unit Output Sales Price per Unit Net Realizable Value Percent of Value Estimated Allocated Joint Costs Studs $ $ % $ Decorative pieces % Posts % Total $ % $ (Note: Difference due to rounding.) 2. Prepare an analysis for Sonimad Sawmill, Inc., to compare processing the decorative pieces further as it presently does, with selling the rough-cut product immediately at split-off. Sonimad Sawmill, Inc. Analysis Report Monthly unit output Final sales value $ Differential revenue $ Additional contribution from further processing $

1. Physical Units Method, Relative Sales-Value-at-Split-off Method, Net Realizable Value Method, Decision Making

   Sonimad Sawmill, Inc. (SSI), purchases logs from independent timber contractors and processes them into the following three types of lumber products:

   1. Studs for residential construction (e.g., walls and ceilings)
   2. Decorative pieces (e.g., fireplace mantels and beams for cathedral ceilings)
   3. Posts used as support braces (e.g., mine support braces and braces for exterior fences around ranch properties)

   These products are the result of a joint sawmill process that involves removing bark from the logs, cutting the logs into a workable size (ranging from 8 to 16 feet in length), and then cutting the individual products from the logs, depending upon the type of wood (pine, oak, walnut, or maple) and the size (diameter) of the log.

   The joint process results in the following costs and output of products during a typical month:

   Joint production costs:
   Materials (rough timber logs)	$500,500
   Debarking (labor and overhead)	60,050
   Sizing (labor and overhead)	200,000
   Product cutting (labor and overhead)	261,000
   Total joint costs	$1,020,000

   Product yield and average sales value on a per-unit basis from the joint process are as follows:

   Product	Monthly Output	Fully Processed Sales Price
   Studs	70,000	$8
   Decorative pieces	5,000	100
   Posts	25,000	20

   The studs are sold as rough-cut lumber after emerging from the sawmill operation without further processing by SSI. Also, the posts require no further processing. The decorative pieces must be planed and further sized after emerging from the SSI sawmill. This additional processing costs SSI $120,000 per month and normally results in a loss of 10 percent of the units entering the process. Without this planing and sizing process, there is still an active intermediate market for the unfinished decorative pieces where the sales price averages $60 per unit.

   Required:

   1. Based on the information given for Sonimad Sawmill, Inc., allocate the joint processing costs of $1,020,000 to each of the three product lines using the:

   a. Relative sales-value-at-split-off method. When required, round decimal values to four places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as "88.35" percent.

   	Monthly Unit Output	Sales Price per Unit	Relative Sales Value at Split-Off	Percent of Sales		Allocated Joint Costs
   Studs		$	$		%	$
   Decorative pieces					%
   Posts					%
   Total			$		%	$

   (Note: Difference due to rounding.)

   b. Physical units method at split-off.

   	Units	Percent	x	Joint Cost	=	Allocated Joint Costs
   Studs		%		$		$
   Decorative pieces		%
   Posts		%
   Total						$

   c. Estimated net realizable value method. When required, round decimal values to four places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as "88.35" percent.

   	Fully Processed Monthly Unit Output	Sales Price per Unit	Net Realizable Value	Percent of Value		Estimated Allocated Joint Costs
   Studs		$	$		%	$
   Decorative pieces					%
   Posts					%
   Total			$		%	$

   (Note: Difference due to rounding.)

   2. Prepare an analysis for Sonimad Sawmill, Inc., to compare processing the decorative pieces further as it presently does, with selling the rough-cut product immediately at split-off.

   Sonimad Sawmill, Inc.
   Analysis Report
   Monthly unit output
   Final sales value	$
   Differential revenue	$
   Additional contribution from further processing	$

Direct mail advertisers send solicitations​ ("junk mail") to thousands of potential customers in the hope that some will buy the​ company's product. The response rate is usually quite low. Suppose a company wants to test the response to a new flyer and sends it to 1160 people randomly selected from their mailing list of over​ 200,000 people. They get orders from 140 of the recipients. Use this information to complete parts a through d.

​a) Create a 90​% confidence interval for the percentage of people the company contacts who may buy something.

(___%, ___%)

​(Round to one decimal place as​ needed.)

​b) Explain what this interval means.

A. The values for the interval bounds should be subtracted from 90​% to obtain the​ company's true confidence level.

B. The company is 90​% confident that the percentage of people who will respond to the flyer falls within the confidence interval bounds.

C. The company is 90​% confident that the probability a randomly sampled person will respond to the flyer falls within the confidence interval bounds.

D.The company is 90​% confident that the percentage of people who will not respond to the flyer falls within the confidence interval bounds.

​c) Explain what "90​% ​confidence" means.

A. About 90​% of all randomly sampled people will respond to the new flyer.

B. About 90​% of all random samples will produce intervals that contain the true proportion of people who will respond to the new flyer.

C. About 90​% of all random samples of size 1160 will produce intervals that contain the true proportion of people who will respond to the new flyer.

D. About 90​% of all random samples of size 1160 will produce intervals that do not contain the true proportion of people who will respond to the new flyer.

​d) The company must decide whether to do a mass mailing. The mailing​ won't be​ cost-effective unless it produces at least a 4​% return. What does your confidence interval​ suggest?

A. Do the mass mailing.

B. Do not do the mass mailing.

The University of Cincinnati Center for Business Analytics is an outreach center that collaborates with industry partners on applied research and continuing education in business analytics. One of the programs offered by the center is a quarterly Business Intelligence Symposium. Each symposium features three speakers on the real-world use of analytics. Each of the corporate members of the center (there are currently 10) receives twelve free seats to each symposium. Nonmembers wishing to attend must pay $75 per person. Each attendee receives breakfast, lunch, and free parking. The following are the costs incurred for putting on this event:

Cortez Company is planning to introduce a new product that will sell for $106 per unit. The following manufacturing cost estimates have been made on 20,000 units to be produced the first year:

Manufacturing overhead costs have not yet been estimated for the new product, but monthly data on total production and overhead costs for the past 24 months have been analyzed using simple linear regression. The following results were derived from the simple regression and provide the basis for overhead cost estimates for the new product.

Required:

a. What percentage of the variation in overhead costs is explained by the independent variable?

• 85.70%

• 94.30%

• 102.80%

• 77.10%

• None of the above

b. What is the total overhead cost for an estimated activity level of 70,000 direct labor-hours?

• $550,000

• $560,000

• $540,000

• $570,000

• None of the above

c. How much is the variable manufacturing cost per unit, using the variable overhead estimated by the regression (assuming that direct materials and direct labor are variable costs)?

• $73.00

• $80.00

• $88.00

• $66.00

• None of the above

d. What is the expected contribution margin per unit to be earned during the first year on 20,000 units of the new product? (Assume that all marketing and administrative costs are fixed.)

• $33.00

• $36.00

• $40.00

• $30.00

• None of the above

e. What is the manufacturing cost equation implied by these results?

• Total cost = $480,000 + ($6.00 × Number of units)

• Total cost = $130,000 + ($106.00 × Number of units)

• Total cost = $130,000 + ($16.00 × Number of units)

• None of the above

As a cost and management accountant you always advocate about the use of cost volume profit (CVP) analysis and activity based costing in different cost management scenario. That’s why management of the PQR Limited wants you to explain the following issues for their next cost management move for the organisation.

Required:

1. What is a cost driver? What is the cost driver in conventional cost volume profit (CVP) analysis? How is the cost driver measured in conventional CVP analysis?     


2. In activity–based costing, costs are classified into unit level, batch level, product level and facility level. How are these categories typically handled in CVP analysis, where there are only two categories available: fixed or variable?     



3. In an environment where activity–based costing is necessary and appropriate, is the relevance of conventional CVP analysis enhanced or diminished? Explain.     



4. Explain the additional limiting assumption of using CVP analysis under activity–based costing.
    




5. PQR Limited makes major household appliances such as refrigerators, stoves and dishwashers. Sales are heavily dependent upon the number of housing starts and the level of disposable income. Next year the number of housing starts in Victoria is expected to be the same as this year; however, about two-thirds of these starts will be for rental units compared to a historical average of one-third. The remaining housing starts will be for single-family homes and up market units. PQR generally makes two levels of each product: the economy model (fully functional, but with few special features) and the prestige model (with the most popular special features). PQR Limited assumes a product mix of 40 per cent economy and 60 per cent prestige. Describe how the change in the percentage of rental units in housing starts could create a problem with the stable product mix assumption.    

You have been recruited by a former classmate, Susanna Wu, to join the finance team of a company that she founded recently. The company produces a unique product line of hypoallergenic cosmetics and relies for its success on an aggressive marketing program. The company is in a start-up phase and therefore has no significant history of expenses and revenues upon which to rely for budgeting and planning purposes. Given the restriction on available funds (most of the available capital has been used for new-product development and to recruit a management team), the control of costs, including marketing costs, is thought by the management team to be essential for the short-term viability of the company. You have held a number of intensive discussions with Susanna and John Thompson, director of marketing for the firm. They have asked you to prepare an estimated budget for marketing expenses for a month of operations. You are provided with the following data, which represent average actual monthly costs over the past three months: CostAmountSales commissions$125,000Sales staff salaries42,500Telephone and mailing40,500Rental—office building22,500Gas (utilities)12,500Delivery charges71,500Depreciation—office furniture9,500Marketing consultants25,500 Your discussions with John and Susanna indicate the following assumptions and anticipated changes regarding monthly marketing expenses for the coming year: Sales volume, because of aggressive marketing, should increase by 16%.To meet competitive pressures, sales prices are expected to decrease by 8%.Sales commissions are based on a percentage of sales revenue.Sales staff salaries, because of a new hire, will increase by 16%, regardless of sales volume.Because of recent industrywide factors, rates for telephone and mailing costs, as well as delivery charges, are expected to increase by 6%. However, both of these categories of costs are variable with sales volume.Rent on the office building is based on a 2-year lease, with 21 months remaining on the original lease.Gas utility costs are largely independent of changes in sales volume. However, because of industrywide disruptions in supply, these costs are expected to increase by 16%, regardless of changes in sales volume.Depreciation on the office furniture used by members of the sales staff should increase because of new equipment that will be acquired. The planned cost for this equipment is $14,400, which will be depreciated using the straight-line (SL) method, with no salvage value, over a 4-year useful life.Because of competitive pressure, the company plans to increase the cost of marketing consultants by $7,500 per month.

Required:

1. Based on the preceding information, what is the percentage change, by line item and in total, for items in your budget?

2. The management team is worried about the short-term financial position of the new company. Given the strain on available cash, the president has expressed a desire to keep marketing expenses over the next few months to a maximum of $363,000. Discussions with the marketing department indicate that telephone and mailing costs are the only category, in the short run, that can reasonably bear the planned-for reduction in marketing costs. The budget you have prepared includes an assumed 6% increase in telephone and mailing costs. What must this percentage change (positive or negative) be in order to achieve targeted monthly marketing costs? (Hint: The Goal Seek function in Excel can be used to calculate the percentage changes, which can be found under Data, then What-If Analysis.)