Cases in Cost Management

Business

Quiz 32 :
Unitron

Quiz 32 :
Unitron

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In a period which began with zero inventories, how should Unitron assign the production output(400,000 units) of 20 batches to the sales orders (400,000 units) The idea here is to construct a "produced as/sold as" matrix.
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Explanation:
The idea implied here is to make a
img ("Produced As/Sold as Matrix"). Obviously, the potential combinations are endless; therefore how does one select a "best" approach for allocation The "best" process is to begin with demand for the premier product (i.e., 405) and to go back over unsold production toward the next lower value product (i.e., 404) to accomplish sales demand, based on the five different selling prices.
As long as no sales demand is completed until product 401 switching occurs (see Exhibit A), the basic thought is to easily minimize possible revenue loss.

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Compute the per unit costs for rectifiers in the 400 series under an average costing system and under a relative sales value system.
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There are usually two fundamental accounting methods used for apportioning joint cost between the presented five joint products. One is the "average cost" or "physical units" method, and another is the "RSV" (relative sales value) or "NRV "(net realizable value) method.
Physical unit method:
It attempts to allocate the total joint cost based on the unit of measurement, for instance pounds, gallons, and tons. The idea is unit products should be measurable through the basic measurement unit.
Relative sales value method: It allocates the costs on the basis of relative sales value of every resulting product by a joint-production process.
The case says that there are zero inventories at the beginning of the period. The purpose is to allocate the joint cost between the total 400,000 units produced during the period and for which sales demand information is available.
By extracting the information:
img img The computation of unit cost under the physical units' method is as follows:
img Substitute:
img All correctives factors are allocated identical unit costs. Because sales prices rise with the increase in technical attributes crosswise the five categories. Accordingly, gross margins will as well increase as high from low end products. It goes like negative 25% meant for 401and 50% for 405).
It is mentioned that no manufacture costs are allocated to the by-product. Based on this information one can also assume now that any by-product sales revenue is credited under miscellaneous income, before being offset against the manufacturing cost of $200,000.
If the units of "by-product" are 400s and it is considered as a joint product, then
img RSV method:
Under the RSV method of units cost calculation, there are different unit costs assigned for the associated five products. The basic idea is to calculate the average gross margin percent and apportioned it through full joint product units. This average is gross margin percent
img . This does mean that 5 different products have 5 different costs, based on their 5 different selling values. Provided that no product changing occurs, the idea is easily saved.
Here are the unit cost numbers resulting by the RSV method:
img

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A. What would be the revenue, cost, and profit if the order for 6000 401's were accepted for immediate shipment: - under a physical unit costing system - under a relative sales value costing system. B. What should Helen Barnes recommend to Jim Jacoby regarding this order Why
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Part (A)
Physical unit method:
It attempts to allocate the total joint cost based on unit of measurement, for instance pounds, gallons, and tons. The idea is unit products should be measurable through the basic measurement unit.
Relative sales value method :
It allocates the costs on the basis of relative sales value of every resulting product by a joint-production process.
By extracting the information:
img img img If the order were accepted for 6000 units of 401' for an immediate shipment, the revenue cost and profit is estimated as under:
Table 1: Costing method
img Part (B)
Helen Barnes should recommend the following things to Jim Jacoby about this order:
1. Stay with the presented 5 different costing figures, which mean the product 402's sold like 401's but carry the costs of product 402. The result, on the other hand, is consistent application regarding the rule and breach of the critical idea. The crucial idea is clear for sales of 6000 units of 401's at $2,400.
2. In order to attain the gross profit of $456 (desired result), it is essential to consider all 6000 items shipped as 401's.

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What should she recommend regarding the offer from the toy company
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Which method of allocating joint costs should Unitron use Which method yields better data for decision-Making Consider the behavioral implications of the two different approaches.
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A government purchasing agent has just inquired again about the "cost plus" purchase contract for 100,000 404's. The contracting official had stated that a 10% profit margin would probably be allowable, if the price were "right" ($.75, or so). How is the "cost" What are your thoughts about price and manufacturing strategy for this possible contract Assuming excess manufacturing capacity is available, would you recommend bidding on this contract If so, at what price
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