Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 52

Assigning Capacity Costs: Seasonality

Refer to Problems 10-50 and 10-51. In discussing their business, Cathy and Tom realize that there are really three seasons instead of two, the third being the fall and spring (as a combined season). Each of the three seasons lasts exactly four months. They also know that Marcee’s opens in mid-spring and closes in mid-fall.

Cathy and Tom check the order patterns and see the following demand (in gallons) in each of the three seasons:

	Winter	Fall and Spring	Summer	Total
Chuck’s	3,000	3,000	3,000	9,000
Marcee’s	?0?	1,500	3,000	4,500
Total	3,000	4,500	6,000	13,500

Required

How would you modify, if at all, the cost system you designed previously for Cathy and Tom’s in Problem 10-50? Why?

Step 1 of 4

Cost accounting system

This is a system designed for inhouse or internal managers and their decision making. Cost accounting information is not needed for comparison with other companies. This information is commonly used in financial accounting also, but it is primarily used by company managers for their decision making. It is important that cost accounting information is relevant for the decision making of the manager.