Question :
ESSAY.
Write your answer in the space provided or a separate : 1196103
ESSAY.
Write your answer in the space provided or on a separate sheet of paper. 86)
Golden Company uses one raw material, gold ore, for all its products. It spends considerable time getting the gold from the ore before it starts the actual processing of the finished products, rings, lockets, etc. Traditionally, the company made one product at a time and charged the product with all costs of production, from ore to final inspection. However, in recent months the cost accounting reports have been somewhat disturbing to management. It seems that some of the finished products are costing more than they should, even to the point of approaching their retail value. It has been noted by the accounting manager that this problem began when the company started buying ore from different parts of the world, some of which requires difficult extraction methods.
Required:
Can you explain how the company might change its accounting system to better reflect the reporting problems? Are there other problems with the purchasing area?
87)
Explain the difference between a joint product and a byproduct. Can a byproduct ever become a joint
product?
88)
Land and Sea Corporation processes frozen chicken. The company has not been pleased with its profit margin per product because it appears that the high value items have too few costs assigned to them while the low value items have too many costs assigned to them. The processing results in several products, the primary one of which is frozen small hens. Other products include frozen parts such as wings and legs, byproducts such as skin and bones, and unused scrap items.
Required:
What may be the cost assignment problem if a key consideration is the value of the products being sold?
89)
Wharf Fisheries processes many of its seafood items to the demands of its largest customers, most of which are large retail distributors. To keep the accounting system simple it has always assigned cost by the weight of the finished product. However, with increased competition it has had to watch its prices closely and in recent years several items have incurred zero profit margins. After several weeks of investigation, your consulting firm has found that while weight is important in processing of seafood, numerous items have very distinct processing steps and some items are processed through more steps than others.
Required:
Based on the findings of your consulting firm, what changes might you recommend to the company in the way of cost allocation among its products?
90)
Paragon University operates an extensive and an expensive registration, testing, and counseling center,
through which all students are required to pass through when they enter the university. The registration
effort’s costs (for the most part) are almost impossible to allocate based upon which students require time,
effort, etc. The cost of this center is approximately 15% of the total costs of Paragon. This department
engages in no other activities than the registration of students. Paragon is interested in determining the
profitability of the three technical departments it operates. Paragon has the perception that some
departments are more profitable than others, and it would like to determine an appropriate method of
allocating the costs of this registration center.
Required:
Recommend to Paragon University a method (or methods) of allocating the costs of registration to
the three departments.
91)
What are the four methods of allocating joint costs to individual products?
Which of these methods is
preferred, and what are two advantages of this method?
87)
The differentiating factor between a joint product and a byproduct is the sales value at the splitoff point.
Joint products have high total sales value at the splitoff point.
A byproduct has a low total sales value at the splitoff point.
Products can change from byproducts to joint products when their total sales values increase significantly.
88)
First, the company needs to consider whether the byproducts are being treated as products, rather than byproducts. For the most part, byproducts should not be assigned costs. The revenue from the byproducts should be used as either minor sales categories or else as offsets to processing costs. A second consideration is the method used to assign the costs. It is possible that some physical measure (weight) is being used, in which case the parts items and the byproducts may weigh as much as the primary product. It may be necessary to evaluate the various methods of allocation and select the one with which management feels is best for decision making. 89)
Recommendations might include, among others, some of the following:
a.Categorize the fishing expeditions as joint costs, especially if multiple items are caught.
b.Categorize all processing activities where multiple items are processed as joint costs.
c.For those processes that are unique to only one product, or a set of products, use separable cost categories.
d.Choose something other than weight. Select one of the value methods of assigning the costs.
e.Carefully separate main products from byproducts in the costing system.
f.Do not allocate the joint costs for internal decisions. 90)
The joint costs of the registration effort could be allocated based on physical volume or the sales (tuition) dollars of each department.
Volume
Allocating on volume would be based not upon physical measures, but upon the number of credit hours each of the three departments offer each semester. If the ratio of credit hours for the three departments were 25%, 45%, and 30% then the costs would be allocated based upon these ratios.
Sales Dollars
It is possible that some departments charge more per credit hour than others. In this case it might be appropriate to allocate the costs based upon the total tuition revenues of each department.
91)
The four methods of allocating joint costs to individual products are: the sales-value at splitoff method, estimated net-realizable value (NRV) method, the constant gross margin percentage NRV, and physical measures methods.
Of these methods, the sales-value at splitoff method is preferred when market prices are available, because it is consistent with the benefits-received criterion, it does not depend or anticipate further managerial decisions on further processing, and it is relatively simple.
