57) Pilgrim Corporation processes frozen turkeys. 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 turkeys. 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?
58) 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?
59) 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.
Objective 16.4
1) Which of the following is NOT a reason to use the sales value at splitoff method:
A) simplicity
B) no anticipation of subsequent management decisions
C) measurement of the value of the joint products at the splitoff point
D) All of the above are reasons to use the sales value at splitoff method.
2) Which method of allocating costs would be used if the selling prices of all products at the splitoff point are UNAVAILABLE?
A) sales value at splitoff method
B) NRV method
C) physical measures method
D) constant gross-margin percentage method
3) What is the reason that accountants do NOT like to carry inventory at net realizable value?
A) NRV is the most difficult costing method
B) NRV recognizes income after the sale is complete
C) NRV recognizes income before sales are made
D) NRV is acceptable to the taxing authorities
4) The sales value at splitoff method is preferable when selling-price data exists at splitoff.
