CMA Study Group

This message has been cross posted to the following Discussions: Answer Exchange P2P Support and CMA Study Group .
-------------------------------------------
I have a problem about Cost Allocation and need help in solving it. Any feedback would greatly appreciated!

Walters Company produces 15,000 lbs of Product A and 30,000 lbs of Product B each week by incurring a common variable cost of $400,000. These two products can be sold as is or processed further. Further processing of either product does not delay the production of subsequent batches of the joint product. The accompanying table gives data regarding these two products.

Product A Product B
Selling price per pound
without further processing $12.00 $9.00

Selling price per pound with
further processing $15.00 $11.00

Total separate weekly variable
cost of further processing $50,000 $45,000

To maximize Walters Company's manufacturing contribution margin, how much total separate variable costs of further processing should be incurred each week?




-------------------------------------------
Julie Nguyen
Accountant
Beaverton OR
United States
-------------------------------------------

Hey Julie,

This is a case of further processing of joint products products:

For product A:

Variable income (excluding joint processing cost) if sold without further processing = 12X15000 = 180000

Variable income if sold after processing - 15X15000-50000 = 175000.

Hence product A should not be processed and hence no separate variable cost should be incurred.

Lets now look at product B:

Variable income (excluding joint processing cost) if sold without further processing = 9X30000 = 270000

Variable income if sold after processing - 11X30000-45000 = 285000.

Since variable income increase after processing, product B should be further processed. 

Overall separable processing cost incurred should be 45000 (for product B).

Thanks,
ashutosh
-------------------------------------------
Ashutosh Srivastava

-------------------------------------------






Original Message:
Sent: 12-04-2013 10:39 AM
From: Julie Nguyen
Subject: Part I- Cost Allocation Need Help

This message has been cross posted to the following Discussions: Answer Exchange P2P Support and CMA Study Group .
-------------------------------------------
I have a problem about Cost Allocation and need help in solving it. Any feedback would greatly appreciated!

Walters Company produces 15,000 lbs of Product A and 30,000 lbs of Product B each week by incurring a common variable cost of $400,000. These two products can be sold as is or processed further. Further processing of either product does not delay the production of subsequent batches of the joint product. The accompanying table gives data regarding these two products.

Product A Product B
Selling price per pound
without further processing $12.00 $9.00

Selling price per pound with
further processing $15.00 $11.00

Total separate weekly variable
cost of further processing $50,000 $45,000

To maximize Walters Company's manufacturing contribution margin, how much total separate variable costs of further processing should be incurred each week?




-------------------------------------------
Julie Nguyen
Accountant
Beaverton OR
United States
-------------------------------------------

Thank you Ashutosh for your explanations. So we do not have to allocate common cost of $400,000? 

-------------------------------------------
Julie Nguyen
Accountant
Beaverton OR
United States
-------------------------------------------






Original Message:
Sent: 12-04-2013 01:05 PM
From: Ashutosh Srivastava
Subject: Part I- Cost Allocation Need Help

Hey Julie,

This is a case of further processing of joint products products:

For product A:

Variable income (excluding joint processing cost) if sold without further processing = 12X15000 = 180000

Variable income if sold after processing - 15X15000-50000 = 175000.

Hence product A should not be processed and hence no separate variable cost should be incurred.

Lets now look at product B:

Variable income (excluding joint processing cost) if sold without further processing = 9X30000 = 270000

Variable income if sold after processing - 11X30000-45000 = 285000.

Since variable income increase after processing, product B should be further processed. 

Overall separable processing cost incurred should be 45000 (for product B).

Thanks,
ashutosh
-------------------------------------------
Ashutosh Srivastava

-------------------------------------------






Original Message:
Sent: 12-04-2013 10:39 AM
From: Julie Nguyen
Subject: Part I- Cost Allocation Need Help

This message has been cross posted to the following Discussions: Answer Exchange P2P Support and CMA Study Group .
-------------------------------------------
I have a problem about Cost Allocation and need help in solving it. Any feedback would greatly appreciated!

Walters Company produces 15,000 lbs of Product A and 30,000 lbs of Product B each week by incurring a common variable cost of $400,000. These two products can be sold as is or processed further. Further processing of either product does not delay the production of subsequent batches of the joint product. The accompanying table gives data regarding these two products.

Product A Product B
Selling price per pound
without further processing $12.00 $9.00

Selling price per pound with
further processing $15.00 $11.00

Total separate weekly variable
cost of further processing $50,000 $45,000

To maximize Walters Company's manufacturing contribution margin, how much total separate variable costs of further processing should be incurred each week?




-------------------------------------------
Julie Nguyen
Accountant
Beaverton OR
United States
-------------------------------------------

Hi Julie,

There is no need to allocate joint cost to take such decisions (further processing, etc.). No matter what decision you take, the joint cost is going to be incurred. so we take only incremental cost and revenue.

Thanks
Ashutosh
-------------------------------------------
Ashutosh Srivastava

-------------------------------------------






Original Message:
Sent: 12-04-2013 10:41 PM
From: Julie Nguyen
Subject: Part I- Cost Allocation Need Help

Thank you Ashutosh for your explanations. So we do not have to allocate common cost of $400,000? 

-------------------------------------------
Julie Nguyen
Accountant
Beaverton OR
United States
-------------------------------------------






Original Message:
Sent: 12-04-2013 01:05 PM
From: Ashutosh Srivastava
Subject: Part I- Cost Allocation Need Help

Hey Julie,

This is a case of further processing of joint products products:

For product A:

Variable income (excluding joint processing cost) if sold without further processing = 12X15000 = 180000

Variable income if sold after processing - 15X15000-50000 = 175000.

Hence product A should not be processed and hence no separate variable cost should be incurred.

Lets now look at product B:

Variable income (excluding joint processing cost) if sold without further processing = 9X30000 = 270000

Variable income if sold after processing - 11X30000-45000 = 285000.

Since variable income increase after processing, product B should be further processed. 

Overall separable processing cost incurred should be 45000 (for product B).

Thanks,
ashutosh
-------------------------------------------
Ashutosh Srivastava

-------------------------------------------






Original Message:
Sent: 12-04-2013 10:39 AM
From: Julie Nguyen
Subject: Part I- Cost Allocation Need Help

This message has been cross posted to the following Discussions: Answer Exchange P2P Support and CMA Study Group .
-------------------------------------------
I have a problem about Cost Allocation and need help in solving it. Any feedback would greatly appreciated!

Walters Company produces 15,000 lbs of Product A and 30,000 lbs of Product B each week by incurring a common variable cost of $400,000. These two products can be sold as is or processed further. Further processing of either product does not delay the production of subsequent batches of the joint product. The accompanying table gives data regarding these two products.

Product A Product B
Selling price per pound
without further processing $12.00 $9.00

Selling price per pound with
further processing $15.00 $11.00

Total separate weekly variable
cost of further processing $50,000 $45,000

To maximize Walters Company's manufacturing contribution margin, how much total separate variable costs of further processing should be incurred each week?




-------------------------------------------
Julie Nguyen
Accountant
Beaverton OR
United States
-------------------------------------------

Common variable cost should be ignored as it is a sunk cost (in this case)

Separation costs per pound are:
It costs 3.33 per pound of product A (50000/15000)
It costs 1.50 per pound of Product B (45000/30000)

It is better to sell Product A as is another process further because the $3 margin would not make up for the additional processing cost.

With Product B you have a .50 margin after processing further.

$45000 is the total separation cost that should be incurred each week.




-------------------------------------------
Robert Nguyen
Accountant
InterDyn - Remington Inc.
Vancouver WA
United States
-------------------------------------------






Original Message:
Sent: 12-04-2013 12:19 PM
From: Julie Nguyen
Subject: Part I- Cost Allocation Need Help

This message has been cross posted to the following Discussions: Answer Exchange P2P Support and CMA Study Group .
-------------------------------------------
I have a problem about Cost Allocation and need help in solving it. Any feedback would greatly appreciated!

Walters Company produces 15,000 lbs of Product A and 30,000 lbs of Product B each week by incurring a common variable cost of $400,000. These two products can be sold as is or processed further. Further processing of either product does not delay the production of subsequent batches of the joint product. The accompanying table gives data regarding these two products.

Product A Product B
Selling price per pound
without further processing $12.00 $9.00

Selling price per pound with
further processing $15.00 $11.00

Total separate weekly variable
cost of further processing $50,000 $45,000

To maximize Walters Company's manufacturing contribution margin, how much total separate variable costs of further processing should be incurred each week?




-------------------------------------------
Julie Nguyen
Accountant
Beaverton OR
United States
-------------------------------------------

Hi Robert,

Thank you for your feedback. But I am still not quite sure about your approach. How did you get the margin for product A $3.00 and $.50 for product B, and not enough to make up for the further processing cost? Can you show the details? Thanks.

-------------------------------------------
Julie Nguyen
Accountant
Beaverton OR
United States
-------------------------------------------






Original Message:
Sent: 12-04-2013 01:07 PM
From: Robert Nguyen
Subject: Part I- Cost Allocation Need Help

Common variable cost should be ignored as it is a sunk cost (in this case)

Separation costs per pound are:
It costs 3.33 per pound of product A (50000/15000)
It costs 1.50 per pound of Product B (45000/30000)

It is better to sell Product A as is another process further because the $3 margin would not make up for the additional processing cost.

With Product B you have a .50 margin after processing further.

$45000 is the total separation cost that should be incurred each week.




-------------------------------------------
Robert Nguyen
Accountant
InterDyn - Remington Inc.
Vancouver WA
United States
-------------------------------------------






Original Message:
Sent: 12-04-2013 12:19 PM
From: Julie Nguyen
Subject: Part I- Cost Allocation Need Help

This message has been cross posted to the following Discussions: Answer Exchange P2P Support and CMA Study Group .
-------------------------------------------
I have a problem about Cost Allocation and need help in solving it. Any feedback would greatly appreciated!

Walters Company produces 15,000 lbs of Product A and 30,000 lbs of Product B each week by incurring a common variable cost of $400,000. These two products can be sold as is or processed further. Further processing of either product does not delay the production of subsequent batches of the joint product. The accompanying table gives data regarding these two products.

Product A Product B
Selling price per pound
without further processing $12.00 $9.00

Selling price per pound with
further processing $15.00 $11.00

Total separate weekly variable
cost of further processing $50,000 $45,000

To maximize Walters Company's manufacturing contribution margin, how much total separate variable costs of further processing should be incurred each week?




-------------------------------------------
Julie Nguyen
Accountant
Beaverton OR
United States
-------------------------------------------

Sorry,

The difference between selling as is and processing further for Product B is $2. $11-$9
The additional variable cost is $1.50 to process further ($45000/30000 units)
So you would profit $.50 per unit if you were to process further.

Same approach for product A. The additional profit is $3 ($15-$12)
The additional variable cost to process further for product A is $3.33 (50000/15000)

So it would cost you .33 per unit to process further.


-------------------------------------------
Robert Nguyen
Accountant
InterDyn - Remington Inc.
Vancouver WA
United States
-------------------------------------------






Original Message:
Sent: 12-04-2013 02:23 PM
From: Robert Nguyen
Subject: Part I- Cost Allocation Need Help

Common variable cost should be ignored as it is a sunk cost (in this case)

Separation costs per pound are:
It costs 3.33 per pound of product A (50000/15000)
It costs 1.50 per pound of Product B (45000/30000)

It is better to sell Product A as is another process further because the $3 margin would not make up for the additional processing cost.

With Product B you have a .50 margin after processing further.

$45000 is the total separation cost that should be incurred each week.




-------------------------------------------
Robert Nguyen
Accountant
InterDyn - Remington Inc.
Vancouver WA
United States
-------------------------------------------






Original Message:
Sent: 12-04-2013 12:19 PM
From: Julie Nguyen
Subject: Part I- Cost Allocation Need Help

This message has been cross posted to the following Discussions: Answer Exchange P2P Support and CMA Study Group .
-------------------------------------------
I have a problem about Cost Allocation and need help in solving it. Any feedback would greatly appreciated!

Walters Company produces 15,000 lbs of Product A and 30,000 lbs of Product B each week by incurring a common variable cost of $400,000. These two products can be sold as is or processed further. Further processing of either product does not delay the production of subsequent batches of the joint product. The accompanying table gives data regarding these two products.

Product A Product B
Selling price per pound
without further processing $12.00 $9.00

Selling price per pound with
further processing $15.00 $11.00

Total separate weekly variable
cost of further processing $50,000 $45,000

To maximize Walters Company's manufacturing contribution margin, how much total separate variable costs of further processing should be incurred each week?




-------------------------------------------
Julie Nguyen
Accountant
Beaverton OR
United States
-------------------------------------------

Thanks Robert.

-------------------------------------------
Julie Nguyen
Accountant
Beaverton OR
United States
-------------------------------------------






Original Message:
Sent: 12-04-2013 03:33 PM
From: Robert Nguyen
Subject: Part I- Cost Allocation Need Help

Sorry,

The difference between selling as is and processing further for Product B is $2. $11-$9
The additional variable cost is $1.50 to process further ($45000/30000 units)
So you would profit $.50 per unit if you were to process further.

Same approach for product A. The additional profit is $3 ($15-$12)
The additional variable cost to process further for product A is $3.33 (50000/15000)

So it would cost you .33 per unit to process further.


-------------------------------------------
Robert Nguyen
Accountant
InterDyn - Remington Inc.
Vancouver WA
United States
-------------------------------------------






Original Message:
Sent: 12-04-2013 02:23 PM
From: Robert Nguyen
Subject: Part I- Cost Allocation Need Help

Common variable cost should be ignored as it is a sunk cost (in this case)

Separation costs per pound are:
It costs 3.33 per pound of product A (50000/15000)
It costs 1.50 per pound of Product B (45000/30000)

It is better to sell Product A as is another process further because the $3 margin would not make up for the additional processing cost.

With Product B you have a .50 margin after processing further.

$45000 is the total separation cost that should be incurred each week.




-------------------------------------------
Robert Nguyen
Accountant
InterDyn - Remington Inc.
Vancouver WA
United States
-------------------------------------------






Original Message:
Sent: 12-04-2013 12:19 PM
From: Julie Nguyen
Subject: Part I- Cost Allocation Need Help

This message has been cross posted to the following Discussions: Answer Exchange P2P Support and CMA Study Group .
-------------------------------------------
I have a problem about Cost Allocation and need help in solving it. Any feedback would greatly appreciated!

Walters Company produces 15,000 lbs of Product A and 30,000 lbs of Product B each week by incurring a common variable cost of $400,000. These two products can be sold as is or processed further. Further processing of either product does not delay the production of subsequent batches of the joint product. The accompanying table gives data regarding these two products.

Product A Product B
Selling price per pound
without further processing $12.00 $9.00

Selling price per pound with
further processing $15.00 $11.00

Total separate weekly variable
cost of further processing $50,000 $45,000

To maximize Walters Company's manufacturing contribution margin, how much total separate variable costs of further processing should be incurred each week?




-------------------------------------------
Julie Nguyen
Accountant
Beaverton OR
United States
-------------------------------------------