Professional Documents
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1) All costs incurred beyond the splitoff point that are assignable to one or more individual
products are called: 1) _______
A) byproduct costs
B) joint costs
C) main costs
D) separable costs
2) When a product is the result of a joint process, the decision to process the product past the
splitoff point further should be influenced by the: 2) _______
A) total amount of the joint costs
B) portion of the joint costs allocated to the individual products
C) extra revenue earned past the splitoff point
D) extra operating income earned past the splitoff point
3) In evaluating different alternatives, it is useful to concentrate on: 3) _______
A) variable costs
B) fixed costs
C) total costs
D) relevant costs
4) One-time-only special orders should only be accepted if: 4) _______
A) incremental revenues exceed incremental costs
B) differential revenues exceed variable costs
C) incremental revenues exceed fixed costs
D) total revenues exceed total costs
Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned
tomatoes. During the summer of 20X5, the joint costs of processing the tomatoes were $420,000.
There was no beginning or ending inventories for the summer. Production and sales value
information for the summer is as follows:
Product
Catsup
Cases
100,000
Sales Value at
Separable Costs Selling Price
Splitoff Point
$6 per case
Juice
150,000
8 per case
25 per case
Canned
200,000
5 per case
10 per case
Required:
Determine the amount allocated to each product if the estimated net realizable value method is
used, and compute the cost per case for each product.
Special Order. Louisville Corporation produces baseball bats for kids that it sells
for $32 each. At capacity, the company can produce 50,000 bats a year. The costs
of producing and selling 50,000 bats are as follows:
Total Cost
Direct Materials
$12
$600,000
150,000
50,000
250,000
100,000
4
$27
200,000
$1,350,000
1. Suppose Louisville is currently producing and selling 40,000 bats. At this level
of production and sales, its fixed costs are the same as given in the table
above. Ripkin Corporation wants to place a one-time special order for 10,000
bats at $25 each. Louisville will incur no variable selling costs for this special
order. Should Louisville accept this one-time special order? Show your
calculations.
2. Now suppose Louisville is currently producing and selling 50,000 bats. If
Louisville accepts Ripkins offer it will have to sell 10,000 fewer bats to its
regular customers. (a) On financial considerations alone, should Louisville
accept this one-time special order? Show your calculations. (b) On financial
considerations alone, at what price would Louisville be indifferent between
accepting the special order and continuing to sell to its regular customers at
$32 per bat. (c) What other factors should Louisville consider in deciding
whether to accept the one-time special order?
20X3
20X4
5,000
5,500
Selling price
$400
$440
15,000
15,375
$40
$44
10,000
10,000
$1,000,000
$1,100,000
$100
$110
60
58
$360,000
$362,500
$6,000
$6,250
Ernsting Corporation produces no defective units but it wants to reduce direct materials usage
per unit of CM12 in 20X4. Manufacturing conversion costs in each year depend on production
capacity defined in terms of CM12 units that can be produced. Selling and customer-service
costs depend on the number of customers that the customer and service functions are designed to
support. Ernsting Corporation has 46 customers in 20X3 and 50 customers in 20X4. The industry
market size for high-end computer monitors increased 5% from 20X3 to 20X4.
Required:
a.
What is the net effect on operating income as a result of the price-recovery component?
d. What is the net effect on operating income as a result of the productivity component?