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Quantitative Methods Essay

1752 words - 8 pages

1 Comprehensive Problem: Part 2
chapters 5–10

1. a. Physical units method of allocation:
Grades Board Feet Percent of Units Allocation*
Firsts and seconds 1,500,000 .20 180,000.
No. 1 common 3,000,000 .40 360,000
No. 2 common 1,875,000 .25 225,000
No. 3 common 1,125,000 .15 135,000
Totals 7,500,000 1.0 900,000

Unit cost:
Firsts and seconds .12 (180,000/1,500,000)
No. 1 common .12 (360,000/3,000,000)
No. 2 common .12 (225,000/1,875,000)
No. 3 common .12 (135,000/1,125,000)

b. Sales-value-at-split-off method:
Note: Market value is ...view middle of the document...

The relative sales value method assigns higher costs to grades that have higher market values. Thus, the cost of sofas and chairs using different grades of lumber would differ according to the grade of lumber used. The costing issue foreshadows the transfer pricing dilemma (discussed in a later section) that companies face. Since lumber has an outside market, opportunity costs are being incurred by the company. Perhaps a better solution is to transfer the lumber at market price per board foot.

Effect on Job A500 (the cost per board foot increases from $0.12 to $0.135):
Cost thus increases by $300 [($0.135 – $0.12)20,000 board feet].

Effect on Job B75 (the cost per board foot increases from $0.12 to $0.18):
Cost thus increases by $132 [($0.18 – $0.12)2,200 board feet].

2. Rate = 1,200,000/ 120,000= $10.00

3. Applied overhead = Rate × Actual hours
= 10.00 x 118,000
= 1,180,000

Overhead variance = Actual overhead – Applied overhead
= 1,150,000 – 1,180,000
= -30,000 Overapplied
Comp. Prob. 2 (Continued)

4. Weaving and Pattern Department:
a. Physical flow schedule (measured in yards):

BWIP 20,000
Units started 80,000
Total 100,000

Units completed 80,000
EWIP 20,000
Total 100,000

b. Equivalent units schedule:
Materials Conversion Costs
Units completed 80,000 80,000
EWIP 20,000 8,000
Total 100,000 88,000

c. Unit cost: $4. + $6. = $ 10.00

Note: Total cost of materials = BI + Costs added =
Total conversion costs = BI + Costs added =

d. Cost of goods transferred out:

$10.00 x 80 = 800,000

Comp. Prob. 2 (Continued)

Coloring and Bolting Department:

a. Physical flow schedule (measured in bolts):

BWIP 400
Units started 3,200
Total 3,600

Units completed 3,200
EWIP 400
Total 3,600

Note: EWIP = Total units to account for less units completed.

b. Equivalent units schedule:

Materials Materials Conversion Costs
Units completed 3,200 3,200 3,200
EWIP 400 400 200
Total 3,600 3,600 3,400

c. Note: Transferred-in cost = BI + Costs added =
Materials = BI + Costs added =
Conversion costs = BI + Costs added =

Unit cost 100,000 + 800,000 = 900,000 / 3,600 = $250
82,000 + 8,000 = 90,000/ 3,600 = $25
6,600+9,000+140,000+99,400=255,000/3,400= $75

Thus, the unit cost of a bolt of Fabric FB70 is $350.

5. Process costing would not be appropriate. Operation costing is the approach that should be used. Operation costing assigns material costs to batches using job-order procedures. Conversion costs are...

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