Night Light Division Paper

Question 1

a) Total Cost :- = 240,000 + $10 * (20,000) = 240,000 + 200,000 = 440,000

Single rate :- = 440,000 / 20,000 = $22 per hour

In turn, single-rate budgeted amounts should be :-

For Night Light Division :- = (9,600 * $22) / 12 = $17,600 per month

For Flashlight Division :- = (5,400 * $22) / 12 = $9,900 per month

b) Since single rate = $22 per hour In turn, single-rate allocated amounts should be :-

For Night Light Division :- = 700 * $22 = $15,400 for the month of Juner

For Flashlight Division :- = 400 * $22 = $8,800 for the month of June

c) Fixed rate :- = 240,000 / 20,000 = $12 per hour Variable rate = $10

In turn, dual-rate budgeted amount should be :-
For Night Light Division :- = 12 * 9,600 + 10 * 5,400 = 115,200 + 54,000 = 169,200 In addition, 169,200 / 12 = $14,100 per month

For Flashlight Division :- = 12 * (700*12) + 10 * (400*12) = 100,800 + 48,000 = 148,800 In addition, 148,800 / 12 = $12,400 per month

d) Since Fixed rate = $22 per hour And Variable rate = $10

In turn, dual-rate allocated costs should be :-

For Night Light Division :- = $12 * 800 + $10 * 700 = 9,600 + 7,000 = $16,600 for the month of June

For Flashlight Division :- = $12 * 450 + $10 * 400 = 5,400 + 4,000 = $9,400 per year

e) Since the single-rate cost allocation method just allocates each cost to the cost object by using same rate of single unit. As a result, it does not making any difference between fixed cost & variable cost. However, the dual-rate allocation method is using different cost allocation base(actual & budgeted) to calculate the costing. So that it is considered a practical way for financial controller of the company.

Question 2

a)
|Product |Board feet |Splitoff Point(per |Sales Value |Percent |Allocated |
| | |board feet) | | | |
|2 X 4’s |6,000,000 |$0.3 |6,000,000 * 0.3 = 1,800,000|1,800,000 / 4,000,000 |280,000 * 45% |
| | | | |= 45% |=126,000 |
|2 X 6’s |3,000,000 |$0.4 |3,000,000 * 0.4 = 1,200,000|1,200,000 / 4,000,000 |280,000 * 30% |
| | | | |= 30% |= 84,000 |
|4 X 4’s |2,000,000 |$0.45 |2,000,000 * 0.45 = 900,000 |900,000 / 4,000,000 |280,000 * 22.5% |
| | | | |= 22.5% |= 63,000 |
|Slabs |1,000,000 |$0.1 |1,000,000 * 0.1 = 100,000 |100,000 / 4,000,000 |280,000 * 2.5% |
| | | | |= 2.5% |= 7,000 |
|Total | | |$4,000,000 |100% |$280,000 |

In turn the value of ending inventory should be :-

For product 2 X 4’s :- = (500,000 / 6,000,000) * 126,000 = $10,500

For product 2 X 6’s :- = (250,000 / 3,000,000) * 84,000 = $7,000

For product 4 X 4’s :- = (100,000 / 2,000,000) * 63,000 = $3,150

For Slabs :- = (50,000 / 1,000,000) * 7,000 = $350

b) It is considered the extraction process of ore spending more money than silver. In turn, the finished product will be needed a high costing. Regarding to this problem, Silver Company shall use a joint-costing based accounting method. It is because each finished products can share the cost of extraction. As a result, the financial controller can be easily for calculation of the actual cost of production.

In purchasing area, Silver Company can be employed more professor in mining activities for reducing the costs. Also, they can buy silver from other firms.

Question 3
a) Silver Spoon Cost of Production Report
| |Physical Units |Direct Materials |Conversion Costs |
|Units to account for :- | | | |
|Beginning WIP |37,500 | | |
|Units Started |55,000 | | |
|Total units accounted for |92,500 | | |
| | | | |
|Units accounted for as follows| | | |
|: | | | |
|Units completed |75,000 |100% |100%
|
|Spoilage |3,000 |100% |100% |
|Ending WIP |14,500 |100% |60% |
|Total units accounted for |92,500 | | |

| |Total Costs |Direct Materials |Conversion Costs |
|Costs to account for :- | | | |
|Beginning WIP |$35,000 |$25,000 |$10,000 |
|Costs added in current period | | | |
|: | | | |
|Direct materials added during | |$113,750 |168,778 – 113750 = $55,028 |
|month | | | |
|Direct manufacturing labour | | |$40,020 |
|during month | | | |
|Factory Overhead | | |40,020 * 37.5% |
| | | |= $15008 |
|Total = DM + DL + FO |$168,778 | | |
|(1) Costs accounted for |$203,778 |$138,750 |$65,028 |
| | | | |
|Equivalent units of production| | | |
|: | | | |
|Units completed | |75,000 |75,000 |
|Spoilage | |3,000 |3,000 |
|Ending WIP | |14,500 |8,700 |
|(2) Total Equivalent units | |92,500 |86,700 |
|Cost per equivalent units (1) |$2.25 |$1.5 |$0.75 |
|/ (2) | | | |

| |Total Costs | | |
|Costs accounted for as follows| | | |
|: | | | |
|Costs transferred out : | | | |
|Good production |168,750 |(75,000 * 2.25 ) | |
|Spoilage |6,750 |3,000 * 1.5 = 4,500 |3,000 * 0.75 = 2,250 |
|Total Costs transferred out |$175,500 | | |
|Ending WIP |28,275 |14,500 * 1.5 = 21,750 |8700 * 0.75 = 6,525 |
|Total costs accounted for |$203,775 | | |

b) Since Busy Hands Craft Company never before had finished goods that did not meet standard, leftover materials from processing runs or unacceptable outputs, therefore, the accounting system must be capable for determining the amount of those areas. They should provide a reasonable & consistent policy for handling those areas.

For example, for leftover materials, they maybe reusable or had a lower value. Therefore, such materials could be reused in another job processing run, or either sold to other companies. For unacceptable outputs, it could be reworked or repaired. Then it sold as acceptable finished goods. At last, spoilage units could be sold as a lower value to the customers.

Question 4

Marginal costs is defined as the change in total cost resulting from a small change in output. Since fixed costs are constant, the increase in total costs is the change of total variable costs. The optimal output is where marginal costs equal marginal revenue. If a transfer price is set where in this situation, this will maximize the profit.

Cost based transfer pricing systems is used because the condition for setting ideal market prices frequently does not exist. The system is based on the cost(either budget or actual) of producing the product. Costs can be easily evaluated by the variable costs, manufacturing costs, or production plus other costs such as marketing, advertising, distribution & etc.