Cost Accounting

COST ACCOUNTING 1

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Institution Affiliation

Pebble Beach

a) The maximizing profit is $250

Transfer

Own Variable

Own Fixed

Price

Quantity

Revenue

Cost

Cost

Cost

Profit

$260

$7200

$187200

$936000

$144000

$700000

$92000

255

7600

1938000

988000

152000

7000000

98000

250

8000

2000000

1040000

160000

7000000

100000

245

8400

2058000

1092000

168000

7000000

98000

240

8800

2112000

1144000

176000

7000000

92000

235

9200

2162000

1196000

184000

7000000

82000

b)

$678,6000/14200

=$48 (manufacturing overhead)

Transfer cost

38 + 44 + 9 + 48= $139

c)

The purchase of the sandals will reduce from8000 to 7600 pairs

Transfer

Own Variable

Own Fixed

Price

Quantity

Revenue

Cost

Cost

Cost

Profit

$260

$7200

$187200

$1000800

$144000

$700000

$27200

255

7600

1938000

1056400

152000

7000000

29600

250

8000

2000000

1112000

160000

7000000

28000

245

8400

2058000

1167600

168000

7000000

22400

240

8800

2112000

1223200

176000

7000000

12400

235

9200

2162000

1278800

184000

7000000

-800

4)

The purchase of 7600 pairs does not lead tomaximization of shareholder value. The problem in this case willinvolve the inclusion of manufacturing cost in the transfer price.The sandals should be transferred at a variable cost of $91 ratherthan $139. The charging of full costs reduces firm-profit maximizingnumber of sandals.

5)

The adoption of variable cost pricing. However, it might influencecosts and gaming over the cost and variable costs. Normal cost canalso be used. The manufacturing overhead allocation can be fixed on anormal volume. This would lead to the purchase of 18,000 pairsthereby reducing the fixed overhead per pair.

Hurst Mats

a) Total no of products for 14000 batches = 14000*10 =140000matsMachine minutes per batch of 10 mats = 12 minMachineminutes for 14000 batches = 12/10×14000 = 16800Fixed overhead =$680,000Variable overhead = $1.5/ machine minute = 1.5×16800 =25200Total overhead = 680000+25200 = 705200Overhead rates= 705200/16800 = 41.976 answerOverhead rates for 1 Deluxe matsusing machine minutes as the allocation baseTotal no ofproducts for 9000 batches = 9000×10 = 90000matsDirect labor perbatch of 10 mats = 4Direct labor costs for 90000 mats =4/10*90000 = 36000Fixed overhead = $680,000variableoverhead = $1.5/ direct labor costs = 1.5*36000 = 54000Totaloverhead = 680000+54000 = 734000Overhead rates =734000/36000 = 20.38 answerb) Product costs for abatch of PlushDirect labor per batch of 10 mats $4Directmaterial per batch of mats $7Overhead = 503.71Total costs= 514.712Product costs for a batch of deluxeDirect laborper batch of 10 mats $6Direct material per batch of mats$5Overhead = 122.28Total costs = 133.28 answerc)The use of machine time as allocation base is deemed as acceptablefor both the mats since expensive lubricants and filters are requiredto operate the machines. This in turn requires large amounts ofelectricity and natural gas. Plush and Deluxe do not put differentialdemands on the equipment other than through the amount of machinetime required to produce each batch of mats. The only differencebetween is the time taken to complete the product on the machine. Theuse of direct labor costs may not be appropriate since the allocationof overhead will be complex due to the fact that both productsutilize the same amount of labor.

References

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Kinney, M. R., &amp Raiborn, C. A. (2013).&nbspCost accounting:Foundations and evolutions.

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Great Britain., &amp Great Britain. (2011).&nbspSpendingreduction in the Foreign and Commonwealth Office: Forty-eighth reportof session 2010-12 : report, together with formal minutes, oral andwritten evidence. London: Stationery Office.

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