Margin of safety = (sales-sales at break even) / sales Contribution Margin = Fixed Costs + Net
Income
Burn-on Inc. processes crude oil to jointly produce gasoline,
Difference in Total Cost = Higher Total Cost – Lowest Total Cost
diesel, and kerosene. One batch produces 3,415 gallons of
Variable Cost per Machine hour = Difference in Tot Cost / Difference in Machine Hoursgasoline, 2,732 gallons of diesel, and 1,366 gallons of
kerosene at a joint cost of $15,800. After the split-off point, all
Change in operating income = change in sales unit x
products are processed further, but the estimated market price
unit contribution margin (selling price-variable cost)
for each product at the split-off point is as follows:
Operating Leverage = contribution Margin & operating Income
Using the market value at split-off method, allocate the
$15,800 joint cost of production to each product.
= (($300,000 – ($300,000 x 75%))/ $49,400 = 1.5
Gas - $2/gal Diesel - $1/gal Kerosene - $3/gal
Manufacturing Margin = Sales – Variable COGS
Contribution Margin = Manufacturing Margin – Variable Selling and Admin Expenses
Selling price
Job
Quality (per
Sales Value Allocation
Cost to be
CM Ratio = Contribution Margin / Sales
( per gallon)
Products
gallon)
(i)
(i)
x(ii)
rate
allocated
Operating income = Contribution Margin – Fixed costs
(ii)
Breakeven Sales = Fixed cost / CMR
6,830/13,660 $15,800 x
Breakeven Units = Fixed cost / CM units
Gasoline
3,415
2
6830
= 50%
50% = 7900
Sales target profit = Fixed cost + target profit / CMR
Sales target units = Fixed cost + target profit / CM unit
2,732/13,660 $15,800 x
Diesel
2,732
1
2732
= 20%
20% = 3160
operational leverage = Contribution margin / Net income
% to allocate = assets $ / size
Kerosene
For the current period, Pencil started 15,000 units and completed
10,000 units, leaving 5,000 units in process 30% complete. How
many equivalent units did Pencil have for the period?
10,000 + 5,000 (.30)= 11,500
Assume that Pencil incurred $27,600 in production costs. What was
PencilCo’s cost per unit the period.
27,600 ÷11,500= 2.40 per equivalent unit
A support department provides a necessary service to produce a
product, but is not directly involved in the production process.
The direct method allocates all support department
costs directly to production departments.
1,366
3
$15,800 x
4098 4,098/13,660
30% = 4740
= 30%
$13660
$15,800
Gordon’s Smoothie Stand makes three types of smoothies: blueberry lemon,
orange swirl, and triple berry. Before all flavors are added, the smoothies go
through a joint mixing process that costs a total of $43 per batch. One batch
produces 21.75 cups of blueberry lemon smoothies, 29 cups of orange swirl
smoothies, and 36.25 cups of triple berry smoothies. In addition, Gordon has
studiously noted that the mixing process necessary for triple berry and blueberry
lemon smoothies takes twice as long as it does for orange swirl smoothies.
Allocate the joint costs of production to each product using the weighted average
method
The sequential method (also known as the step-down method)
considers some inter-support-department services: First, costs are
allocated from one support department to the other support departments
and to the production departments, Then, a second support department
is selected and its costs are allocated to the remaining support
departments (but not to the first service department) and to the
production departments, This process continues until all support
department costs have been allocated to the production departments.
reciprocal services method considers all inter-support-department
services, and thus is the most accurate of the three support department
allocation methods. However, the reciprocal method is the most
difficult to implement, especially when a large number of departments
is involved.
Net realizable value = (# cups/batch x estim sell price) – further cost/batch
Total NRV = (NRV x sum of NRV) x 100
Allocated Cost = Total Joint Cost (given) x NRV%
Ch 19
Lily’s Lemonade Stand makes three types of lemonade: pure, raspberry, and strawberry. The lemonade is
produced through a joint mixing process that costs a total of $30 per batch. One batch produces 32 cups of pure
lemonade, 21 cups of strawberry lemonade, and 21 cups of raspberry lemonade. After the split-off point, all
three lemonades can be sold for $0.80 per cup, but strawberry and raspberry lemonade can be processed further
by adding artificial coloring and flavoring and sold for $0.95 and $1.00 per cup, respectively. It is estimated that
these additional processing costs are $0.75 and $1.80 per batch for strawberry and raspberry lemonade,
respectively. Allocate the joint costs of production to each product using the net realizable value method