Cost Accounting – Acct 3334 Chapter 9 Solutions

Chapter 9 solutions (P9-28, -29, -40) 9-28 (10 min. ) CDenominator-level problem 1. Budgeted heady manufacturing overhead be rates Budgeted mulish Budgeted Fixed Denominator Manufacturing Budgeted Manufacturing Level Capacity command processing overhead time per Capacity Overhead approachConceptPeriodLevelRate Theoretical$4, 560, 0003, 600 $ 1, 266. 67Practical4,560,0002,4001,900. 00 Normal4,560,0001,2003,800. 00 Master-budget4,560,0001,4403,166. 67 The rates atomic number 18 different beca call of varying denominator-level concepts. Theoretical and practical capacity levels atomic number 18 driven by supply-side concepts, i. e. , how much slew produce? Normal and master-budget capacity levels be driven by demand-side concepts, i. e. , how much bath we sell? (or how much should we produce? ) 2. In order to incorporate glacial manufacturing monetary value into unit product salute, doctor manufacturing costs have to be unitized for inventory be.Absorption cost is the m ethod purposed for tax coverage and for financial reporting using in the main accepted accounting principles. The choice of a denominator level becomes relevant under assiduity costing beca mathematical function rooted(p) costs are accounted for along with protean costs at the individual product level. Variable and throughput costing account for fixed costs as a lump sum, expensed in the purpose incurred. 3. The variances that arise from use of the theoretical or practical level concepts go out head that there is a divergence among the supply of capacity and the demand for capacity.This is usable input to managers. As a oecumenical rule, however, it is important not to place extravagant reliance on the production passel variance as a broadsheet of the economic costs of unused capacity. 4. infra a cost-based pricing system, the choice of a master-budget level denominator will behave to exalted prices when demand is low (more fixed costs allocated to the individual product level), further corroding demand conversely it will lead to low prices when demand is high, forgoing profits.This has been referred to as the d declarewardly demand spiralthe act reduction in demand that occurs when the prices of competitions are not met and demand drops, resulting in raze higher unit costs and purge more reluctance to meet the prices of competitors. The validating aspect of the master-budget denominator level is that it indicates the price at which all costs per unit would be recovered to enable the company to energize a profit. Master-budget denominator level is also a good benchmark against which to evaluate performance. -40(20 min. )Cost allocation, down(prenominal) demand spiral. 1. = = Budgeted denominator level=2,920,000 meals WHM is using budgeted consumption as its denominator level for calculating the budgeted fixed costs per meal in 2007. 2. substitute denominator levels include a. Capacity available. The data in the problem note that t he facility rat serve 3,650,000 meals a year. With this denominator level, there will be budgeted unused capacity, which could be enter as a separate draw off in the cost report for the Santa Monica facility. . Budgeted engagement of capacity. With the 2007 budgeted usage of 2,920,000 meals, the fixed costs charge is $1. 80 per meal. The marketplace is signalling that WHMs own central food-catering facility is not providing note value for the costs charged. If Cheung decides to raise prices to recover fixed costs from a declining demand base, he will liable(predicate) encounter the downward demand spiral Budgeted Denominator(1) Variable Cost per Meal(2) Fixed Cost per Meal$5,256,000 ? 1)(3) match Cost per Meal(4) 3,650,000 $4. 56 $1. 44 $6. 00 2,920,000 4. 56 1. 80 6. 36 2,550,000 4. 56 2. 06 6. 62 2,000,000 4. 56 2. 63 7. 19 Cheung skill adopt a contribution gross profit margin approach, which means viewing the $4. 56 variable cost as the only per-unit cost and the $5,256, 000 as a fixed cost. Alternatively, Cheung could use practical capacity to cost the meals and use to reduce costs of unused capacity. 3. triplet factors managers should consider in pricing decisions a. Customers.Cheung is face customers who are dissatisfied with both(prenominal) the cost and the quality of the meal service. Three of the 10 hospitals have already elected to use an outside canteen service. b. Competitors. For the trine hospitals terminating use of the Santa Monica facility, at least one competitor is more cost-effective. The seven remaining hospitals likely will be very implicated in how this competitor performs at the three hospitals. c. Costs. Jenkins should consider ways to reduce both the variable costs per meal and the fixed costs.