Currently they are using a simple which has a single direct-cost category (direct materials, i.e. raw vegetables) regardless of their targeted customers (retail and wholesale) and a single indirect-cost pool (production support, including packaging materials). Kilograms of vegetable cuts processed are used as allocation base of the indirect costs. In order to produce 1,000,000 kg of vegetable cuts, the company uses 1,200,000 kg of raw vegetables to process. At the end of 2018, "Feast" bid for a large wholesale contract for a restaurant chain. While making the bid, they included only a minimum profit margin. Later on, their bid was reported to be 30% above the winning bid. As a result of its review process of the lost contract bid, "Feast" decided to explore ways to find a better approach for their costing system. After the analysis they concluded that 90% of the direct materials (raw vegetables) related to the retail market and 10% to the wholesale market. In addition, the company identified that packaging materials could be directly traced to individual jobs ($180,000 for retail and $8,000 for wholesale). In order to decide on the costing structure, the company used ABC to identify three main activities that generated support costs: cleaning, cutting, and packaging. Following information is provided about the activities by the company; Cleaning-The cost-allocation base is kilograms of raw vegetables cleaned. Cutting-The production line produces (a) 250 kg of retail vegetable cuts per cutting-hour and (b) 400 kg of wholesale vegetable cuts per cutting-hour. The cost- allocation base is cutting-hours on the production line. Packaging-The packaging line packages (a) 25 kg of retail vegetable cuts per packaging-hour and (b) 100 kg of wholesale vegetable cuts per packaging-hour. The cost-allocation base is packaging-hours on the production line.
Currently they are using a simple which has a single direct-cost category (direct materials, i.e. raw vegetables) regardless of their targeted customers (retail and wholesale) and a single indirect-cost pool (production support, including packaging materials). Kilograms of vegetable cuts processed are used as allocation base of the indirect costs. In order to produce 1,000,000 kg of vegetable cuts, the company uses 1,200,000 kg of raw vegetables to process. At the end of 2018, "Feast" bid for a large wholesale contract for a restaurant chain. While making the bid, they included only a minimum profit margin. Later on, their bid was reported to be 30% above the winning bid. As a result of its review process of the lost contract bid, "Feast" decided to explore ways to find a better approach for their costing system. After the analysis they concluded that 90% of the direct materials (raw vegetables) related to the retail market and 10% to the wholesale market. In addition, the company identified that packaging materials could be directly traced to individual jobs ($180,000 for retail and $8,000 for wholesale). In order to decide on the costing structure, the company used ABC to identify three main activities that generated support costs: cleaning, cutting, and packaging. Following information is provided about the activities by the company; Cleaning-The cost-allocation base is kilograms of raw vegetables cleaned. Cutting-The production line produces (a) 250 kg of retail vegetable cuts per cutting-hour and (b) 400 kg of wholesale vegetable cuts per cutting-hour. The cost- allocation base is cutting-hours on the production line. Packaging-The packaging line packages (a) 25 kg of retail vegetable cuts per packaging-hour and (b) 100 kg of wholesale vegetable cuts per packaging-hour. The cost-allocation base is packaging-hours on the production line.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter9: Standard Costing: A Functional-based Control Approach
Section: Chapter Questions
Problem 17E: Chypre, Inc., produces a cologne mist using a solvent mix (water and pure alcohol) and aromatic...
Related questions
Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Topic Video
Question
Transcribed Image Text:Currently they are using a simple which has a single direct-cost category (direct materials,
i.e. raw vegetables) regardless of their targeted customers (retail and wholesale) and a
single indirect-cost pool (production support, including packaging materials). Kilograms of
vegetable cuts processed are used as allocation base of the indirect costs. In order to
produce 1,000,000 kg of vegetable cuts, the company uses 1,200,000 kg of raw vegetables
to process.
At the end of 2018, "Feast" bid for a large wholesale contract for a restaurant chain. While
making the bid, they included only a minimum profit margin. Later on, their bid was
reported to be 30% above the winning bid.
As a result of its review process of the lost contract bid, "Feast" decided to explore ways
to find a better approach for their costing system. After the analysis they concluded that
90% of the direct materials (raw vegetables) related to the retail market and 10% to the
wholesale market. In addition, the company identified that packaging materials could be
directly traced to individual jobs ($180,000 for retail and $8,000 for wholesale).
In order to decide on the costing structure, the company used ABC to identify three main
activities that generated support costs: cleaning, cutting, and packaging.
Following information is provided about the activities by the company;
Cleaning-The cost-allocation base is kilograms of raw vegetables cleaned.
Cutting-The production line produces (a) 250 kg of retail vegetable cuts per
cutting-hour and (b) 400 kg of wholesale vegetable cuts per cutting-hour. The cost-
allocation base is cutting-hours on the production line.
Packaging-The packaging line packages (a) 25 kg of retail vegetable cuts per
packaging-hour and (b) 100 kg of wholesale vegetable cuts per packaging-hour. The
cost-allocation base is packaging-hours on the production line.
Transcribed Image Text:After the cost analysis
Retail
Before the Production
Institutional
Total
cost
Support
analysis
Direct
materials
$150,000
$135,000
$15,000
$150,000
Vegetable
Packaging
180,000
8,000
188,000
Production
983,000
Support
Cleaning
Cutting
Packaging
$120,000
231,000
120,000
231,000
444,000
444,000
Total
$1,133,000
$795,000
$315,000
$23,000 $1,133,000
1. What is the cost per kg of vegetable cuts under the simple costing system?
2. Calculate the cost rate per unit of the cost driver for (a) cleaning, (b) cutting, and (c)
packaging.
3. Suppose that information from activity cost rates are used to calculate costs incurred
on retail vegetable cuts and wholesale vegetable cuts. Using the ABC system, what is
the cost per kg of (i) retail vegetable cuts and (ii) wholesale vegetable cuts?
4. What are the cost differences between the two costing systems? Explain how might
"Feast" use the information in requirement 3 to make better decisions?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 7 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Principles of Cost Accounting
Accounting
ISBN:
9781305087408
Author:
Edward J. Vanderbeck, Maria R. Mitchell
Publisher:
Cengage Learning
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College