Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
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Textbook Question
Chapter 2, Problem 36E
Cost Allocation—Ethical Issues
Star Buck, a coffee shop manager, has two major product lines—drinks and pastries. If Star allocates common costs on any objective basis discussed in this chapter, the drinks are profitable, but the pastries are not. Star is concerned that her boss will pull the plug on pastries. Star’s brother, who is struggling to make a go of his new business, supplies pastries to the coffee shop. Star decides to allocate all common costs to the drinks because, “Drinks can afford to absorb these costs until we get the pastries line on its feet.” After assigning all common costs to drinks, both the drinks and pastries product lines appear to be marginally profitable. Consequently, Star’s manager decides to continue the pastries line.
Required
- a. How would you recommend Star allocate the common costs between drinks and pastries?
- b. You are the assistant manager and have been working with Star on the allocation problem. What should you do?
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A local coffee shop has two major product lines—drinks and pastries. If the manager allocates common costs on any objective basis discussed in this chapter, the drinks are profitable, but the pastries are not. The manager is concerned that the supervisor at corporate headquarters will drop the pastries. The manager is concerned because a relative, who is struggling to make a go of a new business, supplies pastries to the coffee shop. The manager, therefore, decides to allocate all common costs to the drinks because “Drinks can afford to absorb these costs until we get the pastries line on its feet.” After assigning all common costs to drinks, both the drinks and pastries product lines appear to be marginally profitable. Consequently, corporate headquarters decides to continue the pastries line.
Required
How would you recommend the manager allocate the common costs between drinks and pastries?
You are the assistant manager and have been working with the manager on the allocation…
A local coffee shop has two major product lines—drinks and pastries. If the manager allocates common costs on any objective basis discussed in this chapter, the drinks are profitable, but the pastries are not. The manager is concerned that the supervisor at corporate headquarters will drop the pastries. The manager is concerned because a relative, who is struggling to make a go of a new business, supplies pastries to the coffee shop. The manager, therefore, decides to allocate all common costs to the drinks because “Drinks can afford to absorb these costs until we get the pastries line on its feet.” After assigning all common costs to drinks, both the drinks and pastries product lines appear to be marginally profitable. Consequently, corporate headquarters decides to continue the pastries line.
What can we do to boost pastry sales?
Joint Cost Allocation: Managerial Incentives Cameron Manufacturing produces auto parts forauto manufacturers and parts wholesalers. The business is very competitive, and productivity measuresare used throughout its eight manufacturing plants. Jill Owens, the manufacturing vice president,explains to her plant managers the importance of reducing cycle time, improving throughput, andreducing waste. One type of waste she keeps close track of is waste due to accidents and injuries onthe job. Jill believes that a safe workplace also contributes to productivity. A reduction in accidents andinjuries can also lead to a reduction in the insurance the firm pays to cover its liability in these incidents.The premium for this insurance coverage is a single policy and is a joint cost shared by all eight plants.One of the plant managers, Mike Griffin, notes that the current procedure for allocating the cost of insurance, which is based on total plant output, does not provide plant managers with the…
Chapter 2 Solutions
Fundamentals Of Cost Accounting (6th Edition)
Ch. 2 - What is the difference in meaning between the...Ch. 2 - What is the difference between product costs and...Ch. 2 - What is the difference between outlay cost and...Ch. 2 - Prob. 4RQCh. 2 - Is cost-of-goods sold an expense?Ch. 2 - Is cost-of-goods a product cost or a period cost?Ch. 2 - What are the similarities between the Direct...Ch. 2 - What are the three categories of product cost in a...Ch. 2 - Prob. 9RQCh. 2 - Prob. 10RQ
Ch. 2 - What do the terms step costs and semivariable...Ch. 2 - What do the terms variable costs and fixed costs...Ch. 2 - How does a value income statement differ from a...Ch. 2 - Why is a value income statement useful to...Ch. 2 - Materials and labor are always direct costs, and...Ch. 2 - Prob. 16CADQCh. 2 - In evaluating product profitability, we can ignore...Ch. 2 - Prob. 18CADQCh. 2 - The friend in question 2-18 decides that she does...Ch. 2 - Consider a digital music service such as those...Ch. 2 - Consider a ride-sharing service such as Uber or...Ch. 2 - Pick a unit of a hospital (for example, intensive...Ch. 2 - The dean of Midstate University Business School is...Ch. 2 - Prob. 24CADQCh. 2 - Prob. 25CADQCh. 2 - Basic Concepts For each of the following...Ch. 2 - Basic Concepts For each of the following costs...Ch. 2 - Basic Concepts For each of the following costs...Ch. 2 - Basic Concepts Place the number of the appropriate...Ch. 2 - Basic Concepts Intercontinental, Inc., provides...Ch. 2 - Prob. 31ECh. 2 - For each of the following costs incurred in a...Ch. 2 - Basic Concepts For each of the following costs...Ch. 2 - Basic Concepts The following data apply to the...Ch. 2 - Cost AllocationEthical Issues In one of its...Ch. 2 - Cost AllocationEthical Issues Star Buck, a coffee...Ch. 2 - Prepare Statements for a Manufacturing Company The...Ch. 2 - Prepare Statements for a Service Company Chucks...Ch. 2 - Prepare Statements for a Service Company Where2...Ch. 2 - Prepare Statements for a Service Company The...Ch. 2 - Prepare Statements for a Service Company Lead!...Ch. 2 - Prepare Statements for a Manufacturing Company The...Ch. 2 - Basic Concepts The following data refer to one...Ch. 2 - Basic Concepts The following data refers to one...Ch. 2 - Prepare Statements for a Merchandising Company The...Ch. 2 - Prepare Statements for a Merchandising Company...Ch. 2 - Cost Behavior and Forecasting Dayton, Inc....Ch. 2 - Sophia’s Restaurant served 5,000 meals last...Ch. 2 - Prob. 49ECh. 2 - Components of Full Costs Madrid Corporation has...Ch. 2 - Prob. 51ECh. 2 - Components of Full Costs Larcker Manufacturings...Ch. 2 - Prob. 53ECh. 2 - Gross Margin and Contribution Margin Income...Ch. 2 - Gross Margin and Contribution Margin Income...Ch. 2 - Value Income Statement Ralphs Restaurant has the...Ch. 2 - Value Income Statement DeLuxe Limo Service has the...Ch. 2 - Cost Concepts The following information comes from...Ch. 2 - Cost Concepts The controller at Lawrence...Ch. 2 - Cost Concepts Columbia Products produced and sold...Ch. 2 - Prepare Statements for a Manufacturing Company...Ch. 2 - Prepare Statements for a Manufacturing Company...Ch. 2 - Prepare Statements for a Manufacturing Company The...Ch. 2 - Cost Allocation with Cost Flow Diagram Coastal...Ch. 2 - Cost Allocation with Cost Flow Diagram Wayne...Ch. 2 - Cost Allocation with Cost Flow Diagram The library...Ch. 2 - Greenfield Consultants conducts analyses of public...Ch. 2 - Consider the Business Application, “Indirect Costs...Ch. 2 - Find the Unknown Information After a computer...Ch. 2 - Find the Unknown Information Just before class...Ch. 2 - Cost Allocation and Regulated Prices The City of...Ch. 2 - Koufax Materials Corporation produces plastic...Ch. 2 - Reconstruct Financial Statements San Ysidro...Ch. 2 - Westlake, Inc., produces metal fittings for the...Ch. 2 - Finding Unknowns Marys Mugs produces and sells...Ch. 2 - Finding Unknowns BST Partners has developed a new...
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