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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Decision making

Mystic Bottling Company bottles popular beverages in the Mottling Department. The beverages are produced by blending concentrate with water and sugar. The concentrate is purchased from a concentrate producer. The concentrate producer sets higher prices for the more popular concentrate flavors. A simplified Bottling Department cost of production report separating the cost of bottling the four flavors follows:

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Beginning and ending work in process inventories are negligible, so they are omitted from the cost of production report. The flavor changeover cost represents the cost of cleaning the bottling machines between production runs of different flavors.

Prepare a memo to the production manager, analyzing this comparative cost information. In your memo, provide recommendations for further action, along with supporting schedules showing the total cost per case and cost per case by cost element. Round all supporting calculations to the nearest cent.

To determine
The memo to the production manager, and analyzing the comparative cost information.

Explanation

From:

XYZ

TO:

Production manager

Company MB

Dated: December 13, 2017

Re: Analyzing the comparative cost information.

The cost of production report is used to classify the cost per case for each of the four flavors as follows:

Particulars Orange Cola Lemon -Lime Root Beer
Total cost (A) $19,125 $391,800 $324,000 $36,000
Number of cases (B) 2,500 60,000 50,000 4,000
Cost per case (A ÷ B) $7.65 $6.53 $6.48 $9.00

Table (1)

As can been, the cost per case of root beer is considerably above the cost per case of the other than three flavors. A detailed analysis is crucial to understand the causes of this difference. The different cost elements that determine the total cost can be separated by the number of cases. This analysis follows:

Particulars Cost per Case by Cost Element
Orange Cola Lemon -Lime Root Beer
Concentrate $1.85 $2.15 $2.10 $1.90
Water $0.50 $0.50 $0.50 $0.50
Sugar $1.20 $1.20 $1.20 $1.20
Bottles $2...

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