Tutorial Three solutions - TutorialThreeSolutions 9.2...

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Tutorial Three - Solutions9.2False. Department allocation is a two-stage process, so the first-stage assignment ofcosts and the choice of cost drivers affects the allocation of costs to products. The total product costs are the same under either approach, but the individual product costs differ. This can affect the decisions managers make regarding individual products.9.6False. While the total cost allocated is the same, the reported costs for individual products will differ. Because managers make decisions at the product level, it is important that the reported costs reflect, to the extent possible, the use of resources by the products.9.22Plantwide versus Department Allocation: Munoz Sporting Equipment.BaseballBatsTennisracketsa.Sales revenue.....................................................$2,700,000$1,800,000Direct Labor.........................................................500,000250,000Direct Materials...................................................1,100,000550,000Overhead.............................................................1,000,000a500,000bProfit....................................................................$100,000$500,000$1,000,000 = $500,000 direct labor x 200%.$500,000 = $250,000 direct labor x 200%.b.Maria was wrong; Baseball bats were more profitable.BaseballBatsTennisracketsSales revenue.....................................................$2,700,000$1,800,000Direct Labor.........................................................500,000250,000Direct Materials...................................................1,100,000550,000Overhead.............................................................750,000a750,000bProfit....................................................................$350,000$250,000$750,000 = $500,000 direct labor x 150%.$750,000 = $250,000 direct labor x 300%.
c.The plant-wide allocation method allocates overhead at 200% of direct labor for both types of equipment. While this is the simplest method, it is usually not very accurate. It assumes that overhead in both departments has the same rate. When overhead costs are broken down into department cost pools, we see that Department B is allocated a smaller share of the overhead. Each department should try to assess what causes its overhead, and use that as its allocation base.9.23Plantwide versus Department Allocation: Main Street Ice Cream Company.StrawberryVanillaChocolatea.Direct Labor (per 1,000 gallons)..........................$750$825$1,125Raw Materials (per 1,000 gallons)......................800500600Overhead.............................................................    150a    165b    225cTotal cost (per 1,000 gallons)..............................$1,700$1,490$1,950a

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