Question

Problem 1 Departmental Income Statement Goll wcompany has two departments, Department A and Department B. Certain accounts are as Dept. A Sales Cost of Goods Sold Dept. $150,000 75,000 25,500 $223,000 100,000 36,000 Number of direct workers assigned to Dept Square feet occupied by Dept. Value of asset used by Dept 12 6,000 $15,000 4,000 $5,000 Indirect expenses for the two products are as follows: Administration Utilities Insurance Amount $15,000 37,000 22,500 Allocation Method Number of direct workers Square feet occupied by Product Value of assets used by Dept Use the information to allocate each of the three indirect expenses to the two departments and prepare the Departmental Income Statement SHOW YOUR CALCULATIONS Problem 2 - Relevant Costing Decisions Mitchum Company manufactures 80,000 units of a part per year. Variable costs are $1.50 per unit, and fixed costs pertaining to the manufacture of the part of $62,000. In addition to the foregoing $62,000There are also allocated fixed costs of S50,000, which, on the other hand, are unavoidable. In the alternative, Mitchum Co. can opt not to manufacture the part, but purchase it for $3.75 per part. Prepare an analysis on whether Mitchum Company should manufacture the part or buy it.

Answer 1

Problem 1
Departmental Income statement
Particular		Dept A	Dept B	Total
Sales(A)		1,50,000	2,25,000	3,75,000
Cost of good sold		75,000	1,00,000	1,75,000
Operating expenses		25,500	36,000	61,500
Indirect Expenses				-
Administration		6,000	9,000	15,000
(on basis of no of direct workers)		(15000/20)*8	(15000/20)*12
Utilities		14,800	22,200	37,000
(On the basis of square feet occupied		(37000/10000)*4000	(37000/10000)*6000
Insurance		5,625	16,875	22,500
(On the basis of value of assets used)		(22500/20000)*5000	(22500/20000)*15000
Total cost(B)		1,26,925	1,84,075	3,11,000
Profit(A-B)		23,075	40,925	64,000

Problem 2
This is make or buy decision so compare the incremental cost to make with the incremental cost buy
Particular	Incremental costs per units($)
Variable cost	1.5
Allocated fixed cost	0.625
(50000/80000)				0.775
Fixed cost *	0.775			0.625
(62000/80000)
Total cost	2.9
Decision Cost of making 80000 units is $2.90, with cost to buy $3.75 there is a net loss $0.85 if company chooses to buy the products
* I have assumed if manufacturing not done fixed cost can be avoid