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From TO Support Facilities Assembly Pack/Ship

The document summarizes the production process and costs for Princess Corporation, a company that grows, processes, packages, and sells three apple products. It provides details on the costs incurred and output at each stage of production (cutting, slicing, crushing, juicing, and animal feed processing). It also lists the selling price and proportion of output for each final product. The document asks to: 1) Calculate output, net realizable values, cost allocation, and gross margins for each product using the net realizable value method. 2) Comment on how gross margin information can help management with planning and control compared to inventory valuation. 3) Identify important issues Princess faces as a global company and whether any affect its cost allocation method.

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58 views3 pages

From TO Support Facilities Assembly Pack/Ship

The document summarizes the production process and costs for Princess Corporation, a company that grows, processes, packages, and sells three apple products. It provides details on the costs incurred and output at each stage of production (cutting, slicing, crushing, juicing, and animal feed processing). It also lists the selling price and proportion of output for each final product. The document asks to: 1) Calculate output, net realizable values, cost allocation, and gross margins for each product using the net realizable value method. 2) Comment on how gross margin information can help management with planning and control compared to inventory valuation. 3) Identify important issues Princess faces as a global company and whether any affect its cost allocation method.

Uploaded by

Friday Mr
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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The Chapman Manufacturing Company has two service departments — manufacturing support and facilities

management, and two production departments — assembly and packing/shipping. The distribution of each
service department's efforts to the other departments is shown below:

FROM TO
  Support Facilities Assembly Pack/Ship
Support 0% 45% 25% 30%
Facilities 30% 0% 30% 40%
The direct operating costs of the departments (including both variable and fixed costs) were as follows:

Manufacturing Support $240,000


Facilities Management 450,000
Assembly 1,200,000
Pack/Ship 225,000

Required:

(Calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts
to the nearest whole dollar.):

(1) Allocate the service department costs to the production departments using the direct method.
(2) Allocate the service department costs to the production departments using the step method with the support
department going first.
(3) Allocate the service department costs to the production departments using the reciprocal method.  

Princess Corporation grows, processes, packages, and sells three apple products: slices that are used in frozen
pies, applesauce, and apple juice. The outside skin of the apple, which is removed in the cutting department and
processed as animal feed, is treated as a by-product. Princess uses the net realizable value method to assign costs
of the joint process to its main products. The apple skin by-product net realizable value is used to reduce the
joint production costs prior to allocation to the main products. Details of Princess' production process follow:

• The cutting department washes the apples and removes the outside skin. The department then cores and trims
the apples for slicing. At this point, each of the three main products and the by-product are recognizable. Each
product is then transferred to the next department for final processing.
• The slicing department receives the trimmed apples and slices and freezes them. Any juice generated during
the slicing operation is frozen with the slices.
• The crushing department trims pieces of apple and processes them into applesauce. The juice generated during
this operation is used in the applesauce.
• The juicing department pulverizes the core and any surplus apple from the cutting department into a liquid.
This department experiences a loss equal to 8 percent of the weight of the good output produced.
• The feed department chops the outside skin into animal food and packages it. A total of 270,000 pounds of
apples entered the cutting department during November. The following information shows the costs incurred in
each department, the proportion by weight (based on pounds) transferred to the four final processing
departments, and the selling price of each end product. Assume no beginning or ending inventory of apple
slices, applesauce, or juice.

Proportion of Product by
Weight Selling Price
Costs Transferred to Departments per Pound of
Department Incurred Final Product
Cutting $60,000 - -
Slicing 11,280 33% $0.80
Crushing 8,550 30% 0.55
Juicing 3,000 27% 0.40
Feed 700 10% 0.10
Total $83,530 100%  

Required:

1. Princess Corporation uses the net realizable value method to determine inventory values for its main products
and by-products. For the month of November, calculate each of the following:
a. Output in pounds for apple slices, applesauce, apple juice, and animal feed.
b. Net realizable value at the split-off point for each of the three main products.
c. Cutting department cost assigned to each of the three main products and to the by-product in accordance with
corporate policy.
d. Gross margin in dollars for each of the three main products.

2. Comment on the significance to management of the gross margin dollar information by main product for
planning and control purposes as opposed to inventory valuation.

3. List the important issues that Princess faces as a global company. What are its critical success factors? Which
key issues arise because Princess operates in several countries? Should any of these issues affect the way
Princess allocates costs, as determined in requirement 1?

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