1. Allegiance, Inc. has $131,000 of inventory that suffered minor smoke damage f
ID: 2478742 • Letter: 1
Question
1.
Allegiance, Inc. has $131,000 of inventory that suffered minor smoke damage from a fire in the warehouse. The company can sell the goods "as is" for $41,000; alternatively, the goods can be cleaned and shipped to the firm's outlet center at a cost of $29,000. There the goods could be sold for $86,000. What alternative is more desirable and what is the relevant cost for that alternative?
a. Sell "as is," $131,000.
b. Clean and ship to outlet center, $29,000.
c. Clean and ship to outlet center, $115,000.
d. Clean and ship to outlet center, $160,000.
e. Neither alternative is desirable, as both produce a loss for the firm.
2.Lido manufactures A and B from a joint process (cost = $90,000). 6,000 pounds of A can be sold at split-off for $22 per pound or processed further at an additional cost of $28,000 and then sold for $27 per pound. If Lido decides to process A beyond the split-off point, operating income will:
a. increase by $42,000.
b. increase by $8,000.
c. increase by $2,000.
d. decrease by $8,000.
e. decrease by $42,000.
3. Laredo manufactures Nuts and Bolts from a joint process (cost = $85,000). 6,000 pounds of Nuts can be sold at split-off for $20 per pound; 17,000 pounds of Bolts can be sold at split-off for $15 per pound. For product costing purposes Laredo allocates joint costs using the relative sales value method.
The amount of joint cost allocated to Nuts would be:
a. $85,000.
b. $30,000.
c. $65,000.
d. $27,200.
e. $57,800.
Allegiance, Inc. has $131,000 of inventory that suffered minor smoke damage from a fire in the warehouse. The company can sell the goods "as is" for $41,000; alternatively, the goods can be cleaned and shipped to the firm's outlet center at a cost of $29,000. There the goods could be sold for $86,000. What alternative is more desirable and what is the relevant cost for that alternative?
Explanation / Answer
1.
Incremental cost of cleaning and shipping to outlet center = $29,000
Incremental revenue of cleaning and shipping to outlet center = $86,000 - $41,000 = $45,000
Net profit on cleaning and shipping to outlet center = $45,000 - $29,000 = $16,000
Hence it is better to clean and ship to outlet center. Relevant cost is the cost of cleaning and shipping to outlet center I.e. $29,000.
Hence, answer is b.
B.
Incremental cost of processing further = $28,000
Incremental revenue per unit = $27 - $22 = $5
Total incremental revenue = $5*6,000 units = $30,000
Net change in operating income = Incremental revenue - Incremental cost = $30,000 - $28,000 = $2,000
Hence, Answer is c.
C.
Sales value of Nuts = 6,000 pounds * $20 = $120,000
Sales value of bolts = 17,000 pounds * $15 = $255,000
Total sales value = $120,000 + $255,000 = $375,000
Weight of Nuts = $120,000/$375,000 = 0.32
Joint cost allocated to Nuts = $85,000*0.32 = $27,200
Hence, Answer is d.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.