Support Department and Joint Cost Allocation

All firms have support or service departments to support production activities. As addressed in earlier modules, those costs must be allocated to product costs. Sometimes a single manufacturing process produces an output that can then be further manufactured into several other products. The costs of the initial manufacturing process must be allocated to the subsequent products.

Module 06: Critical Thinking Assignment

CRITICAL THINKING ASSIGNMENT

Complete the following three questions using Microsoft Excel. No other submission format is allowed. Review the grading rubric to confirm you are meeting the assignment requirements.

Problem 1
Milwaukee Dairy Company produces cream, whole milk, and 2% milk. The joint cost of producing the three products is SAR 30,000. The split-off quantities and selling prices of each product are as follows:
	Split-off Quantity (Gallons)	Price at Split off (SAR)
Cream	500	20.00
Whole milk	4,500	12.00
2% milk	1,000	6.00

Required: Calculate how much of the joint costs should be allocated to each product using the market value at split off method.

Problem 2
The following information pertains to Delicious Bakery Company:
GIVEN:	Janitorial Dept.	Cafeteria Dept.	Mixing Dept.	Baking Dept.
Square feet	400	800	3000	2000
Number of employees	10	20	60	100
Department cost (SAR)	600,000	1,000,000	3,000,000	4,000,000

Required: Allocate Janitorial and Cafeteria department costs to mixing and baking departments using the Direct method. Use square feet for allocating janitorial costs and number of employees for allocating cafeteria department costs.

Problem 3
	Maintenance Hours	Maintenance Cost (SAR)
January	2,500	32,500
February	1,800	29,000
March	2,800	32,000
April	1,200	16,000
May	1,600	22,500
June	2,200	27,000

Required:

1. Calculate variable cost per unit using the high-low method.
2. Calculate fixed costs.
3. Calculate estimated costs at 2,700 maintenance hours.

Problem 4
Given the following:
	Total (SAR)
Sales (40,000 units)	4,800,000
Variable expenses	2,880,000
Contribution margin	1,920,000
Fixed expenses	1,200,000
Net operating income	720,000

Required:

1. Calculate variable expense ratio
2. Calculate contribution margin ratio
3. Calculate break even sales in Units
4. Calculate break even sales in SAR
5. How many units must be sold to make a profit of 300,000 SAR?

Management is considering increasing the quality of its units by spending SAR 5 more per unit in variable costs and increasing advertising by SAR 80,000. Management believes these changes will increase unit sales by 20% at the same price.

1. Calculate the new operating profit or loss.
2. Explain whether management should make the change and why or why not.

You must show all your work for credit