Barnmill Ltd. produces three products from a single common process. Last month the inputs into the...

  

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Barnmill Ltd. produces three products from a single common process. Last month the inputs into the common process were: Direct materials 1,000 kg @ €55 per kg Direct labour 1,000 hours @ €15 per hour Production overheads €68,600 900 units of output emerged from the common process as follows: Product XR4: 50% Product YD8: 40% Product ZT5: 10% Each of the products required further processing before they can be sold. Information on further processing costs together with selling prices for each product is outlined below: Further processing materials (per unit) Further processing labour (per unit) Selling price (per unit) Product XR4 €200 €80 €800 Product YD8 €400 €100 €1,000 Product ZT5 €440 €120 €1,200 Currently the organisation apportions joint costs to products on the basis of physical output (physical measures method). a) The Managing Director has recently been advised that apportioning joint costs using the physical measures method is not always appropriate. Briefly discuss this viewpoint and prepare calculations to determine the profit or loss earned from each product using two alternatives methods to apportion joint costs. Assess whether each of these two alternative methods represents an improvement on the firm's current system. (28 marks) b) Another division of the firm has just completed the implementation of Activity Based Costing (ABC), previous to this the division used a Traditional Costing System (assigned overheads on the basis of labour hours). To facilitate the smooth transition to the new system, cost information for the division's three products for last month was determined both under the previous costing system and the new ABC system as summarised in the table below. On receipt of this information the Managing Director expressed some concerns: firstly he questioned why the overall profitability was the same under both systems and secondly he queried how ABC can actually be of benefit to the firm. Unit cost calculated under traditional costing basis Profitability of products under traditional costing basis Unit cost calculated under ABC basis Profitability of products under ABC basis Product Alpha €45 Product Beta €32 €50 €45,000 €60,000 €56 €82,000 €53,000 Product Delta €60 €22,000 €127,000 €70 Total (€8,000) loss €127,000 Write a report to the Managing Director explaining the difference between the two costing approaches and addressing the concerns that he raised. (14 marks) c) Discuss how probability information enables the management accountant to support managerial decision-making under conditions of uncertainty. Barnmill Ltd. produces three products from a single common process. Last month the inputs into the common process were: Direct materials 1,000 kg @ €55 per kg Direct labour 1,000 hours @ €15 per hour Production overheads €68,600 900 units of output emerged from the common process as follows: Product XR4: 50% Product YD8: 40% Product ZT5: 10% Each of the products required further processing before they can be sold. Information on further processing costs together with selling prices for each product is outlined below: Further processing materials (per unit) Further processing labour (per unit) Selling price (per unit) Product XR4 €200 €80 €800 Product YD8 €400 €100 €1,000 Product ZT5 €440 €120 €1,200 Currently the organisation apportions joint costs to products on the basis of physical output (physical measures method). a) The Managing Director has recently been advised that apportioning joint costs using the physical measures method is not always appropriate. Briefly discuss this viewpoint and prepare calculations to determine the profit or loss earned from each product using two alternatives methods to apportion joint costs. Assess whether each of these two alternative methods represents an improvement on the firm's current system. (28 marks) b) Another division of the firm has just completed the implementation of Activity Based Costing (ABC), previous to this the division used a Traditional Costing System (assigned overheads on the basis of labour hours). To facilitate the smooth transition to the new system, cost information for the division's three products for last month was determined both under the previous costing system and the new ABC system as summarised in the table below. On receipt of this information the Managing Director expressed some concerns: firstly he questioned why the overall profitability was the same under both systems and secondly he queried how ABC can actually be of benefit to the firm. Unit cost calculated under traditional costing basis Profitability of products under traditional costing basis Unit cost calculated under ABC basis Profitability of products under ABC basis Product Alpha €45 Product Beta €32 €50 €45,000 €60,000 €56 €82,000 €53,000 Product Delta €60 €22,000 €127,000 €70 Total (€8,000) loss €127,000 Write a report to the Managing Director explaining the difference between the two costing approaches and addressing the concerns that he raised. (14 marks) c) Discuss how probability information enables the management accountant to support managerial decision-making under conditions of uncertainty.

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Question Question a on Joint cost apportionment 1 Joint costs amount to 138600 as under 2 An ideal method to apportion joint costs should not only be ... View the full answer