table 1 selected production and financial data product thickness coated uncoate cont 460402

Table 1

Selected production and financial data

Product Thickness Coated/Uncoated Slit Average Rolls per Batch Materials Cost per Roll Selling Price per Roll

A .013 Coated Yes 50 $4,800 $12,600

B .014 Uncoated No 2 $5,200 $13,500

C .015 Coated Yes 35 $5,600 $14,200

D .020 Coated No 1 $7,400 $19,500

Table 2

Overhead

Total Depreciation is $800,000 = Product Change **$8,000 Slitting $70,000 Net *$722,000

Total Labor is $300,000 = Product Change ** $3,000 Slitting $25,000 Net *$272,000

Total Energy is $500,000 = Product Change **$5,000 Slitting $80,000 Net * $415,000

Total Other is $198,470 = Product Change **$1,000 Slitting $20,000 Net * $177,470

Total Waste is $ 30,000 = Product Change **$30,000 Slitting -0- Net -0-

* Net is equal to total amount minus product change cost and minus slitting cost. This amount represents the general

overhead, ie. Overhead that is not specific to a particular product.

**Product change is required of all four products and the cost is to be divided equally among the four products.

Total product cost is equal to materials, overhead, product cost and where incurred slitting costs.

Requirements

1. Prepare a schedule proving that overhead is currently 105% of material costs.

2. Prepare a schedule showing cost per roll of each of the four products using the 105% overhead rate.

3. As Eastvaco’s cost accountant you believe the general overhead should be allocated separately. Prepare a

schedule showing what you believe the new overhead rate should be.

4. Using the new overhead rate from requirement 3, prepare a schedule calculating the revised cost per roll of

each product.

5. Assuming that the selling price for each product is relatively inelastic, write a short memo to Eastvaco’s CEO

with your conclusions and suggestions.

Target