Quantitative Methods

In: Business and Management

Submitted By yoyo14
Words 1752
Pages 8
1 Comprehensive Problem: Part 2 chapters 5–10

1. a. Physical units method of allocation: Grades Board Feet Percent of Units Allocation* Firsts and seconds 1,500,000 .20 180,000. No. 1 common 3,000,000 .40 360,000 No. 2 common 1,875,000 .25 225,000 No. 3 common 1,125,000 .15 135,000 Totals 7,500,000 1.0 900,000

Unit cost: Firsts and seconds .12 (180,000/1,500,000) No. 1 common .12 (360,000/3,000,000) No. 2 common .12 (225,000/1,875,000) No. 3 common .12 (135,000/1,125,000)

b. Sales-value-at-split-off method: Note: Market value is calculated by dividing board feet produced by 1,000 and multiplying by the sales price (e.g., [(1,500,000/1,000) × $300] = $450,000). Next, the percentage of market value is multiplied by $900,000 for the allocation.

Market Value Percentage Grades (MV) of MV Allocation Firsts and seconds 450,000 .30 270,000 No. 1 common 675,000 .45 405,000 No. 2 common 262,500 17.5 157,500 No. 3 common 112,500 7.5 67,500 Totals 1,500,000 1.0 900,000

Unit cost: Firsts and seconds .18 (270,000/1,500,000) No. 1 common .18 (405,000/3,000,000) No. 2 common .18 (157,500/1,875,000) No. 3 common .18 (67,500/1,125,000)
Comp. Prob. 2 (Continued)

The physical units method, often used in the lumber industry, essentially assumes that it costs the same to produce each board foot of lumber regardless of grade. Thus, the same cost of lumber would be assigned to a sofa or chair regardless of which grade is used. This approach has some drawbacks. Intuitively, the higher grades should cost more. Certainly, if the company was buying this input from suppliers, there would…...

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