Question

Part way through the production process it is discovered that the cost assignment was inaccurate for...

Part way through the production process it is discovered that the cost assignment was inaccurate for product A and that there has been an underestimation of $150 per unit. They are unable to change the pricing because of contractual obligations.

What is the impact of this error in cost assignment if sales were as predicted?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

An incorrect cost assignment on the lower side would mean that the actual cost of the product is higher than assigned cost. So, ultimately it would result in lower gross profit as the actual cost is higher.

In the given scenario, since the selling price cannot be increased due to contractual obligations, the company would earn $150 lesser in gross profit. In case, the gross margin is less than $150, the company would actually make a loss for Product A. In either of the scenarios, the bottom line would be hit hard by this inaccurate assignment.

Total decrease in Gross profit = Number of units sold x $150

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Part way through the production process it is discovered that the cost assignment was inaccurate for...
Part way through the production process it is discovered that the cost assignment was inaccurate for product A and that there has been an underestimation of $150 per unit. They are unable to change the pricing because of contractual obligations. What is the impact of this error in cost assignment if sales were as predicted?
Work in Process Account Data for Two Months; Cost of Production Reports Hearty Soup Co. uses...
Work in Process Account Data for Two Months; Cost of Production Reports Hearty Soup Co. uses a process cost system to record the costs of processing soup, which requires the cooking and filling processes. Materials are entered from the cooking process at the beginning of the filling process. The inventory of Work in Process—Filling on April 1 and debits to the account during April were as follows: Bal., 1,200 units, 70% completed: Direct materials (1,200 x $4.80) $ 5,760 Conversion...
Match the term with the correct definition or explanation.    Cost-Volume-Profit (CVP) analysis    Break-even analysis...
Match the term with the correct definition or explanation.    Cost-Volume-Profit (CVP) analysis    Break-even analysis Relevant range Fixed costs Variable costs    Contribution margin    Contribution margin ratio Margin of Safety Absorption costing Variable costing Budgeting    Sales budget Production budget    Direct materials budget Cash budget Fixed budget Flexible budget Standard costs Standard overhead costs a. This method excludes fixed overhead costs from total product costs. b. A budget that is prepared based on several different amounts of...
Hearty Soup Co. uses a process cost system to record the costs of processing soup, which...
Hearty Soup Co. uses a process cost system to record the costs of processing soup, which requires the cooking and filling processes. Materials are entered from the cooking process at the beginning of the filling process. The inventory of Work in Process-Filling on April 1 and debits to the account during April 2016 were as follows: Bal., 700 units, 30% completed: Direct materials (700 × $4.6) $3,220 Conversion (700 × 30% × $1.75) 368 $3,588 From Cooking Department, 7,400 units...
Williams Inc. produces a single product, a part used in the manufacture of automobile transmissions. Known...
Williams Inc. produces a single product, a part used in the manufacture of automobile transmissions. Known for its quality and performance, the part is sold to luxury auto manufacturers around the world. Because this is a quality product, Williams has some flexibility in pricing the part. The firm calculates the price using a variety of pricing methods and then chooses the final price based on that information and other strategic information. A summary of the key cost information follows. Williams...
FIFO Method, Physical Flow, Equivalent Units, Unit Costs, Cost Assignment Swasey Fabrication, Inc., manufactures frames for...
FIFO Method, Physical Flow, Equivalent Units, Unit Costs, Cost Assignment Swasey Fabrication, Inc., manufactures frames for bicycles. Each frame passes through three processes: Cutting, Welding, and Painting. In September, the Cutting Department of the Tulsa, Oklahoma, plant reported the following data: In Cutting, all direct materials are added at the beginning of the process. Beginning work in process consisted of 41,000 units, 20 percent complete with respect to direct labor and overhead. Costs in beginning inventory included direct materials, $1,215,000;...
Sampson Industries has an annual plant capacity of 67,000 ?units; current production is 50,000 units per...
Sampson Industries has an annual plant capacity of 67,000 ?units; current production is 50,000 units per year. At the current production? volume, the variable cost per unit is $29.00 and the fixed cost per unit is $4.00. The normal selling price of Sampson?'s product is $46.00 per unit. Sampson has been asked by Bramwall Company to fill a special order for 15,000 units of the product at a special sales price of $23.00 per unit. Bramwall is located in a...
iCover produces covers for all makes and models of iPad. iCover sells 1 000 000 units...
iCover produces covers for all makes and models of iPad. iCover sells 1 000 000 units each year at a price of $20 per unit and a contribution margin of 40%. A survey of iCover customers over the past 12 months indicates that customers were very satisfied with the products but a disturbing number of customers were disappointed because the products they purchased did not fit their iPads properly. They then had to hassle with returns and replacements. iCover’s managers...
For years, Tamarindo Company produced only one product: backpacks. Recently, Tamarindo added a line of duffel...
For years, Tamarindo Company produced only one product: backpacks. Recently, Tamarindo added a line of duffel bags. With this addition, the company began assigning overhead costs by using departmental rates. (Prior to this, the company used a predetermined plantwide rate based on units produced.) Surprisingly, after the addition of the duffel-bag line and the switch to departmental rates, the costs to produce the backpacks increased, and their profitability dropped. Josie, the marketing manager, and Steve, the production manager, both complained...
Activity-Based Determining the cost of a product, which consist of direct materials, direct labor, and factory...
Activity-Based Determining the cost of a product, which consist of direct materials, direct labor, and factory overhead.Product Costing Mello Manufacturing Company is a diversified manufacturer that manufactures three products (Alpha, Beta, and Omega) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows: Activity Activity Cost Pool Production $259,200 Changing the characteristics of a machine...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT