Question

allocate the fixed cost to each product line using traditional allocation method. what is operating income for each line? what would you reccomend to carol? (allocate fixed cost based on number of quarts sold)

metsod er acivity each product eiher sing a oraditional allocation Ii IW pans to mayre the pafallity afeach product so deemine whether one or more peoducts should be eliminated Carol has deciled so allocate the fised costs to basod costing (ABC) ICarl usesa triditional allocation method, she will allocate fixed costs based on the sumber of quarts sold Rrquired: Alocate Sued casts ach prnd act lin' using a traditional allocation method what is the resul ing operating icone lir each pnderin? Based o n this aily us. what weakly" recommend t. Cari Whole Milk Low-Fat Milk Chocolate Milk Sales price per quartS Capping and finishing process Separation process Contribution margin per quart S Depreciation on milking machine Rent for the building Capping and finishing process enance General and administration support Quality control and inspection Customer service and order taking Whole Milk Low-Fat Milk Chocolate Milk 18900 Total 39400 x Contribution margin per quart S Total contribution margin $ 11032 2457 19000 Operating income (loss) S BK W plans to analyne the profitability of each product to determine whether one or more prodacts should be eliminated. Carl as decided so allocate the fised costs to each prodact either using a tradisional allocaton method or ativity based costing (ABC). If Carol uses a traditional allocation method, she will allocate fised costs based on the mumber of quarts sold Required: Allocate the fised costs to each product line usings tradisional allocation method. What is the realting eperating lecome for each prodest B lise? Hased on this analysis, what weald you recommend to Car

Answer 1

Solution Whole Milk Low-fat Milk Chocolate Milk Total No. of quarts sold 75000 16700 39400 18900 $757 $236 $534 $802 $374 $1,229 $846 $370 $1,786 $557 $1,261 $1,891 $883 $2,900 $1,996 $872 $988 13,133 $857 $267 $605 907 $423 $1,391 $958 $418 $474 6,300 3,400 $1,060 $2,400 $3,600 1,680 5,520 $3,800 $1,660 $1,880 25,000 Depreciation on Milking machine Utilities Rent for the building Capping and finishing process Repairs and maintenance General and administration support Quality control and inspection Shipping and delivery Customer service and order taking$419 Total fixed cost Whole Milk 16700 $0.33 $5,511 Low-fat Milk 39400 $0.28 $11,032 13,133 ($2,101) Chocolate Milk 18900 $0.13 $2,457 6,300 $3,843 Total Number of quarts sold x Contribution margin per quart Total Contribution margin Less: Fixed cost Operating Income (loss) $19,000 25,000 ($6,000) 56 Although, there is an operating loss in all the three product-lines, however, each product line has positive contribution margin which means that each product line is contributing towards the fixed cost. Hence, it is advisable to continue all the three product-line.