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Compare and Contrast Cost Recovery ...
This solution discusses various cost recovery methods and it compares and contrasts cost recovery methods.
Cost accounting - Calculate the growth, price-recovery, and productivity components of changes in operating income between 2004 and 2005.
Calculate the growth, price-recovery, and productivity components of changes in operating income between 2004 and 2005.
Create schedules for Revenue and Cost Effects of Growth, Revenue and Cost Effects of Price Recovery, Cost Effects of Productivity, and a Strategic Analysis of Profitability.
1 Pieces of clothing purchased and sold 40,000 40,000
2 Average selling price $60 $59
3 Average cost per piece of clothing $40 $41
4 Selling and customer-service capacity 51,000 43,000
5 Selling and customer-service costs $357,000 $296,700
6 Selling and cust svc cap costs per cust $7.00 $6.90
7 Purchasing and administrative capacity 980 850
8 Purchasing and administrative costs $245,000 $204,000
9 Purch and admin cap costs per design $250 $240
For the Year Ending December 31, 2005
Revenue 2,400,000 2,360,000
Direct materials costs 1,600,000 1,640,000
Selling and customer-service costs 357,000 296,700
Purchasing and adminstrative costs 245,000 204,000
Total costs 2,202,000 2,140,700
Operating Income 198,000 219,300
Increase in operating income
Revenue and Cost Effects of Growth
Revenue effect of growth 0
Direct materials costs 40,000
Selling and customer service costs 0
Purchasing and administrative costs -21,075
Total effect of growth 18,925
Revenue and Cost Effects of Price Recovery
Revenue effect of price recovery -40,000
Direct materials costs 40,000
Selling and customer service costs -5,100
Purchasing and administrative costs -8,641
Total effect of price recovery -13,741
Cost Effect of Productivity
Revenue effect of productivity 0
Direct materials costs 0
Selling and customer service costs -308,900
Purchasing and administrative costs -234,350
Total effect of price productivity -543,250
Additional information for the problem:
Total selling and customer service costs depend on the number of customers that the company has created capacity to support, not the actual number of customers. Total purchasing and administrative costs depend on purchasing and admin capacity that the company has created (in terms of the number of distinct designs that can be purchased and adminstered.) Purchasing and administrative costs do not depend on the actual number of distinct clothing designs purchased. The company purchased 930 designs in 2004 and 820 designs in 2005.
This problem is taken from Cost Accounting, 11th edition, Horngren. Chp 13, problem 13-30.View Full Posting Details