After reading this case study, it should be clear that Specialty Glass includes the cost of waste disposal in its overhead in a cost allocation system is set up like Exhibit 5 in the EPA EA reading (attached). Refer to the Specialty Glass Case Study Support (attached) page for tips.
Assuming that Ruby Red glass production accounts for 100% of the hazardous waste removal costs, consider the following scenario:
Pretend I'm the CEO of Specialty Glass and you brought this issue to my attention. I'm impressed that you are stepping out of your comfort zone and into an area that can really help our business. I'm interested but not convinced. Of course I'm up for anything (ethical and legal) that will increase our profits, but I need to see the numbers before I make decisions.
My first question is: Are we making or losing money on Ruby Red glass based on our current cost allocation scheme?
Perhaps your first thought is: "How should I know? I'm not the accountant;" but you are a smart cookie, a recent EM graduate, and a rising star. You trust your instincts that this could end up in big savings for your company in a tough year. Why let someone else steal your glory? You reflect back on what you already know about Specialty Glass, and realize that there are two other things you need to know to answer the boss's question.
What are the other two pieces of information that you need to know?
According to the current scheme, the cost of hazardous waste disposal is being divided equally between product A and product B. We assume that Red Ruby glass is product B. Then according to the current cost allocation Red Ruby glass has an allocation of 50% of the waste disposal cost. The first pieces of information that you need to know is the cost according to the current cost allocation scheme. The second piece of information is the ...
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