REQUIREMENT #1

Grades Faces Backs Total

Selling Price 88.00 25.00

1/24 inch veneer in feet feet 9,000 9,000 18,000 - per 1,000 boardfeet cut; can process up to 12,000 brdft in 8 hours shift
sales revenue per 1,00 feet $ 88.00 20.00 108
Net Value $ 792.00 180.00 972
Percent of total 81.48% 18.52% 1
Cost Applicable to each per 1000 $ 358.52 81.48 440

Materials cost per thousand feet $ 39.84 9.05

Labor and FOH $ 24

Selling cost (ave.) $ 4

Standard (Absorption Costing) per 1000 sqft

Selling price 88 20
Direct Materials 12.22 12.22 24.44 - graded 50-50
Labor & FOH Operating cost ( clipping, lath, heating) $ 10.125 10.125 20.25 - joint cost; i will divide them to 50-50 based on feet produced
other costs ( recliping, drying) - 3.75 - done on back separately although on the same machine
Selling cost 2 2
Total Cost 24.35 28.10
Gross Profit 63.66 (8.10)

Variable Costing per 1000 sqft

Selling price 88 20
Direct Materials 39.84 9.05
FOH Operating cost ( clipping, lath, heating) 16.5 3.75 20.25
other costs ( recliping, drying) 3.75
Cost of Goods Manufactured 56.34 16.55
Selling cost 3.26 0.74 - since i dont have measurement of backs per 1000 sqft, il make use of value
Gross Margin 28.41 2.71

1. As controller, the method of allocating raw material costs we would recommend is using variable costing. Variable costing shows a more accurate
cost of materials used on the product.

2. It would be an advantage to the company to accept Groton's offer because both methods will yield a good margin. This will also help the company
have less problems with selling the Backs. This would be more productive and require less time and effort to do and can be a way for them to focus on
other production/projects.
REQUIREMENT # 2
#3
a. Change in price of backs
Grades Faces Backs Total

Selling Price 88.00 22.00

1/24 inch veneer in feet feet 9,000 9,000 18,000 - per 1,000 boardfeet cut; can process up to 12,000 brdft in 8 hours shift
sales revenue per 1,00 feet $ 88.00 20.00 108
Net Value $ 792.00 180.00 972
Percent of total 81.5% 18.5% 100%
Cost Applicable to each per 1000 $ 366.67 83.33 450

Materials cost per thousand feet $ 40.74 9.26

Labor and FOH $ 24

Selling cost (ave.) $ 4

Standard (Absorption Costing) per 1000 sqft

Selling price 88 22
Direct Materials 12.22 12.22 24.44 - graded 50-50
Labor & FOH Operating cost ( clipping, lath, heating) $ 10.125 10.125 20.25 - joint cost; i will divide them to 50-50 based on feet produced
other costs ( recliping, drying) - 3.75 - done on back separately although on the same machine
Selling cost 2 2
Total Cost 24.35 28.10
Gross Profit 63.66 (6.10)

Variable Costing per 1000 sqft

Selling price 88 22
Direct Materials 40.74 9.26
FOH Operating cost ( clipping, lath, heating) 16.5 3.75 20.25
other costs ( recliping, drying) 3.75
Cost of Goods Manufactured 57.24 16.76
Selling cost 3.26 0.74 - since i dont have measurement of backs per 1000 sqft, il make use of value
Gross Margin 27.50 4.50

b. Change in production of backs

Grades Faces Backs Total
Selling Price 88.00 20.00

1/24 inch veneer in feet feet 10,000 8,000 18,000

sales revenue per 1,00 feet $ 88.00 20.00 108
Net Value $ 792.00 180.00 972
Percent of total 81.48% 18.52% 1
Cost Applicable to each per 1000 $ 366.67 83.33 450

Materials cost per thousand feet $ 36.67 10.42

Labor and FOH $ 24

Selling cost (ave.) $ 4

Standard (Absorption Costing) per 1000 sqft

Selling price 88 20
Direct Materials 12.22 12.22 24.44
Labor & FOH Operating cost ( clipping, lath, heating) $ 10.125 10.125 20.25
other costs ( recliping, drying) - 3.75
Selling cost 2 2
Total Cost 24.35 28.10
Gross Profit 63.66 (8.10)

Variable Costing per 1000 sqft

Selling price 88 20
Direct Materials 36.67 10.42
FOH Operating cost ( clipping, lath, heating) 16.5 3.75 20.25
other costs ( recliping, drying) 3.75
Cost of Goods Manufactured 53.17 17.92
Selling cost 3.26 0.74
Gross Margin 31.57 1.34

c. Backs treated as waste (@ 440)

Selling price 88.00
Raw Materials 24.00
Less: Wastage selling price 20.00
- cost incurred after split off 3.75 16.25 7.75
Labor and Factory overhead 24.00
Selling cost 4.00
savings from backs 5.00
total cost of good manufactured 40.75
Gross Margin 47.25

c. Backs treated as waste (@ 450, selling @ 22)

Selling price 88.00
Raw Materials 25.00
Less: Wastage selling price 22.00
- cost incurred after split off 3.75 18.25 6.75
Labor and Factory overhead 24.00
Selling cost 4.00
savings from backs 5.00
total cost of good manufactured 39.75
Gross Margin 48.25