EXERCISE COST ACCOUNTING Prof. Dr.

Gunther
Friedl

Solution for Exercise 6

Exercise 6.1: Equivalence number method

a)

In the following case, the application of the equivalence number method is recommended.

Reason: The case displays a variant production. Due to similarities in production technology, the costs of
the different product types are proportional to each other in a way, which reflects the cost causation: the
metal sheet thickness displays a reference value, to which the costs to be distributed are proportional.

b)

Thickness Quantity Equivalence Equivalent Unit costs Total costs

[mm] [t] number units [EU] [€ per t] [€]

(500*1.5) (300*1.5) (450*500)

0.40 500 1.50 750 450 225,000

0.50 400 1.30 520 390 156,000

1.00 700 1.00 700 300 210,000

1.25 600 1.05 630 315 189,000

2.50 300 1.10 330 330 99,000

 2,930  €879,000

€879,000
= €300 per EU
2,930 EU

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EXERCISE COST ACCOUNTING Prof. Dr. Gunther
Friedl

Exercise 6.2: Cost allocation for joint and byproducts

a) Distribution method based on market values

Raw material costs I €30,000 Raw material costs

Rohstoffkosten II II €40,000

D1 €30,000

A B

€10,000 €20,000 €10,000

D2 D3 €1,000 D4 €4,000
€6,000
MC: €16,000 MC: € 21,000 MC: € 14,000

C D E F G
MV: €40,000 MV: € 25,000 MV: €30.000 MV: €5,000
MC: €16,000 MC: €21,000 MC: €14,000 MC: €1,000
P: €24,000 P: €4,000 P: €16,000 P: €4,000 €60,000
D5 €88,000
MC: €148,000

H
MV: €500,000
MC: €148,000
P: €352,000

MV = Market value, MC = Manufacturing costs, P = Profit

Notes with regard to the calculation:

Raw material costs I = 100,000 kg * 60 % * €0.50 per kg = €30,000

Raw material costs II = 100,000 kg * 40 % * €1.00 per kg = €40,000

Costs for mixture = €30,000

Costs for production of joint and byproducts = €30,000 + €40,000 + €30,000 = €100,000

Market value C = €20 per unit * 2,000 units = €40,000

Market value D = €500 per unit * 50 units = €25,000

Market value E = €10 per unit * 3,000 units = €30,000

Market value F = €10 per unit * 500 units = €5,000

Market value H = €500 per unit * 1,000 units = €500,000

Consequently, the market values of A and B are:

Market value A = (MVC – direct costsC) + (MVD – direct costsD) = 40,000 – 10,000 + 25,000 – 20,000 =
35,000

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EXERCISE COST ACCOUNTING Prof. Dr. Gunther
Friedl
Market value B = (MVE – direct costsE) + MVF + (MVH – direct costsH) = 20,000 + 5,000 + 440,000 =
465,000

Market value of A and B in total = 500,000

Share of A of the costs of the production of joint and byproducts

= 35,000/500,000 * 100,000 = 7,000

Share of B of the costs of the production of joint and byproducts

= 465,000/500,000 * 100,000 = 93,000

Distribution of cost shares from A and B to C, D, E, F, and H:

Allocation from A to C = 30,000/35,000 * 7,000 = 6,000

Allocation from A to D = 5,000/35,000 * 7,000 = 1,000

Allocation from B to E = 20,000/465,000 * 93,000 = 4,000

Allocation from B to F = 5,000/465,000 * 93,000 = 1,000

Allocation from B to H = 440,000/465,000 * 93,000 = 88,000

b) Main-product method (with main product H)

Calculation scheme Amount [€]

Raw material mixture 100,000

Disposal A 12,000

Subtotal 112,000

Contribution margin E 20,000

Contribution margin F 5,000

Subtotal 87,000

Directly attributable costs H 60,000

Total costs H 147,000

The profit through H results in:

Profit H = Market value H – total costs H = €500,000 – €147,000 = €353,000

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