24 November 2014
Selling and Shipping
Percent of sales dollars
These are then all plugged into income statement to show the breakdown of allocation.
2. Distortions that could arise are different sales pricing and cost allocations. General Expenses could be distorted because since the company said sales prices were equal, they just divided general expenses in half. Another product line was added and the company is also just dividing by half still in 2007 vs. 2005. Selling and Shipping costs could be distorted because they are based on percent sales. It doesn’t take into account extra oven line costs. Overhead distortions that could arise would be the fact that ovens are harder to manufacture, making batch level costs more.
3. ROA=Income before tax/total assets
4. Selling and shipping costs have increased the most because the ovens cost more to distribute.
5. Allocated 60% to factory support for the oven lines since they consumer 60% of factory support. Also, ovens gets 2.5 times more cost since the introduction of them was that much.
The dropping of stoves would create:
Loss of sales
Loss var. mfg costs: 2,850,000
Lost of factory support costs 468,000