...Signatron Corporation Producer of rectifiers (electronic 'resistors') 1 Basic facts: Helen Barnes, a recent graduate from B-school is assigned as assistant to Jim Jacoby, Signatron's Sales Manager for rectifiers Order is received for 6,000 units of number 401 rectifiers; not sufficient units (only 3,000) exist in the inventory. Order can be filled with units that met or exceeded the specifications of product ordered (402 or above). Customer will not pay extra for extra quality. 2 Production process: 60% of the total chips are first-class; 40% are seconds < 20% of the total chips are eventually sold as part of the regular product line 3 Accounting Methodology: Direct costs are allocated directly Manufacturing costs are "joint" with respect to the batch. Two common techniques are used for allocating such joint costs: AVERAGE or PHYSICAL MEASURE APPROACH: Divide all joint costs by the total number of saleable units produced during the process Normally yields a different gross margin percentage for each end product, since allocated costs per unit are equal regardless of the sale value per unit. RELATIVE SALES VALUE APPROACH: Joint costs are divided on the basis of the sales values (pro-rata) With this, the gross margin percentage for all products (without considering costs incurred after the "joint" process) is always the same. 4 The Alternatives Fill the order with 402 rectifiers; Start production of 401 rectifiers, resulting in increase of stock of other rectifiers as per production...
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