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Sir,
I’m having trouble comprehending the intent behind the question which mentions the apportionment of material and system costs based on weight. Could you please help me understand the requirements?
What is the logic behind allocating the input cost of 80 to waste and scrap?The monthly budget for process X shows the following input/output analysis:
INPUTS
Weight (kg) $
Materials 1,000 (50,000)
System costs
Labour,
utilities and
other overheads – (30,000)Total 1,000 (80,000)
––––––
OUTPUTS
Weight (kg) $
Good output Expected good output is 70% of input and can be
sold for $120 per kg 700 84,000
Waste Expected waste is 10% of input and must be
scrapped at a cost of $10 per kg 100 (1,000)
Scrap Expected scrap is 20% of input and can be sold
for $15 per kg 200 3,000
––––––
Total 1,000 86,000
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The company is looking at adopting environmental flow cost accounting, in which all
material and system costs will be apportioned on the basis of weight.
Calculate the total net cost of waste and scrap using flow cost accounting. Give you
answer to the nearest $The answer given is
Input materials and system costs work out as $80 per kg.
This means that the total input costs to be allocated to waste and scrap = 300 × 80 = (24,000)
Overall net cost of waste and scrap = 3,000 – 1,000 – 24,000 = (22,000)Input mats are $80 per kg ($80,000 / 1000 kg)
There is 100 kg of waste and 200 kg of scrap so 300 kg in total
So total input costs to be allocated to waste and scrap is 300kg * $80 = ($24000)
Overall net cost of waste and scrap is $24000 from input costs
Less 2000, the net from expected output (3000 scrap -1000 waste) = $22,000The expected waste is 10% of the input, which is 100 kilograms. The cost of scrapping waste is $10 per kilogram, so the total cost of waste is 100 kg * $10/kg = ($1,000).
The expected scrap is 20% of the input, which is 200 kilograms. The selling price of scrap is $15 per kilogram, so the total revenue from scrap is 200 kg * $15/kg = $3,000.So if 700kg of good output, then the 300kg difference must be accounted for in some way.
20% of it has been sold as scrap and 10% of it is waste.
By accounting for outputs in this way, both in terms of physical quantities and, at the end of the process, in monetary terms too, businesses are forced to focus on environmental costs.
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