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table [ [ Product , table [ [ Average ] , [ Weight ( gallon ) ] ] , % ] , [

\table[[Product,\table[[Average],[Weight (gallon)]],%],[Chem-BR,2.00,20%],[Chem-WI,1.00,10%],[Chem-TH,1.00,10%],[Chem-DR,1.00,10%],[Chem-GI,1.50,15%],[Chem-FE,0.50,5%],[Chem-FH,1.00,10%],[Chem-BO,2.00,20%],[Total,10.00,100%]]
The cost allocation must be determined before the company's December 31 year-end. Typically, at December 31 st there are no inventories of Chem-BR, Chem-WI, Chem-TH, or Chem-DR. Only the byproducts (Chem-GI, Chem-FH, Chem-BO, and Chem-FE) remain in inventory, because API does not concentrate on selling these lower-priced items during their busy season. Even though they will have stockpiled by-products from the approximately one million batches of chemicals they processed during the last month, they know they can sell all of these by-products in January. The average cost of a batch of chemicals has always fluctuated around $10.
Deferred Development Costs
As RKW will be the entity in charge of conducting all further research and development, Anil thinks there is no point in deferring development costs and amortizing them. Anil says the process of tracking all the development costs, allocating them to projects, estimating amortization periods, and testing for impairment is too labour-intensive. Therefore, RKW will not capitalize development expenditures; they will instead be expensed as incurred. It is expected that the research division will incur approximately $500,000 in development costs this year.Due to the nature of the company's products, it has always had great difficulty costing its chemical
finished goods inventory. As mentioned, API starts with mixing chemicals and additives to create the
basic ingredients (see product list below) as a foundation for all the final products made by API. API uses
the batch of chemicals at the split off point to process further into different products sold by API. Some
products are sold (Chem-WI, Chem-BR, Chem-TH, etc.) at the split-off point. Other products are further
processing into different products, such as wax, lubricants, and cosmetics, insecticides, just to name a
few. The company also has a market for all the by-products, such as the Chem-GI, Chem-FH, Chem-BO,
and Chem-FE. In the past, the company had allocated costs of the chemicals ingredient to the individual
components, based on the proportion of the product's selling price at the split-off point, relative to the
selling price of all the products produced. For example, the current selling prices at the split-off point are
as follows:
Therefore, 64% of the cost of a batch of chemicals would be considered the cost of the Chem-BR, and 1%
of the cost would be allocated to the Chem-BO. These selling prices are expected to remain constant for
the next few months.
Anil finds this process burdensome and unnecessary. The selling prices are constantly changing slightly,
and time has to be spent updating the cost allocation.
Anil proposes to allocate the cost of the batch of chemicals to the individual components, based on the
average weight of the individual components. The company has weighed a large sample of chemicals and
has come up with the following average weights, and the individual components that make up each batch
of chemicals:
1. Use cost accounting to numerically demonstrate the impact of both options and the differences between them.
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