TR's ageing department actually consists of two processes. First, for some batches, various dyeing agents are applied to the jeans. Next, the jeans are run through a tumbler to soften, and age the jeans. Note that while the tumbling process is exactly the same for each pair of jeans, not all jeans are dyed.

Assume that the costs and volumes of the dyeing and tumbling parts of the ageing department are fairly constant from month to month.

The owner's niece, having just graduated with her MACC, has suggested breaking the ageing department into two departments (dyeing and tumbling), for purposes of cost accounting.

5. Relative to breaking out the dyeing and tumbling portions of the ageing department, what effect (if any) does the current cost system have on each of the following? For each, circle one of the three choices. You should not need any calculations to answer this question. (10 points)

Total cost of goods sold		Understate	No distortion	Overstate
Total cost of regular jeans		Understate	No distortion	Overstate
Total cost of distressed jeans		Understate	No distortion	Overstate
Cost of dyed distressed jeans		Understate	No distortion	Overstate
Cost of un-dyed distressed jeans		Understate	No distortion	Overstate

No distortion means the cost per unit from the existing cost system is approximately correct.

Understate (Overstate) means the cost per unit from the existing cost system is LOWER (HIGHER) than the actual cost per unit.