Eldorado Emerald (EE)mines and Processes Emeralds in Its Mines

question 6

Multiple Choice

Eldorado Emerald (EE) mines and processes emeralds in its mines throughout the world.Large rocks are mined,these large rocks are gently crushed and any emeralds are sifted out.The emeralds are then sorted,graded,cut,and polished.The joint cost per ton of rock is $18,000.The following table summarizes the number of emeralds per ton of mined rock,the additional costs to package and sell each emerald after it's polished and graded,and the selling price for each grade of emerald. $\begin{array}{c}\begin{array}{lll}\\ \text {Number of stones per ton}\\ \text {Sales price/emerald}\\ \text {Additional costs to package and sell each emerald}\end{array}\begin{array}{r}\text { AAA } \\35 \\\$ 400 \\\$ 125 \end{array}\begin{array}{r}\mathrm{AA} \\50 \\\$ 150 \\\$ 60 \end{array}\begin{array}{r}\mathrm{A} \\90 \\\$ 60 \\\$ 10 \end{array}\end{array}$
Which of the following is true?

• A)Using allocation by relative sales value will allocate identical amounts to Grade A and Grade AA emeralds.
• B)The manager for Grade AAA emeralds would be indifferent to the allocation method because each allocation method allocates the smallest amount of joint costs to Grade AAA emeralds.
• C)EE management should select the allocation method for each grade of emerald that maximizes the profitability for each grade of emerald.
• D)The manager responsible for Grade A emeralds will select the allocation by relative sales value method.
• E)None of the choices are correct

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Definitions:

Operating Data

Information related to the day-to-day functions and performance of a business, used for analysis and decision making.

Contribution Margin

The difference between a company's sales revenue and its variable costs.

Management By Exception

A management strategy where only significant deviations from planned results are addressed, focusing managerial attention on the most important issues.

Top Levels Of Management

The highest tier in an organization's management structure, typically including roles like CEO, CFO, and other senior executives responsible for strategic decisions.