Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Textbook Question
Chapter 3, Problem 11E
Cashion Company produces chemical mixtures for veterinary pharmaceutical companies. Its factory has four mixing lines that mix various powdered chemicals together according to specified formulas. Each line can produce up to 5,000 barrels per year. Each line has one supervisor who is paid $34,000 per year.
Required:
- 1. Prepare a graph for each of these three costs: equipment depreciation, supervisors’ wages, and direct materials and power. Use the vertical axis for cost and the horizontal axis for units (barrels). Assume that sales range from 0 to 20,000 units.
- 2. Assume that the normal operating range for the company is 16,000 to 19,000 units per year. How would you classify each of the three types of cost?
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Morrison Manufacturing produces casings for sewing machines: large and small. To produce the different casings, equipment must be set up. The setup cost per production run is $18,000 for either casing. The cost of carrying small casings in inventory is $6 per year; the cost of large casings $18 per unit per year. To satisfy demand, the company produces 2,400,000 small casings and 800,000 large casings.
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Compute the number of small casings that should be produced per setup to minimize total setup and carrying costs.
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Morrison Manufacturing produces casings for sewing machines: large and small. To produce the different casings, equipment must be set up. The setup cost per production run is $18,000 for either casing. The cost of carrying small casings in inventory is $6 per casing per year; the cost of large casings is $18 per unit per year. To satisfy demand, the company produces 2,400,000 small casings and 800,000 large casings.
1. Compute the number of large casings that should be produced per setup to minimize total setup and carrying costs for this product.
2. Compute the setup, carrying, and total costs associated with the economic order quantity for the large casings.
Guthrie Generators manufactures a solenoid that it uses in several of its products. Management is considering whether to continue
manufacturing the solenoids or to buy them from an outside source. The following information is available:
1. The company needs 20,000 solenoids per year. The solenoids can be purchased from an outside supplier at a cost of $15 per unit.
2. The unit cost of manufacturing the solenoids is $20, computed as follows:
Direct materials
Direct labor
Factory overhead:
Variable
Fixed
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3. If the company decides not to manufacture the solenoids, it will eliminate all of the raw materials and direct labor costs but only 75
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4. If the solenolds are purchased from the outside source, machinery used in the production of solenoids will be sold at its book value.
Accordingly, no gain or loss will be recognized. The sale of this machinery would also eliminate $5,000…
Chapter 3 Solutions
Cornerstones of Cost Management (Cornerstones Series)
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