Fundamentals of Cost Accounting
5th Edition
ISBN: 9781259565403
Author: William N. Lanen Professor, Shannon Anderson Associate Professor, Michael W Maher
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 10, Problem 44E
Assigning Cost of Capacity
Curt’s Casting manufactures metal parts in a large manufacturing facility. Curt’s customers order 50,000 tons of castings each quarter. The facility has a practical capacity of 80,000 tons. Curt leased the current facility because it was more convenient than another new facility that had a capacity of 50,000 tons. The annual cost of the facility is $400,000. The variable cost of a casting is $6.
Required
- a. What cost per casting should the cost system report?
- b. Given your answer to requirement (a), is there any cost of excess capacity? If yes, what is the cost of excess capacity and how should it be reported? If no, why not?
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Cairney, Incorporated manufactures a specialized part used in internal combustion engines. The annual demand for the part is
265,000 units. The facility has a practical capacity of 280,000 units annually. The company leased the current facility because facilities
capable of manufacturing the unit require machines that can produce 70,000 units each. The annual cost of the facility is $1,120,000.
The variable cost of a part is $4.
Required:
a. What cost per unit should the cost system report to facilitate management decision making?
Note: Round your answer to 2 decimal places.
b. What is the cost of excess capacity?
a. Cost per unit
b. Cost of excess capacity
Adams Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of
producing 9,300 containers follows.
Unit-level materials
Unit-level labor
Unit-level overhead
Product-level costs*
Allocated facility-level costs
$5,900
6,200
3,500
*One-third of these costs can be avoided by purchasing the containers.
Russo Container Company has offered to sell comparable containers to Adams for $2.60 each.
Required
X Answer is complete but not entirely correct.
$ 19,300
Yes
$ 24,180 X
No
11,100
26,900
a. Calculate the total relevant cost. Should Adams continue to make the containers?
b. Adams could lease the space it currently uses in the manufacturing process. If leasing would produce $11,800 per month, calculate
the total avoidable costs. Should Adams continue to make the containers?
a. Total relevant cost
a. Should Adams continue to make the containers?
b. Total avoidable cost
b. Should Adams continue to make the containers?
Charge Company manufactures a part for its production cycle. The annual
costs per unit for 5,000 units of the part are given below. The fixed factory
overhead costs are unavoidable. Another company has offered to sell 5,000
units of the same part to Charge Company for $15 per unit. The facilities
currently used to make the part could be rented out to another
manufacturer for $20,000 a year. Charge Company should
Per Unit
Direct materials
$3.00
Direct labor
5.00
Variable factory overhead
Fixed factory overhead
Total costs
4.00
2.00
$14.00
buy the part and rent facilities to save $5,000 )
make the part to save $15,000 O
buy the part and rent facilities to save $15,000
make the part to save $5,000 O
make the part to save $10,000 O
Chapter 10 Solutions
Fundamentals of Cost Accounting
Ch. 10 - How are activity-based costing and activity-based...Ch. 10 - Can activity-based management be implemented...Ch. 10 - Prob. 3RQCh. 10 - What are some ways in which customers affect a...Ch. 10 - How is computing the cost of customers the same as...Ch. 10 - Prob. 6RQCh. 10 - Prob. 7RQCh. 10 - Under what conditions should the cost of excess...Ch. 10 - In what ways does quality affect cost?Ch. 10 - What are the four categories in a cost of quality...
Ch. 10 - Prob. 11CADQCh. 10 - Prob. 12CADQCh. 10 - Consider a library that spends 25,000 to move most...Ch. 10 - Prob. 14CADQCh. 10 - Prob. 15CADQCh. 10 - You can get the cost of customers by first...Ch. 10 - Prob. 17CADQCh. 10 - Prob. 18CADQCh. 10 - Prob. 19CADQCh. 10 - Prob. 20CADQCh. 10 - Many if not most schools in the United States have...Ch. 10 - Prob. 22CADQCh. 10 - Prob. 23CADQCh. 10 - Prob. 24ECh. 10 - Prob. 25ECh. 10 - Cost Hierarchy for a Not-for-Profit Below are...Ch. 10 - Prob. 27ECh. 10 - Driver Identification Below are various activities...Ch. 10 - Activity-Based Costing of Customers Marvins...Ch. 10 - Activity-Based Costing of Customers Rock Solid...Ch. 10 - Activity-Based Costing of Customers Refer to the...Ch. 10 - Activity-Based Costing of Customers: Ethical...Ch. 10 - Prob. 33ECh. 10 - Activity-Based Costing of Suppliers Hult Games...Ch. 10 - Prob. 35ECh. 10 - Activity-Based Costing of Suppliers Kinnear...Ch. 10 - Activity-Based Costing of Suppliers Refer to the...Ch. 10 - Resources Used versus Resources Supplied Tri-State...Ch. 10 - Prob. 39ECh. 10 - Resources Used versus Resources Supplied Conlon...Ch. 10 - Prob. 41ECh. 10 - Prob. 42ECh. 10 - Assigning Cost of Capacity Mimis Fixtures...Ch. 10 - Assigning Cost of Capacity Curts Casting...Ch. 10 - Prob. 45ECh. 10 - Costs of Quality The following represents the...Ch. 10 - Trading-Off Costs of Quality Using the costs...Ch. 10 - Costs of Quality Nuke-It-Now manufactures...Ch. 10 - Prob. 49ECh. 10 - Cost of Quality: Environmental Issues Many...Ch. 10 - Prob. 51ECh. 10 - Prob. 52PCh. 10 - Activity-Based Reporting: Service Organization...Ch. 10 - Prob. 54PCh. 10 - Customer Profitability Carmel Company has a...Ch. 10 - Activity-Based Costing of Suppliers JFI Foods...Ch. 10 - Activity-Based Costing of Suppliers Consider the...Ch. 10 - Activity-Based Reporting: Manufacturing...Ch. 10 - Assigning Capacity Costs Cathy and Toms Specialty...Ch. 10 - Prob. 60PCh. 10 - Prob. 61PCh. 10 - Assigning Capacity Costs Mercia Chocolates...Ch. 10 - Prob. 63PCh. 10 - Prob. 64PCh. 10 - Prob. 65P
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