Concept explainers
To Prepare: The Memo to JM with a recommendation to management.
Explanation of Solution
From:
LB
Former Plant manager
Company GP
To:
JM
Current Plant manager
Company GP
Re: Analysis of August month increase in unit costs for Papermaking Department.
Dear Mr. JM,
The increase in the unit costs from the month of July to August happened for both the material costs (pulp and chemical) and conversion costs in the papermaking department, as showed in the table below:
Particulars | July | August |
Material costs (A) | $295,600 | $304,100 |
Conversion costs (B) | $146,000 | $149,600 |
Total cost (A+B) | $441,600 | $453,700 |
Number of tons (C') | 1,200 | 1,130 |
Material cost per ton D = (A ÷ C) | $246.33 | $269.12 |
Conversion cost per ton E =(B ÷ C) | $121.67 | $132.39 |
Total cost per ton (D + E) | $368 | $401.50 |
Table (1)
An analysis was done to segregate the reason of the increased cost per ton. My interviews designated that there were two possible causes. First, we changed the condition of the green paper in early month of August. This may changed the way the paper machines process the green paper. Therefore, it is feasible that the paper machines have unacceptable settings for the new requirement and are over applying materials. Second one is some question, whether paper machine No.1 is need of maintenance. It is possible that our problem is due to lack of repairs on this machine.
Luckily, we run both colors on paper machine No.1 Therefore; we can divide the analysis among these two possible explanations. I have offered the following cost per ton data for the two paper machines and the two product colors:
Analyzing paper machine:
Production Run Number | Paper Machine | Color | Materials costs | Conversion costs | Tons | |
1 | 1 | Green | $40,300 | $18,300 | 150 | |
2 | 1 | Yellow | $41,700 | $21,200 | 140 | |
3 | 1 | Green | $44,600 | $22,500 | 150 | |
4 | 1 | Yellow | $36,100 | $18,100 | 120 | |
Total | $162,700 | $80,100 | 560 |
Table (2)
Paper Machine No.1 | Material cost per ton (A ÷ C) | Conversion cost per ton (B ÷ C) | |
Total direct material costs (A) | $162,700 | ||
Total conversion costs (B) | $80,100 | ||
Tons (C ) | 560 | 560 | |
Cost per ton | $290.54 | $143.04 |
Table (3)
Production Run Number | Paper Machine | Color | Materials costs | Conversion costs | Tons | |
5 | 2 | Green | $38,300 | $18,900 | 160 | |
6 | 2 | Yellow | $33,900 | $15,200 | 140 | |
7 | 2 | Green | $35,600 | $18,400 | 130 | |
8 | 2 | Yellow | $33,600 | $17,000 | 140 | |
Total | $141,400 | $69,500 | 570 |
Table (4)
Paper Machine No.2 | Material cost per ton (A ÷ C) | Conversion cost per ton (B ÷ C) | |
Total direct material costs | $141,400 | ||
Total conversion costs | $69,500 | ||
Tons | 570 | 570 | |
Cost per ton | $248.07 | $121.93 |
Table (5)
Particulars | Paper Machine No.1 (A) | Paper Machine No.2 (B) | Difference (A – C) |
Material cost per ton | $290.54 | $143.04 | $147.50 |
Conversion cost per ton | $248.07 | $121.93 | $126.14 |
Table (6)
Product color analysis:
Production Run Number | Paper Machine | Color | Materials costs | Conversion costs | Tons | |
1 | 1 | Green | $40,300 | $18,300 | 150 | |
3 | 1 | Green | $44,600 | $22,500 | 150 | |
5 | 2 | Green | $38,300 | $18,900 | 160 | |
7 | 2 | Green | $35,600 | $18,400 | 130 | |
Total | $158,800 | $78,100 | 590 |
Table (7)
Production Run Number | Paper Machine | Color | Materials costs | Conversion costs | Tons | |
2 | 1 | Yellow | $41,700 | $21,200 | 140 | |
4 | 1 | Yellow | $36,100 | $18,100 | 120 | |
6 | 2 | Yellow | $33,900 | $15,200 | 140 | |
8 | 2 | Yellow | $33,600 | $17,000 | 140 | |
Total | $145,300 | $71,500 | 540 |
Table (8)
Green Paper | Material cost per ton (A ÷ C) | Conversion cost per ton (B ÷ C) | |
Total direct material costs (A) | $158,800 | ||
Total conversion costs (B) | $78,100 | ||
Tons (C ) | 590 | 590 | |
Cost per ton | $269.15 | $132.37 |
Table (9)
Yellow Paper | Material cost per ton (A ÷ C) | Conversion cost per ton (B ÷ C) | |
Total direct material costs (A) | $145,300 | ||
Total conversion costs (B) | $71,500 | ||
Tons (C ) | 540 | 540 | |
Cost per ton | $269.07 | $132.41 |
Table (10)
Particulars | Green Paper (A) | Yellow Paper (B) | Difference (A – C) |
Material cost per ton | $269.15 | $269.07 | $0.08 |
Conversion cost per ton | $132.37 | $132.41 | ($0.04) |
The outcomes are clear. Paper machine 1 has a considerably higher materials and conversion cost per ton in August. It appears that, the paper machine is over applying pulp. This is resultant in a growth in both the materials and conversion cost per ton. Paper machine No.2 is consecutively at a cost near out chronological cost per ton. There is no proof of a color delinquent. Both color papers are consecutively at or near the same materials and conversion cost per ton. Therefore, the requirement change for green has not performed to reason a problem in the papermaking operation. I
Please let me know if you need any more clarifications on this matter.
Regards,
LB
Want to see more full solutions like this?
Chapter 17 Solutions
Bundle: Financial & Managerial Accounting, 14th + Working Papers for Warren/Reeve/Duchac's Corporate Financial Accounting, 14th + Working Papers, ... & Managerial Accounting, 14th + CengageNOWv2,
- Cost of Goods Sold In September, Lauren Ashley Company purchased materials costing $190,000 and incurred direct labor cost of $100,000. Overhead totaled $300,000 for the month. Information on inventories was as follows: September 1 September 30 Materials Work in process Finished goods Required: $120,000 80,000 70,000 $130,000 90,000 65,000 What was the cost of goods sold for September? Xarrow_forwardDirect Materials Used, Cost of Goods Manufactured In September, Lauren Ashley Company purchased materials costing $210,000 and incurred direct labor cost of $140,000. Overhead totaled $320,000 for the month. Information on inventories was as follows: Materials Work in process Finished goods Required: X September 1 September 30 X $130,000 1. What was the cost of direct materials used in September ? $70,000 $75,000 X $140,000 $70,000 $70,000 2. What was the total manufacturing cost in September ? 3. What was the cost of goods manufactured for September?arrow_forwardDirect Materials Used, Cost of Goods Manufactured In September, Lauren Ashley Company purchased materials costing $200,000 and incurred direct labor cost of $120,000. Overhead totaled $325,000 for the month. Information on inventories was as follows: Materials Work in process Finished goods Required: September 1 September 30 $120,000 80,000 70,000 $130,000 90,000 65,000 Download Excel spreadsheet 1. What was the cost of direct materials used in September? 2. What was the total manufacturing cost in September? 3. What was the cost of goods manufactured for September? 4. Assume that Lauren Ashley Company's monthly incurred direct labor cost increased by 25% and total overhead costs decreased by 20%. Using Excel (or some other spreadsheet software tool), calculate Lauren Ashely's new cost of goods manufactured that results from the changes in direct labor cost and overhead costs. Even for a relatively simple exercise, this requirement illustrates the time and effort savings of utilizing…arrow_forward
- After reviewing the new activity-based costing system that Nancy Chen has implemented at IVC's CenterPoint manufacturing facility, Tom Spencer, the production supervisor, believes that he can reduce production costs by reducing the time spent on machine setups. He has spent the last month working with employees in the plant to change over the machines more quickly with the same reliability. He plans to produce 109,000 units of the Sport model and 44,500 units of the Pro model in the first quarter. He believes that with his more efficient setup routine, he can reduce the number of setup hours for both the Sport and the Pro products by 34 percent. Cost Drivers and Cost Driver Volumes-CenterPoint Manufacturing Facility Activity Assembly building Assembling Setting up machines Handling material Packaging building Inspecting and packing: Shipping Direct material Direct labor Assembly Packaging. Total direct labor. Direct costs Overhead Assembly building Cost Driver SAREEFFSENEGER…arrow_forwardUsing Process Costs for Decision Making The costs of materials consumed in producing good units in the Forming Department of McMillan Company were $129,600 and $132,500 for September and October, respectively. The number of equivalent units produced in September and October was 1,200 tons and 1,250 tons, respectively. Evaluate the change in the cost of materials between the two months. Material cost per ton, September $ Material cost per ton, October The cost of materials by $ per ton between September and October.arrow_forwardDirect Materials Used, Cost of Goods Manufactured In September, Lauren Ashley Company purchased materials costing $190,000 and incurred direct labor cost of $140,000. Overhead totaled $335,000 for the month. Information on inventories was as follows: September 1 September 30 Materials $150,000 $110,000 Work in process $100,000 $70,000 Finished goods $70,000 $70,000 Required: 1. What was the cost of direct materials used in September ?$fill in the blank 1 2. What was the total manufacturing cost in September ?$fill in the blank 2 3. What was the cost of goods manufactured for September ?$fill in the blank 3arrow_forward
- - Required information Upriver Parts manufactures two products, V-1 and V-2, at its River Plant. Selected data for an average month for the two products follow. V-1 V-2 Units produced 10,000 1,000 Direct materials cost per unit $ 2 $ 4 Machine hours per unit Production runs per month 1 80 2 40 Production at the plant is automated and any labor cost is included in overhead. Data on manufacturing overhead at the plant follow. Machine depreciation $ 84,000 Setup labor Material handling Total 37,200 18,240 $139,440 Required: a. Compute the unit costs for the two products V-1 and V-2 using the current costing system at Upriver (using machine hours as the allocation basis). (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. Compute the unit costs for the two products V-1 and V-2 using the proposed ABC system at Upriver. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Unit Cost V-1 V-2 a. Using current costing system b. Using…arrow_forwardDirect Materials Used, Cost of Goods Manufactured In September, Lauren Ashley Company purchased materials costing $210,000 and incurred direct labor cost of $120,000. Overhead totaled $325,000 for the month. Information on inventories was as follows: Materials $140,000 Work in process $80,000 Finished goods $75,000 $75,000 1. What was the cost of direct materials used in September? September 1 September 30 240,000 ✓ $110,000 $100,000 2. What was the total manufacturing cost in September? 3. What was the cost of goods manufactured for September? 4. Assume that Lauren Ashley Company's monthly incurred direct labor cost increased by 25% and total overhead costs decreased by 20%. Using Excel (or some other spreadsheet software tool), calculate Lauren Ashely's new cost of goods manufactured that results from the changes in direct labor cost and overhead costs. $ Even for a relatively simple exercise, this requirement illustrates the time and effort savings of utilizing technology in setting…arrow_forwardCurrent Attempt in Progress The controller of Oriole Industries has collected the following monthly cost data for use in analyzing the behavior of maintenance costs. Month January February March April May June Total Maintenance Costs $2,860 3,160 3,760 4,660 3,360 5,260 Total Machine Hours 320 370 520 670 520 720arrow_forward
- Cost per equivalent unit The cost of direct materials transferred into the Rolling Department of Kraus Company is $3,397,000. The conversion cost for the period in the Rolling Department is $114,425. The total equivalent units for direct materials and conversion are 4,300 tons and 995 tons, respectively. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. X Open spreadsheet Determine the direct materials and conversion costs per equivalent unit. Round your answers to the nearest dollar. Direct materials cost per equivalent unit: $ Conversion cost per equivalent unit: per ton per ton 4arrow_forwardUtica Manufacturing (UM) was recently acquired by MegaMachines, Inc. (MM), and organized as a separate division within the company. Most manufacturing plants at MM use an ABC system, but UM has always used a traditional product costing system. Bob Miller, the plant controller at UM, has decided to experiment with ABC and has asked you to help develop a simple ABC system that would help him decide if it was useful. The controller's staff has identified costs for the first month in the four overhead cost pools along with appropriate cost drivers for each pool. Cost Pools Costs Incoming inspection $ 210,000 Production 1,650,000 Machine setup Shipping 700,000 440,000 Activity Drivers Direct material cost. Mächine-hours Setups Units shipped The company manufactures two basic products with model numbers 308 and 510. The following are data for production for the first month as part of MM. Total direct material costs: Total direct labor costs. Total machine-hours. Total number of setups Total…arrow_forwardView Policies Current Attempt in Progress Warner Company purchases $50,300 of raw materials on account, and it incurs $63,900 of factory labor costs. Supporting records show that (a) the Assembly Department used $27,100 of the raw materials and $40,100 of the factory labor, and (b) the Finishing Department used the remainder. Manufacturing overhead is assigned to departments on the basis of 160% of labor costs. Journalize the assignment of overhead to the Assembly and Finishing Departments. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles Debit Credit Mar.31 Last saved 57 seconds ago. Attempts: 0 of 3 used Submit Answer Save for Later Saved work will be auto-submitted on the due date. earch INarrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,