Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Textbook Question
Chapter 17, Problem 20E
Process costing for a service company
Madison Electric Company uses a fossil fuel (coal) plant for generating electricity. The facility can generate 900 megawatts (million watts) per hour. The plant operates 600 hours during March. Electricity is used as it is generated; thus, there are no inventories at the beginning or end of the period. The March conversion and fuel costs are as follows:
Madison also has a wind farm that can generate 100 megawatts per hour. The wind farm receives sufficient wind to run 300 hours for March. The March conversion costs for the wind farm (mostly depreciation) are as follows:
- A. Determine the cost per megawatt hour (MWh) for the fossil fuel plant and the wind farm to identify the lowest cost facility in March.
- B. Why are equivalent units of production not needed in determining the cost per megawatt hour (MWh) for generating electricity?
- C. What advantage does the fossil fuel plant have over the wind farm?
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Rundle 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
One-third of these costs can be avoided by purchasing the containers.
Russo Container Company has offered to sell comparable containers to Rundle for $2.60 each.
Required
a. Calculate the total relevant cost. Should Rundle continue to make the containers?
b. Rundle could lease the space it currently uses in the manufacturing process. If leasing would produce $11,600 per month, calculate
the total avoidable costs. Should Rundle continue to make the containers?
Answer is complete but not entirely correct.
$
a. Total relevant cost
a. Should Rundle continue to make the containers?
b. Total avoidable cost
b. Should Rundle continue to make the containers?
190.650,000
Yes
$24,180,000
$ 5,200
6,100
4,000
7,800…
Jordan Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of
producing 9,100 containers follows.
Unit-level materials
Unit-level labor
Unit-level overhead
Product-level costs
Allocated facility-level costs
$ 5,700
6,800
3,900
8,100
27,200
One-third of these costs can be avoided by purchasing the containers.
Russo Container Company has offered to sell comparable containers to Jordan for $2.90 each.
Required
a. Calculate the total relevant cost. Should Jordan continue to make the containers?
b. Jordan could lease the space it currently uses in the manufacturing process. If leasing would produce $12.300 per rhonth, calculate
the total avoidable costs. Should Jordan continue to make the containers?
a. Total relevant cost
Should Jordan continue to make the containers?
b. Total avoidable cost
Should Jordan continue to make the containers?
Assume that a company manufactures numerous component parts, one of which is called Part A. The company's absorption costing system indicates that it costs $23.00 to make one unit of Part A as
shown below:
Direct materials
$ 10.00
Direct labor
6.00
Variable overhead
2.00
Fixed overhead
5.00
Total absorption cost per unit
$ 23.00
The company is trying to decide between two alternatives:
Alternative 1: Continue making 80,000 units of Part A per year using its existing equipment at the unit cost shown above. The equipment used to make this part does not wear out through use and it has
no resale value.
Alternative 2: Replace the existing equipment with a new piece of equipment that the company would rent for $150,000 per year. The new piece of equipment would be used to make 80,000 units per
year and it would reduce Part A's direct labor cost per unit by 20% and its variable overhead per unit by 30%. The direct materials cost per unit will remain constant.
What is the financial advantage…
Chapter 17 Solutions
Financial And Managerial Accounting
Ch. 17 - Which type of cost system, process or job order,...Ch. 17 - In job order cost accounting, the three elements...Ch. 17 - In a job order cost system, direct labor and...Ch. 17 - Why is the cost per equivalent unit often...Ch. 17 - What is the purpose for determining the cost per...Ch. 17 - Rameriz Company is a process manufacturer with two...Ch. 17 - What is the most important purpose of the cost of...Ch. 17 - How are cost of production reports used for...Ch. 17 - Job order versus process costing Which of the...Ch. 17 - Kraus Steel Company has two departments, Casting...
Ch. 17 - The Rolling Department of Kraus Steel Company had...Ch. 17 - The Rolling Department of Kraus Steel Company had...Ch. 17 - The cost of direct materials transferred into the...Ch. 17 - The costs per equivalent unit of direct materials...Ch. 17 - In October, the cost of materials transferred into...Ch. 17 - Analyzing changes in unit costs The costs of...Ch. 17 - Entries for materials cost flows in a process cost...Ch. 17 - Flowchart of accounts related to service and...Ch. 17 - Radford Inc. manufactures a sugar product by a...Ch. 17 - The cost accountant for River Rock Beverage Co....Ch. 17 - The Converting Department of Worley Company had...Ch. 17 - Data for the two departments of Kimble Pierce...Ch. 17 - The following information concerns production in...Ch. 17 - a. Based upon the data in Exercise 17-7, determine...Ch. 17 - Equivalent units of production Kellogg Company...Ch. 17 - Costs per equivalent unit Georgia Products Inc....Ch. 17 - The charges to Work in ProcessAssembly Department...Ch. 17 - a. Based on the data in Exercise 17-11, determine...Ch. 17 - Errors in equivalent unit computation Napco...Ch. 17 - Cost per equivalent unit The following information...Ch. 17 - Costs per equivalent unit and production costs...Ch. 17 - Cost of production report The debits to Work in...Ch. 17 - Cost of Production report The Cutting Department...Ch. 17 - Cost of production and journal entries AccuBlade...Ch. 17 - Cost of production and journal entries Lighthouse...Ch. 17 - Process costing for a service company Madison...Ch. 17 - The Converting Department of Tender Soft Tissue...Ch. 17 - Units of production data for the two departments...Ch. 17 - The following information concerns production in...Ch. 17 - Equivalent units of production and related costs...Ch. 17 - The following information concerns production in...Ch. 17 - The increases to Work in ProcessRoasting...Ch. 17 - Prepare a cost of production report for the...Ch. 17 - Entries for process cost system Port Ormond Carpet...Ch. 17 - Cost of production report Hana Coffee Company...Ch. 17 - Equivalent units and related costs; cost of...Ch. 17 - Work in process account data for two months; cost...Ch. 17 - Sunrise Coffee Company roasts and packs coffee...Ch. 17 - Entries for process cost system Preston Grover...Ch. 17 - Cost of production report Bavarian Chocolate...Ch. 17 - Equivalent units and related costs; cost of...Ch. 17 - Work in process account data for two months; cost...Ch. 17 - Blue Ribbon Flour Company manufactures flour by a...Ch. 17 - Dura-Conduit Corporation manufactures plastic...Ch. 17 - Analyzing process cost elements across product...Ch. 17 - Analyzing process cost elements over time Pix...Ch. 17 - Prob. 4MADCh. 17 - Ethics in Action You are the Cookie division...Ch. 17 - Communications Jamarcus Bradshaw, plant manager of...Ch. 17 - Prob. 4TIFCh. 17 - During December, Krause Chemical Company had the...Ch. 17 - Jones Corporation uses a first-in, first-out...Ch. 17 - Kimbeth Manufacturing uses a process cost system...Ch. 17 - A company is using process costing with the...
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