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:
Conversion costs | $40,500,000 |
Fuel | 10,800,000 |
Total | $51,300,000 |
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:
Conversion costs | $2,700,000 |
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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Chapter 20 Solutions
Accounting
- Zippy Inc. manufactures a fuel additive, Surge, which has a stable selling price of 44 per drum. The company has been producing and selling 80,000 drums per month. In connection with your examination of Zippys financial statements for the year ended September 30, management has asked you to review some computations made by Zippys cost accountant. Your working papers disclose the following about the companys operations: Standard costs per drum of product manufactured: Materials: Costs and expenses during September: Chemicals: 645,000 gallons purchased at a cost of 1,140,000; 600,000 gallons used. Empty drums: 94,000 purchased at a cost of 94,000; 80,000 drums used. Direct labor: 81,000 hours worked at a cost of 816,480. Factory overhead: 768,000. Required: Calculate the following for September, using the formulas on pages 421422 and 424 (Round unit costs to the nearest whole cent and compute the materials variances for both Surge and for the drums.): 1. Materials quantity variance. 2. Materials purchase price variance. 3. Labor efficiency variance. 4. Labor rate variance.arrow_forwardAlgers Company produces dry fertilizer. At the beginning of the year, Algers had the following standard cost sheet: Algers computes its overhead rates using practical volume, which is 54,000 units. The actual results for the year are as follows: a. Units produced: 53,000 b. Direct materials purchased: 274,000 pounds at 2.50 per pound c. Direct materials used: 270,300 pounds d. Direct labor: 40,100 hours at 17.95 per hour e. Fixed overhead: 161,700 f. Variable overhead: 122,000 Required: 1. Compute price and usage variances for direct materials. 2. Compute the direct labor rate and labor efficiency variances. 3. Compute the fixed overhead spending and volume variances. Interpret the volume variance. 4. Compute the variable overhead spending and efficiency variances. 5. Prepare journal entries for the following: a. The purchase of direct materials b. The issuance of direct materials to production (Work in Process) c. The addition of direct labor to Work in Process d. The addition of overhead to Work in Process e. The incurrence of actual overhead costs f. Closing out of variances to Cost of Goods Soldarrow_forwardMonroe Materials processes a purchased material, PM-20, and produces three outputs, Alpha, Beta, and Gamma. In February, the costs to process PM-20 are $1,084,000 for materials and $644,000 for conversion costs. The results of the processing follow: Units Produced Sales Value per Unit Alpha Beta 31,000 $ 9.60 24,800 Gamma 6,200 18.00 80.00 Required: Assign costs to Alpha, Beta, and Gamma for February using the net realizable value method. Product Cost Assigned Alpha Beta Gamma Total S 0arrow_forward
- Angler Industries produces a product which goes through two operations, Assembly and Finishing, before it is ready to be shipped. Next year's expected costs and activities are shown below. Assembly 248,888 DLH Finishing 154,000 DLH 68,000 MH 448,800 MH $440,000 Direct labor hours Machine hours Overhead costs Assume that Angler Industries allocates overhead using a plantvide overhead rate based on machine hours. How much total overhead will be assigned to a product that requires 1 direct labor hour and 3.90 machine hours in the Assembly Department, and 4.00 direct labor hours and 0.6 machine hours in the Finishing Department? Multiple Chaises O O O $21.50 $17.60 $2.00. $18.10 $ 677,680 $13.20.arrow_forwardeBook Calculator Print Item 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: Conversion costs $40,500,000 Fuel 10,800,000 Total $51,300,000 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: Conversion costs $2,700,000 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. Cost Per Mega-watt Hour Fossil plant per MWh Wind farm b. Why are equivalent units of production not needed in determining the…arrow_forwardAssume 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…arrow_forward
- Lake Erie Company uses a plantwide overhead rate with machine hours as the allocation base. Next year, 620,000 units are expected to be produced taking 0.80 machine hours each. How much overhead will be assigned to each unit produced given the following estimated amounts? Estimated: Department 1 $3,111,500 Department 2 Manufacturing overhead costs $1,526,000 Direct labor hours 152,000 DLH 252,000 DLH Machine hours 252,000 MH 177,000 MH Multiple Choice O $11.48 per unit $12.35 per unit $8.65 per unit $5.04 per unit $10.81 per unitarrow_forwardAssigning Costs to Activities, Resource Drivers The receiving department has three activities: unloading, counting goods, and inspecting. Unloading uses a forklift that is leased for $15,000 per year. The forklift is used only for unloading. The fuel for the forklift is $3,600 per year. Other operating costs (maintenance) for the forklift total $1,500 per year. Inspection uses some special testing equipment that has depreciation of $1,200 per year and an operating cost of $750. Receiving has three employees who have an average salary of $50,000 per year. The work distribution matrix for the receiving personnel is as follows: Activity Percentage of Time on Each Activity Unloading 40% Counting 25 Inspecting 35 No other resources are used for these activities. Required: 1. Calculate the cost of each activity. Unloading $fill in the blank 1 Counting $fill in the blank 2 Inspecting $fill in the blank 3 2. Explain the two methods used to assign costs to activities.arrow_forwardCreating and Using a Cost Formula Big Thumbs Company manufactures portable flash drives for computers. Big Thumbs incurs monthly depreciation costs of $14,400 on its plant equipment. Also, each drive requires materials and manufacturing overhead resources. On average, the company uses 18,500 ounces of materials to manufacture 7,400 flash drives per month. Each ounce of material costs $3.00. In addition, manufacturing overhead resources are driven by machine hours. On average, the company incurs $29,600 of variable manufacturing overhead resources to produce 7,400 flash drives per month. In your calculations, round variable rate per flash drive to the nearest cent. If required, round final answers to the nearest cent. Required: 1. Create a formula for the monthly cost of flash drives for Big Thumbs. Total cost of flash drives = Fixed cost v + ( Variable rate x Number of flash drives) Total cost of flash drives = $ 14,400 v + ($ 10.50 v x Number of flash drives) 2. If the department…arrow_forward
- Assigning Costs to Activities, Resource Drivers The Receiving Department has three activities: unloading, counting goods, and inspecting. Unloading uses a forklift that is leased for $21,000 per year. The forklift is used only for unloading. The fuel for the forklift is $3,700 per year. Other operating costs (maintenance) for the forklift total $1,500 per year. Inspection uses some special testing equipment that has depreciation of $1,750 per year and an operating cost of $1,750. Receiving has three employees who have an average salary of $50,000 per year. The work distribution matrix for the receiving personnel is as follows: Activity Percentage of Time on Each Activity Unloading 40% Counting 25% Inspecting 35% No other resources are used for these activities. Required: 1. Calculate the cost of each activity. Unloading $fill in the blank 1 Counting $fill in the blank 2 Inspecting $fill in the blank 3 2. Explain the two methods used to assign costs to activities.…arrow_forwardCreating and Using a Cost Formula Big Thumbs Company manufactures portable flash drives for computers. Big Thumbs incurs monthly depreciation costs of $15,500 on its plant equipment. Also, each drive requires materials and manufacturing overhead resources. On average, the company uses 9,800 ounces of materials to manufacture 4,900 flash drives per month. Each ounce of material costs $3.00. In addition, manufacturing overhead resources are driven by machine hours. On average, the company incurs $24,500 of variable manufacturing overhead resources to produce 4,900 flash drives per month. In your calculations, round variable rate per flash drive to the nearest cent. If required, round final answers to the nearest cent. Required: 1. Create a formula for the monthly cost of flash drives for Big Thumbs. Total cost of flash drives = + ( x Number of flash drives) Total cost of flash drives = $fill in the blank 3 + ($fill in the blank 4 x Number of flash drives) 2. If the department…arrow_forwardHan Products manufactures 47,500 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is as follows: Direct materials Direct labour Variable overhead Fixed overhead $ 5.25 11.25 4.25 10.05 Total cost per part $30.80 An outside supplier has offered to sell 41,500 units of part S-6 each year to Han Products for $27.25 per part. If Han Products accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $98,000. However, Han Products has determined that one-third(1/3) of the fixed overhead being applied to part S-6 will be avoided if part S-6 is purchased from the outside supplier. Requlred: 1. What is the net dollar advantage or disadvantage of accepting the outside supplier's offer? (Do not round the Intermedlate calculations. Round your Intermedlete calculetions to two decimal places.) 2. What is the annual rental value at which the company will be…arrow_forward
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