A mixing plant having a capacity of 50 cu. m. every hour costs P2,500,000. It is estimated to process 800,000 cu. m. during its life. During a certain year it processed 60,000 cu. m. If its scrap value is P100,000, determine the total depreciation cost chargeable to each batch of 50 cu. m. using Service-Output-Method.

A mixing plant having a capacity of 50 cu. m. every hour costs P2,500,000. It is estimated to process 800,000 cu. m. during its life. During a certain year it processed 60,000 cu. m. If its scrap value is P100,000, determine the total depreciation cost chargeable to each batch of 50 cu. m. using Service-Output-Method.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter12: Activity-based Management

Section: Chapter Questions

Problem 22E: The activity of moving materials uses four forklifts, each leased for 18,000 per year. A forklift is...

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The activity of moving materials uses four forklifts, each leased for 18,000 per year. A forklift is capable of making 5,000 moves per year, where a move is defined as a round trip from the plant to the warehouse and back. During the year, a total of 18,000 moves were made. What is the cost of the unused capacity for the moving goods activity? a. 5,400 b. 1,800 c. 7,200 d. 3,600
Cost Behavior, Classification Smith Concrete Company owns enough ready-mix trucks to deliver up to 100,000 cubic yards of concrete per year (considering each trucks capacity, weather, and distance to each job). Total truck depreciation is 200,000 per year. Raw materials (cement, gravel, and so on) cost about 25 per cubic yard of cement. Required: 1. Prepare a graph for truck depreciation. Use the vertical axis for depreciation cost and the horizontal axis for cubic yards of cement. 2. Prepare a graph for raw materials. Use the vertical axis for cost and the horizontal axis for cubic yards of cement. 3. Assume that the normal operating range for the company is 90,000 to 96,000 cubic yards per year. Classify truck depreciation and raw materials as variable or fixed costs. 4. CONCEPTUAL CONNECTION Briefly describe actions that Smith management could take to reduce the truck depreciation cost from year to year. 5. CONCEPTUAL CONNECTION Briefly describe actions that Smith management could take to reduce the total raw materials cost from year to year.
Walloon Company produced 150 defective units last month at a unit manufacturing cost of 30. The defective units were discovered before leaving the plant. Walloon can sell them as is for 20 or can rework them at a cost of 15 and sell them at the regular price of 50. What is the total relevant cost of reworking the defective units? a. 2,250 b. 3,000 c. 4,500 d. 6,750
Clark Kent Inc. buys crypton for $.80 a gallon. At the end of processing in Dept. 1, crypton splits off into products plutonium, tantalum, and xenon. Plutonium is sold at the split-off point with no further processing. Tantalum and xenon require further processing before they can be sold. Tantalum is processed in Dept. 2, and xenon is processed in Dept. 3. Following is a summary of costs and other related data for the year ended December 31: No inventories were on hand at the beginning of the year, and no crypton was on hand at the end of the year. All gallons on hand at the end of the year were complete as to processing. Kent uses the net realizable value method of allocating joint costs. Required: Calculate the allocation of joint costs. Calculate the total cost per unit for each product. In examining the product cost reports, Lois Lane, Vice President—Marketing, notes that the per-unit cost of tantalum is greater than the selling price of $2.75 that can be received in the competitive marketplace. Lane wonders whether they should stop selling tantalum. How did Lane determine that the product was being sold at a loss? What per unit cost should be used in determining whether tantalum should be sold?
How would each of the following costs be classified if units produced is the activity base? a. Salary of factory supervisor ($120,000 per year) b. Straight-line depreciation of plant and equipment c. Property rent of $11,500 per month on plant and equipment
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. Depreciation on equipment averages 16,000 per year. Direct materials and power cost about 4.50 per unit. 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?
Hatch Manufacturing produces multiple machine parts. The theoretical cycle time for one of its products is 65 minutes per unit. The budgeted conversion costs for the manufacturing cell dedicated to the product are 12,960,000 per year. The total labor minutes available are 1,440,000. During the year, the cell was able to produce 0.6 units of the product per hour. Suppose also that production incentives exist to minimize unit product costs. Required: 1. Compute the theoretical conversion cost per unit. 2. Compute the applied conversion cost per minute (the amount of conversion cost actually assigned to the product). 3. Discuss how this approach to assigning conversion cost can improve delivery time performance. Explain how conversion cost acts as a performance driver for on-time deliveries.
Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of 945,000 with terms of 2/10, n/30; the companys policy is to take all purchase discounts. The freight on the equipment would be 11,000, and installation costs would total 22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of 12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of 2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of 1,500. Rather than replace the equipment, one of Jonfrans production managers has suggested that the waste containers be purchased. One supplier has quoted a price of 27 per container. This price is 8 less than Jonfrans current manufacturing cost, which is as follows: Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at 45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. Required: 1. Prepare a schedule of cash flows for the make alternative. Calculate the NPV of the make alternative. 2. Prepare a schedule of cash flows for the buy alternative. Calculate the NPV of the buy alternative. 3. Which should Jonfran domake or buy the containers? What qualitative factors should be considered? (CMA adapted)
Concrete mixing plant having a capacity of 40m3 every hour costs P1,000,000. It is estimated to process P700,000m3 during its life. During a certain year it processed 50,000m3. If its scrap value is P90,000, determined the total depreciation during the year and the depreciation cost chargeable to each batch of 40m3 using production unit method.
Two lathes are being considered in the manufacture of certain machine parts. Data is given below, all cost in peso: LATHE A LATHE B First Cost 40,000 56,000 Salvage Value 5,000 7,000 Annual Maintenance 2,000 2,800 Operation, Cost/hour 4 3.5 Life, in years 10 12 Time per part (hours) 0.40 0.25 REQUIRED: If the number of parts is 10,000 units, which lathe will you recommend? Use ROR If the number of parts is 10,000 units, which lathe will you recommend? Use EUAC
machine costing $257,500 with a four-year life and an estimated $20,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 475,000 units of product during its life. It actually produces the following units: 220,000 in Year 1, 124,600 in Year 2, 121,800 in Year 3, and 15,200 in Year 4. The total number of units produced by the end of Year 4 exceeds the original estimate—this difference was not predicted. Note: The machine cannot be depreciated below its estimated salvage value. Required Prepare a table with the following column headings and compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method.
A company operates a continuous process into which 3,000 units of material costing $9,000 was input in a period. Conversion costs for this period were $11,970 and losses, which have a scrap value of $1.50, are expected at a rate of 10% of input. There were no opening or closing inventories and output for the period was 2,900 units. What was the output valuation?