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Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
ISBN: 9781285866307

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BuyFindarrow_forward

Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
ISBN: 9781285866307
Textbook Problem

Determining cost relationships

Midsize Containers Inc. manufacture’s cans for the canned food industry. The operations manager of a can manufacturing operation wants to conduct a cost study investigating the relationship of tin content in the material (can stock) to the energy cost for enameling the cans. The enameling was necessary to prepare the cans for labeling. A higher percentage of tin content in the can stock increases the cost of material. The operations manager believed that a higher tin content in the can stock would reduce the amount of energy used in enameling. During the analysis period, the amount of tin content in the steel can stock was increased for every month, from April to September. The following operating reports were available from the controller

images

Differences in materials unit costs were entirely related to the amount of tin content. In addition, inventory changes are negligible and are ignored in the analysis.

Interpret this information and report to the operations manager your recommendations with respect to tin content.

To determine

Process costs

It is a method of cost accounting, which is used where the production is continuous, and the product needs various processes to complete. This method is used to ascertain the cost of the product at each process or stage of production.

 To Interpret: The table and report to the operation manager your recommendation relates to the tin content.

Explanation

This case is summarized from a real condition, wherever greater raw materials costs due to tin content remained more than recompense by lesser energy costs. The cost system recycled in the actual condition was a complicated “real – time” expense following system. The fine point of this trade – off investigation is exciting.

First step is to interpret the monthly materials and energy costs into their individual cost per unit of monthly production. In this approach, the costs can be associated through the months.

Figure (1)

The graph below shows the total cost data for each month.

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