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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Decision making

Fix Paper Inc. produces photographic paper for printing digital images. One of the processes for this operation is a coating (solvent spreading) operation, where chemicals are coated onto paper stock. There has been some concern about the cost performance of this operation. As a result, you have begun an investigation. You first discover that all materials and conversion prices have been stable for the last six months. Thus, increases in prices for inputs are not an explanation for increasing costs. However, you have discovered three possible problems from some of the operating personnel whose quotes follow:

Operator: I've been keeping an eye on my operating room instruments. I feel as though our energy consumption is becoming less efficient.*

Operator 2: 'Every time the coating machine goes down, we produce waste on shutdown and subsequent startup It seems as though during the last half year, we have had more unscheduled machine shutdowns than in the past Thus. I think our yields must be dropping"

Operator 3. "My sense is that our coating costs are going up It seems as though we are spreading a thicker coating than we should Perhaps the coating machine needs to be recalibrated.*

The Coating Department had no beginning or ending inventories for any month during the study period. The following data from the cost of production report are made available:

images

a. Prepare a table showing the paper cost per output pound, coating cost per output pound, conversion cost per output pound, and yield (pounds transferred out/pounds input) for each month. Round costs to the nearest cent and yield to the nearest whole percent.

b. Interpret your table results.

(a)

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.

Equivalents units for production

The activity of a processing department in terms of fully completed units is known as equivalent units. It includes the completed units of direct materials and conversion cost of beginning work in process, units completed and transferred out, and ending work in process.

To Prepare: The table showing the paper cost per output pound coating cost per pound, conversion cost per output pound, and yield (pounds transferred out / pounds input) for each month.

Explanation

Prepare the table showing the paper cost per output pound coating cost per pound, conversion cost per output pound and yield (pounds transferred out / pounds input) for each month as shown below:

Particulars January February March April May June
Paper stock:
Amount (A) $67,200 $63,840 $60,480 $64,512 $57,120 $53,760
Output (B) 96,000 91,200 86,400 92,160 81,600 76,800
Cost per pound (A ÷ B) $0.70 $0.70 $0.70 $0.70 $0.70 $0.70
Coating:
Amount (A) $11,520 $11,856 $12,960 $15,667 $16,320 $18,432
Output (B) 96,000 91,200 86,400 92,160 81,600 76,800
Cost per pound (A ÷ B) $0.12 $0.13 $0.15 $0...

(b)

To determine

To Interpret: The table results of Incorporation PP.

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