REAL LIFE
Polly Products is a recycled plastics manufacturer located in Mulliken, Michigan. It makes plastic “lumber” called Polly Planks from 100% recycled plastics. It also builds park benches, picnic tables, and other outdoor amenities from the Polly Planks it produces.
Plastic lumber like that made by Polly Products is typically manufactured using an extrusion process. Post-consumer plastics (milk jugs, bottles, and other plastics) are purchased from municipalities and other recyclers. Much of plastic lumber is produced from post-consumer milk jug material. At the recycler, the milk jugs are crushed into giant cubes, weighing 800 to 1,000 pounds per pallet. When an extrusion manufacturer receives the milk jug, the manufacturer puts the milk jug through a powerful shredder that cuts the milk jug into small pieces resembling confetti. The shredded milk jug is stored in large cardboard boxes called gaylords.
When production begins, gaylords containing shredded plastic are brought to the extrusion line. The shredded plastic is dumped into a large hopper. Other materials are added to the hopper at the initial start of manufacture, including oils, colorants, other plastics, and foaming agents. All of the ingredients are stirred in the hopper until thoroughly mixed. The materials then go into the extrusion machine. The extrusion machine melts the plastic into a hot liquid form. That liquid plastic is pushed through the extrusion machine through a screw mechanism into molds that give the plastic lumber its final shape.
Polly Planks can be sold as dimensional lumber in similar sizes as natural wood lumber, including 2” × 4”, 2”× 6”, and other sizes. The lengths of the Polly Planks can be 8’, 10’, or a custom length.
Polly Products also uses its Polly Planks to produce park benches, picnic tables, trash receptacles, and other outdoor amenities. Polly Products’ employees fabricate these outdoor amenities both for stock inventory and for special orders. Custom orders are likely to comprise a significant portion of Polly Products’ sales.
A manufacturer such as Polly Products would use a hybrid costing system rather than a pure process costing system or a pure
Requirements
- 1. Which product(s) manufactured by Polly Products would use elements of a process costing system? Give a detailed description of why you think that product (or those products) would require a process costing system.
- 2. Within the process costing portion of the hybrid system at Polly Products, what costs would be considered to be direct materials? What costs are likely to be in conversion costs in the process costing system? (Use your imagination to brainstorm about potential conversion costs at Polly Products since these costs were not directly addressed in the case.)
- 3. Which products manufactured by Polly Products would be likely to use elements of a job costing system? Again, explain your reasoning and be specific.
- 4. Within the job costing portion of the hybrid system at Polly Products, what are the direct materials? What would be direct labor? What costs are likely to be in manufacturing
overhead ? (Again, use your imagination to brainstorm about potential direct labor and manufacturing overhead costs.) - 5. In addition to
manufacturing costs , Polly Products has sales, engineering, and general administrative support costs. Are these costs relevant in the hybrid costing system? Why or why not? - 6. What major issues do you see in a hybrid costing system?
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Chapter 5 Solutions
Managerial Accounting (5th Edition)
- Profit Planning and Control This case is a manufacturer and could make specialty bikes, ski or outdoor equipment, computers, food like chocolates, saltwater taffy, cookies, or donuts, etc. Create the balance sheet, income statement, and statement of the cash flow from the following information. Use the following information for the learning experiences Sales volume units = 11,000 Sales price/unit = $100 Variable manufacturing costs/unit = $60 Fixed manufacturing costs = $210,000 Fixed sales & administration costs = $190,000 Business income tax rate = 25% Current assets = $250,000 (Cash $50,000, Accounts Receivables $100,000, Inventory $100,000) Fixed assets = $750,000 Current liabilities = $200,000 (Accounts Payable $100,000, Short Term Debt $100,000) Long Term Debt = $300,000 Owners' Equity = $500,000arrow_forwardAverage labor cost for the first 700 units of a product is RO 50 and the average labor cost of first 1400 units is RO 45. Average time per unit is 100 minutes. The learning ratio and the average labour cost for first 2800 units will be: a. 80% and RO 36.000 b. 90% and RO 40.500 c. 85% and RO 38.250 d. 95% and RO 42.750arrow_forwardCost estimation, cumulative average-time learning curve. The Pacic Boat Company, which is under contract to the U.S. Navy, assembles troop deployment boats. As part of its research program, it completes the assembly of the rst of a new model (PT109) of deployment boats. The Navy is impressed with the PT109. It requests that Pacic Boat submit a proposalon the cost of producing another six PT109s. Pacic Boat reports the following cost information for the rst PT109 assembled and uses a 90% cumulative average-time learning model as a basis for forecasting direct manufacturing laborhours for the next six PT109s. (A 90% learning curve means b = −0.152004.)arrow_forward
- Cost estimation, cumulative average-time learning curve. The Pacific Boat Company, which is under contract to the U.S. Navy, assembles troop deployment boats. As part of its research program, it completes the assembly of the first of a new model (PT109) of deployment boats. The Navy is impressed with the PT109. It requests that Pacific Boat submit a proposal on the cost of producing another six PT109s. Pacific Boat reports the following cost information for the first PT109 assembled and uses a 90% cumulative average-time learning model as a basis for forecasting direct manufacturing labor-hours for the next six PT109s. (A 90% learning curve means b = −0.152004.)arrow_forwardLearning CurveBordner Company manufactures HVAC (heating, ventilation, and air conditioning) systems for commercial buildings. For each new design, Bordner faces a 90 percent learning rate. On aver-age, the first unit of a new design takes 600 hours. Direct labor is paid $25 per hour. Required:1. Set up a table with columns showing: the cumulative number of units, cumulative average time per unit in hours, and cumulative total time in hours. Show results by row for total pro-duction of one unit, two units, four units, eight units, and sixteen units. (Round hour answers to two significant digits.) 2. What is the total labor cost if Bordner makes the following number of units: one, four, sixteen? What is the average cost per system for the following number of systems: one, four, or sixteen? (Round your answers to the nearest dollar.) 3. Using the logarithmic function, set up a table with columns showing: the cumulative number of units, cumulative average time per unit in hours,…arrow_forwardCost Identification Following is a list of cost terms described in the chapter as well as a list of brief descriptive settings for each item. Cost terms: a. Opportunity cost b. Period cost c. Product cost d. Direct labor cost e. Selling cost f. Conversion cost g. Prime cost h. Direct materials cost i. Manufacturing overhead cost j. Administrative cost Settings: 1. Marcus Armstrong, manager of Timmins Optical, estimated that the cost of plastic, wages of the technician producing the lenses, and overhead totaled 30 per pair of single-vision lenses. 2. Linda was having a hard time deciding whether to return to school. She was concerned about the salary she would have to give up for the next 4 years. 3. Randy Harris is the finished goods warehouse manager for a medium-sized manufacturing firm. He is paid a salary of 90,000 per year. As he studied the financial statements prepared by the local certified public accounting firm, he wondered how his salary was treated. 4. Jamie Young is in charge of the legal department at company headquarters. Her salary is 95,000 per year. She reports to the chief executive officer. 5. All factory costs that are not classified as direct materials or direct labor. 6. The new product required machining, assembly, and painting. The design engineer asked the accounting department to estimate the labor cost of each of the three operations. The engineer supplied the estimated labor hours for each operation. 7. After obtaining the estimate of direct labor cost, the design engineer estimated the cost of the materials that would be used for the new product. 8. The design engineer totaled the costs of materials and direct labor for the new product. 9. The design engineer also estimated the cost of converting the raw materials into their final form. 10. The auditor for a soft drink bottling plant pointed out that the depreciation on the delivery trucks had been incorrectly assigned to product cost (through overhead). Accordingly, the depreciation charge was reallocated on the income statement. Required: Match the cost terms with the settings. More than one cost classification may be associated with each setting; however, select the setting that seems to fit the item best. When you are done, each cost term will be used just once.arrow_forward
- Triad Children's Center(TCC), a non-profit organization, uses relevant cost analysis to determine whether new services are desirable. TCC is looking at adding a new education program for grade school children who are having difficulty with the reading and math skills. The following relevant cost are expected if the program is accepted:arrow_forwardFNG Paint (Pty) Ltd produces finger paint and sells them to pre‐schools. The following information relates to a set of finger paint. A set of finger paint is considered to be one unit. Direct labour needed for the first set of paint 4 hoursDirect labour costs per unit R30 per hourDirect material costs per unit R25Total Fixed costs R2 000Learning curve 80% Using the learning curve theory and information provided above, calculate the expected average cost for one set of paint should four and sixteen sets be produced, respectively. Round off to two decimal places.arrow_forwardLearnCo LearnCo manufactures and sells one product, an abacus for classroom use, with two models, the Basic model and the Deluxe model. The company began operations on January 1, 20Y1, and is planning for 20Y2, its second year of operations, by preparing budgets from its master budget. The company is trying to decide how many units to manufacture, how much it might spend on direct materials and direct labor, and what their factory overhead expenses might be. In addition, the company is interested in budgeting for selling and administrative costs, and in creating a budgeted income statement showing a prediction of net income for 20Y2. You have been asked to assist the controller of LearnCo in preparing the 20Y2 budgets. Sales Budget The sales budget often uses the prior year’s sales as a starting point, and then sales quantities are revised for various factors such as planned advertising and promotion, projected pricing changes, and expected industry and general economic conditions.…arrow_forward
- Activity-Based Life-Cycle Costing Kagle design engineers are in the process of developing a new “green” product, one that will significantly reduce impact on the environment and yet still provide the desired customer functionality. Currently, two designs are being considered. The manager of Kagle has told the engineers that the cost for the new product cannot exceed $500 per unit (target cost). In the past, the Cost Accounting Department has given estimated costs using a unit-based system. At the request of the Engineering Department, Cost Accounting is providing both unit- and activity-based accounting information (made possible by a recent pilot study producing the activity-based data). Unit-based system:Variable conversion activity rate: $100 per direct labor hourMaterial usage rate: $20 per partABC system:Labor usage: $15 per direct labor hourMaterial usage (direct materials): $20 per partMachining: $85 per machine hourPurchasing activity: $170 per purchase orderSetup activity:…arrow_forwardActivity-Based Life-Cycle Costing Kagle design engineers are in the process of developing a new “green” product, one that will significantly reduce impact on the environment and yet still provide the desired customer functionality. Currently, two designs are being considered. The manager of Kagle has told the engineers that the cost for the new product cannot exceed $500 per unit (target cost). In the past, the Cost Accounting Department has given estimated costs using a unit-based system. At the request of the Engineering Department, Cost Accounting is providing both unit- and activity-based accounting information (made possible by a recent pilot study producing the activity-based data). Unit-based system:Variable conversion activity rate: $100 per direct labor hourMaterial usage rate: $20 per partABC system:Labor usage: $15 per direct labor hourMaterial usage (direct materials): $20 per partMachining: $85 per machine hourPurchasing activity: $170 per purchase orderSetup activity:…arrow_forwardAllright Test Design Company creates, produces, and sells Internet-based CPA and CMA review courses for individual use. Davis Webber, head of human resources, is convinced that question development employees must have strong analytical and problem-solving skills. He asked Andrea Benson, controller for Allright Test Design, to help develop problems for use in screening applicants before they are interviewed. One of the problems Andrea developed is based on the following data for a mythical company (Mythic, Inc.) for the previous year: Conversion cost was $139,000 and was four times the prime cost. Direct materials used in production equaled $5,200. Cost of goods manufactured was $153,200. Ending work in process is 50 percent of the cost of beginning work in process. There are no beginning or ending inventories for direct materials. Cost of goods sold was 110 percent of cost of goods manufactured. Beginning finished goods inventory was $22,190. Required: Question Content Area 1.…arrow_forward
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