Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 11, Problem 11.29E
Theory of constraints, throughput margin, relevant costs. The Denver Corporation manufactures filing cabinets in two operations: machining and finishing. It provides the following information:
Machining | Finishing | |
Annual capacity | 120,000 units | 100,000 units |
Annual production | 100,000 units | 100,000 units |
Fixed operating costs (excluding direct materials) | $600,000 | $300,000 |
Fixed operating costs per unit produced($600,000 ÷ 100,000; $300,000 ÷ 100,000) | $6 per unit | $3 per unit |
Each cabinet sells for $75 and has direct material costs of $35 incurred at the start of the machining operation. Denver has no other variable costs. Denver can sell whatever output it produces. The following requirements refer only to the preceding data. There is no connection between the requirements.
- 1. Denver is considering using some modern jigs and tools in the finishing operation that would increase annual finishing output by 1,150 units. The annual cost of these jigs and tools is $35.000. Should Denver acquire these tools? Show your calculations.
Required
- 2. The production manager of the Machining Department has submitted a proposal to do faster setups that would increase the annual capacity of the Machining Department by 9,000 units and would cost $20,000 per year. Should Denver implement the change? Show your calculations.
- 3. An outside contractor offers to do the finishing operation for 10,000 units at $9 per unit, triple the $3 per unit that it costs Denver to do the finishing in-house. Should Denver accept the subcontractor’s offer? Show your calculations.
- 4. The Hammond Corporation offers to machine 5,000 units at $3 per unit, half the $6 per unit that it costs Denver to do the machining in-house. Should Denver accept Hammond’s offer? Show your calculations.
- 5. Denver produces 2,000 defective units at the machining operation. What is the cost to Denver of the defective items produced? Explain your answer briefly.
- 6. Denver produces 2,000 defective units at the finishing operation. What is the cost to Denver of the defective items produced? Explain your answer briefly.
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Required information
[The following information applies to the questions displayed below.]
Performance Products Corporation makes two products, titanium Rims and Posts. Data regarding the two products follow:
Rims
Posts
Direct Labor-
Hours per unit
0.70
0.80
Annual
Production
Additional information about the company follows:
a. Rims require $14 in direct materials per unit, and Posts require $10.
b. The direct labor wage rate is $20 per hour.
Activity Cost Pool
Machine setups
Special processing
General factory
26,000 units
90,000 units
c. Rims are more complex to manufacture than Posts and they require special equipment.
d. The ABC system has the following activity cost pools:
Unit product cost of Rims
Unit product cost of Posts
Activity Measure
Number of setups
Machine-hours
Direct labor-hours
Estimated
Overhead Cost
$ 33,300
$ 172,800
$ 858,000
Estimated Activity
Rims
70
3,000
18,200
Posts
230
0
72,000
Total
300
3,000
90,200
2. Determine the unit product cost of each product…
Required information
[The following information applies to the questions displayed below.]
Martinez Company's relevant range of production is 9,500 units to 14,500 units. When it produces and sells 12,000 units,
its unit costs are as follows:
Amount
Per Unit
Direct materials
$5.00
$2.50
$1.40
$3.00
$2.00
$2.20
$1.20
Direct labour
Variable manufacturing overhead
Fixed manufacturing overhead
Fixed selling expense
Fixed administrative expense
Sales commissions
Variable administrative expense
$0.45
4. If 12,000 units are sold, what is the variable cost per unit sold? (Round your answer to 2 decimal places.)
Variable cost per unit sold
2. Lalila Furnitures produces communicator table and coffee table and operates at capacity. Data related
to the two products are presented here:
Annual production in units
Direct material costs
Direct manufacturing labor costs
Direct manufacturing labor-hours
Machine-hours
Number of production runs
Inspection hours
Total manufacturing overhead costs are as follows:
RM
Machining costs
Setup costs
Inspection costs
Coffee table
50,000
150,000
50,000
2,500
25,000
50
1,000
375,000
120,000
105,000
Communicator table
100,000
300,000
100,000
5,000
50,000
50
500
a. Choose a cost driver for each overhead cost pool and calculate the manufacturing overhead cost per
unit for each product.
b. Compute the manufacturing cost per unit for each product.
Chapter 11 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 11 - Prob. 11.1QCh. 11 - Define relevant costs. Why are historical costs...Ch. 11 - All future costs are relevant. Do you agree? Why?Ch. 11 - Distinguish between quantitative and qualitative...Ch. 11 - Describe two potential problems that should be...Ch. 11 - Variable costs are always relevant, and fixed...Ch. 11 - A component part should be purchased whenever the...Ch. 11 - Prob. 11.8QCh. 11 - Managers should always buy inventory in quantities...Ch. 11 - Management should always maximize sales of the...
Ch. 11 - Prob. 11.11QCh. 11 - Cost written off as depreciation on equipment...Ch. 11 - Managers will always choose the alternative that...Ch. 11 - Prob. 11.14QCh. 11 - Prob. 11.15QCh. 11 - Qualitative and quantitative factors. Which of the...Ch. 11 - Special order, opportunity cost. Chade Corp. is...Ch. 11 - Prob. 11.18MCQCh. 11 - Keep or drop a business segment. Lees Corp. is...Ch. 11 - Relevant costs. Ace Cleaning Service is...Ch. 11 - Disposal of assets. Answer the following...Ch. 11 - Relevant and irrelevant costs. Answer the...Ch. 11 - Multiple choice. (CPA) Choose the best answer. 1....Ch. 11 - Special order, activity-based costing. (CMA,...Ch. 11 - Make versus buy, activity-based costing. The...Ch. 11 - Inventory decision, opportunity costs. Best Trim,...Ch. 11 - Relevant costs, contribution margin, product...Ch. 11 - Selection of most profitable product. Body Image,...Ch. 11 - Theory of constraints, throughput margin, relevant...Ch. 11 - Closing and opening stores. Sanchez Corporation...Ch. 11 - Prob. 11.31ECh. 11 - Relevance of equipment costs. Janets Bakery is...Ch. 11 - Equipment upgrade versus replacement. (A. Spero,...Ch. 11 - Special order, short-run pricing. Diamond...Ch. 11 - Short-run pricing, capacity constraints. Fashion...Ch. 11 - International outsourcing. Riverside Clippers Corp...Ch. 11 - Relevant costs, opportunity costs. Gavin Martin,...Ch. 11 - Opportunity costs and relevant costs. Jason Wu...Ch. 11 - Opportunity costs. (H. Schaefer, adapted) The Wild...Ch. 11 - Make or buy, unknown level of volume. (A....Ch. 11 - Make versus buy, activity-based costing,...Ch. 11 - Prob. 11.42PCh. 11 - Product mix, special order. (N. Melumad, adapted)...Ch. 11 - Theory of constraints, throughput margin, and...Ch. 11 - Theory of constraints, contribution margin,...Ch. 11 - Closing down divisions. Ainsley Corporation has...Ch. 11 - Dropping a product line, selling more tours....Ch. 11 - Prob. 11.48PCh. 11 - Dropping a customer, activity-based costing,...Ch. 11 - Equipment replacement decisions and performance...
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