1: Two “wall-to-wall” manually operated paint shops, where the painting is done by hand (one car at a time in each shop). The annual joint operating cost for each shop is estimated at $150,000. In each paint shop, the average painting time is estimated to be 6 h per car. The painting time closely follows an exponential distribution. Alternative 2: An automated paint shop at an annual operating cost of $400,000. In this case, the average paint time for a car is 3 h and exponentially distributed. Regardless of which paint shop alternative is chosen, the railroad cars in need of painting arrive to the paint shop according to a Poisson process with a mean of 1 car every 5 h (= the interarrival time is 5 h). The cost for an idle railroad car is $50 per hour. A car is considered idle as soon as it is not in traffic; consequently, all the time spent in the paint shop is considered idle time. For efficiency reasons, the paint shop operation is running 24 h, 365 days a year, for a total of 8760 h/year
1: Two “wall-to-wall” manually operated paint shops, where the painting is done by hand (one car at a time in each shop). The annual joint operating cost for each shop is estimated at $150,000. In each paint shop, the average painting time is estimated to be 6 h per car. The painting time closely follows an exponential distribution. Alternative 2: An automated paint shop at an annual operating cost of $400,000. In this case, the average paint time for a car is 3 h and exponentially distributed. Regardless of which paint shop alternative is chosen, the railroad cars in need of painting arrive to the paint shop according to a Poisson process with a mean of 1 car every 5 h (= the interarrival time is 5 h). The cost for an idle railroad car is $50 per hour. A car is considered idle as soon as it is not in traffic; consequently, all the time spent in the paint shop is considered idle time. For efficiency reasons, the paint shop operation is running 24 h, 365 days a year, for a total of 8760 h/year
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Topic Video
Question
A railroad company paints its own railroad cars as needed. The company is about to
make a significant overhaul of the painting operations and needs to decide between
two alternative paint shop configurations.
Alternative 1: Two “wall-to-wall” manually operated paint shops, where the painting
is done by hand (one car at a time in each shop). The annual joint operating cost for each
shop is estimated at $150,000. In each paint shop, the average painting time is estimated
to be 6 h per car. The painting time closely follows an exponential distribution.
Alternative 2: An automated paint shop at an annual operating cost of $400,000. In
this case, the average paint time for a car is 3 h and exponentially distributed.
Regardless of which paint shop alternative is chosen, the railroad cars in need of
painting arrive to the paint shop according to a Poisson process with a mean of 1 car
every 5 h (= the interarrival time is 5 h). The cost for an idle railroad car is $50 per
hour. A car is considered idle as soon as it is not in traffic; consequently, all the time
spent in the paint shop is considered idle time. For efficiency reasons, the paint shop
operation is running 24 h, 365 days a year, for a total of 8760 h/year.
a. What is the utilization of the paint shops in alternative 1 and 2, respectively?
What are the probabilities, for alternative 1 and 2, respectively, that no railroad
cars are in the paint shop system?
b. Provided the company wants to minimize the total expected cost of the system,
including operating costs and the opportunity cost of having idle railroad cars,
which alternative should the railroad company choose?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education