Alderon Enterprises is evaluating a special order it has received for a ceramic fixture to be used in aircraft engines. Alderon has recently been operating at less than full capacity, so the firm's management will accept the order if the price offered exceeds the costs that will be incurred in producing it. You have been asked for advice on how to determine the cost of two raw materials that would be required to produce the order. A) The special order will require 800 gallons of Endor, a highly perishable material that is purchased as needed. Alderon currently has 1,200 gallons of Endor on hand, since the material is used in virtually all of the company's products. The last time endor was purchased, Alderon paid $5.00 per gallon. However, the average price paid for the endor in stock was only $4.75. The market price for the Endor is quite volatile, with the current price at $5.50. If the special order is accepted, Alderon will have to place a new order next week to replace the 800 gallons of Endor used. By then the price is expected to be $5.75 per gallon. Comment on each of the cost figures mentioned in the preceding discussion. What is the real cost of Endor if the special order is produced? B) The special order also would require 1,500 kilograms of tatooine, a material not normally required in any of Alderon's regular products. The company does happen to have 2,000 kilograms of Tatooine on hand since it formerly manufactured a ceramic product that used the material. Alderon recently received an offer of $14,000 from Solo Industries for its entire supply of tatooine. However, Solo Industries is not interested in buying any quantity less than Alderon's entire 2,000-kilogram stock. Alderon's management is unenthusiastic about Solo's offer since Alderon paid $20,000 for the Tatooine. Moreover, if the Tatooine were purchased at today's market price, it would cost $11.00 per kilogram. Due to the volatility of the tatooine, Alderon will need to get rid of its entire supply one way or another. If the material is not used in production or sold, Alderon will have to pay $1,000 for each 500 kilograms that is transported away and disposed of in a hazardous waste disposal site. Using cost terminology, comment on each of the cost figures mentioned in the preceding discussion. What is the real cost of tatooine to be used in the special order?
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.
Alderon Enterprises is evaluating a special order it has received for a ceramic fixture to be used in aircraft engines. Alderon has recently been operating at less than full capacity, so the firm's management will accept the order if the price offered exceeds the costs that will be incurred in producing it. You have been asked for advice on how to determine the cost of two raw materials that would be required to produce the order.
A) The special order will require 800 gallons of Endor, a highly perishable material that is purchased as needed. Alderon currently has 1,200 gallons of Endor on hand, since the material is used in virtually all of the company's products. The last time endor was purchased, Alderon paid $5.00 per gallon. However, the average price paid for the endor in stock was only $4.75. The market price for the Endor is quite volatile, with the current price at $5.50. If the special order is accepted, Alderon will have to place a new order next week to replace the 800 gallons of Endor used. By then the price is expected to be $5.75 per gallon.
Comment on each of the cost figures mentioned in the preceding discussion. What is the real cost of Endor if the special order is produced?
B) The special order also would require 1,500 kilograms of tatooine, a material not normally required in any of Alderon's regular products. The company does happen to have 2,000 kilograms of Tatooine on hand since it formerly manufactured a ceramic product that used the material. Alderon recently received an offer of $14,000 from Solo Industries for its entire supply of tatooine. However, Solo Industries is not interested in buying any quantity less than Alderon's entire 2,000-kilogram stock. Alderon's management is unenthusiastic about Solo's offer since Alderon paid $20,000 for the Tatooine. Moreover, if the Tatooine were purchased at today's market price, it would cost $11.00 per kilogram. Due to the volatility of the tatooine, Alderon will need to get rid of its entire supply one way or another. If the material is not used in production or sold, Alderon will have to pay $1,000 for each 500 kilograms that is transported away and disposed of in a hazardous waste disposal site.
Using cost terminology, comment on each of the cost figures mentioned in the preceding discussion. What is the real cost of tatooine to be used in the special order?
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