Chenango Industries uses 13 units of part JR63 each month in the production of radar equipment. The cost of manufacturing one unit of JR63 is the following: Direct material $ 4,500 Material handling (20% of direct-material cost) Direct labor 900 Manufacturing overhead (150% of direct labor) 40,000 60,000 Total manufacturing cost $105,400 Material handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Chenango Industries' annual manufacturing overhead budget is one-third variable and two-thirds fixed. Scott Supply, one of Chenango Industries' reliable vendors, has offered to supply part number JR63 at a unit price of $65,000. Required: 1. If Chenango Industries purchases the JR63 units from Scott, the capacity Chenango Industries used would be idle. Should Chenango Industries decide to purchase the parts from Scott, the unit cost of JR63 would increase (or decrease) by what amount? 2. Assume Chenango Industries is able to rent out all its idle capacity for $95,000 per month. If Chenango Industries decides to purchase the 13 units from Scott Supply, Chenango's monthly cost for JR63 would increase (or decrease) by what amount? 3. Assume that Chenango Industries does not wish to commit to a rental agreement but could use its idle capacity to manufacture another product that would contribute $179,000 per month. If Chenango's management elects to manufacture JR63 in order to maintain quality control, what is the net amount of Chenango's cost from using the space to manufacture part JR63? manufacture these parts < Prev 10 of 14 Next >
Chenango Industries uses 13 units of part JR63 each month in the production of radar equipment. The cost of manufacturing one unit of JR63 is the following: Direct material $ 4,500 Material handling (20% of direct-material cost) Direct labor 900 Manufacturing overhead (150% of direct labor) 40,000 60,000 Total manufacturing cost $105,400 Material handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Chenango Industries' annual manufacturing overhead budget is one-third variable and two-thirds fixed. Scott Supply, one of Chenango Industries' reliable vendors, has offered to supply part number JR63 at a unit price of $65,000. Required: 1. If Chenango Industries purchases the JR63 units from Scott, the capacity Chenango Industries used would be idle. Should Chenango Industries decide to purchase the parts from Scott, the unit cost of JR63 would increase (or decrease) by what amount? 2. Assume Chenango Industries is able to rent out all its idle capacity for $95,000 per month. If Chenango Industries decides to purchase the 13 units from Scott Supply, Chenango's monthly cost for JR63 would increase (or decrease) by what amount? 3. Assume that Chenango Industries does not wish to commit to a rental agreement but could use its idle capacity to manufacture another product that would contribute $179,000 per month. If Chenango's management elects to manufacture JR63 in order to maintain quality control, what is the net amount of Chenango's cost from using the space to manufacture part JR63? manufacture these parts < Prev 10 of 14 Next >
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
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Chenango Industries uses 13 units of part JR63 each month in the production of radar equipment. The cost of manufacturing one unit
of JR63 is the following:
Direct material
$ 4,500
Material handling (20% of direct-material cost)
Direct labor
Manufacturing overhead (150% of direct labor)
900
40,000
60,000
$105,400
Total manufacturing cost
Material handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased
components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Chenango Industries' annual
manufacturing overhead budget is one-third variable and two-thirds fixed. Scott Supply, one of Chenango Industries' reliable vendors,
has offered to supply part number JR63 at a unit price of $65,000.
Required:
1. If Chenango Industries purchases the JR63 units from Scott, the capacity Chenango Industries used to manufacture these par
would be idle. Should Chenango Industries decide to purchase the parts from Scott, the unit cost of JR63 would increase (or decrease)
by what amount?
2. Assume Chenango Industries is able to rent out all its idle capacity for $95,000 per month. If Chenango Industries decides to
purchase the 13 units from Scott Supply, Chenango's monthly cost for JR63 would increase (or decrease) by what amount?
3. Assume that Chenango Industries does not wish to commit to a rental agreement but could use its idle capacity to manufacture
another product that would contribute $179,000 per month. If Chenango's management elects to manufacture JR63 in order to
maintain quality control, what is the net amount of Chenango's cost from using the space to manufacture part JR63?
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