Chapter 10, Problem 48E

Assigning Cost of Capacity

Curt’s Casting manufactures metal parts in a large manufacturing facility. Curt’s customers order 50,000 tons of castings each quarter. The facility has a practical capacity of 80,000 tons. Curt leased the current facility because it was more convenient than another new facility that had a capacity of 50,000 tons. The annual cost of the facility is $400,000. The variable cost of a casting is $6.

Required

1. a.         What cost per casting should the cost system report?
2. b.         Given your answer to requirement (a), is there any cost of excess capacity? If yes, what is the cost of excess capacity and how should it be reported? If no, why not?