Determining cost relationships Midstate Containers Inc. manufactures cans for the canned food industry. The operations manager of a can manufacturing operation wants to conduct a cost study investigating the relationship of tin content in the material (can stock) to the energy cost for enameling the cans. The enameling was necessary to prepare the cans for labeling. A higher percentage of tin content in the can stock increases the cost of material. The operations manager believed that a higher tin content in the can stock would reduce the amount of energy used in enameling. During the analysis period, the amount of tin content in the steel can stock was increased for every month, from April to September. The following operating reports were available from the controller: April May June July August September Materials $14,000 $34,800 $33,000 $21,700 $28,800 $33,000 Energy 13,000 28,800 24,200 14,000 17,100 16,000 Total cost $27,000 $63,600 $57,200 $35,700 $45,900 $49,000 Units produced ÷ 50,000 ÷ 120,000 ÷ 110,000 ÷ 70,000 ÷ 90,000 ÷ 100,000 Cost per unit $0.54 $0.53 $0.52 $0.51 $0.51 $0.49 Differences in materials unit costs were entirely related to the amount of tin content. In addition, inventory changes are negligible and are ignored in the analysis. Calculate the total cost per unit for each month. Round your answers to the nearest cent. Total Cost per Unit April $fill in the blank 1 May $fill in the blank 2 June $fill in the blank 3 July $fill in the blank 4 August $fill in the blank 5 September $fill in the blank 6 Interpret your results. The calculations reveals that the tin content and energy costs are related. That is, as the materials cost increased due to higher tin content, the energy costs by more. Thus, the recommendation should be to raw can stock with the tin content at the $0.33-per-unit level(September level). This is the material that the total production cost for this set of data. Additional data could be used to determine the optimal tin content, or the point where energy cost savings fail to overcome additional material costs.
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.
Determining cost relationships
Midstate Containers Inc. manufactures cans for the canned food industry. The operations manager of a can manufacturing operation wants to conduct a cost study investigating the relationship of tin content in the material (can stock) to the energy cost for enameling the cans. The enameling was necessary to prepare the cans for labeling. A higher percentage of tin content in the can stock increases the cost of material. The operations manager believed that a higher tin content in the can stock would reduce the amount of energy used in enameling. During the analysis period, the amount of tin content in the steel can stock was increased for every month, from April to September. The following operating reports were available from the controller:
| April | May | June | July | August | September | ||||||||||||
| Materials | $14,000 | $34,800 | $33,000 | $21,700 | $28,800 | $33,000 | |||||||||||
| Energy | 13,000 | 28,800 | 24,200 | 14,000 | 17,100 | 16,000 | |||||||||||
| Total cost | $27,000 | $63,600 | $57,200 | $35,700 | $45,900 | $49,000 | |||||||||||
| Units produced | ÷ 50,000 | ÷ 120,000 | ÷ 110,000 | ÷ 70,000 | ÷ 90,000 | ÷ 100,000 | |||||||||||
| Cost per unit | $0.54 | $0.53 | $0.52 | $0.51 | $0.51 | $0.49 |
Differences in materials unit costs were entirely related to the amount of tin content. In addition, inventory changes are negligible and are ignored in the analysis.
Calculate the total cost per unit for each month. Round your answers to the nearest cent.
| Total Cost per Unit |
||
| April | $fill in the blank 1 | |
| May | $fill in the blank 2 | |
| June | $fill in the blank 3 | |
| July | $fill in the blank 4 | |
| August | $fill in the blank 5 | |
| September | $fill in the blank 6 |
Interpret your results.
The calculations reveals that the tin content and energy costs are related. That is, as the materials cost increased due to higher tin content, the energy costs by more. Thus, the recommendation should be to raw can stock with the tin content at the $0.33-per-unit level(September level). This is the material that the total production cost for this set of data. Additional data could be used to determine the optimal tin content, or the point where energy cost savings fail to overcome additional material costs.
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