Relevant or avoidable costs and Irrelevant or unavoidable costs – The major decisions that a business has to take during its operations include dropping of a product, elimination of a segment, buy or make a product, to sell at scrap or rework on the product, to accept special offers etc. All these decisions are taken on the basis of the costs involved. There are two types of costs – 1. Relevant costs or avoidable costs – these costs can be defined as the costs that can be avoided if we choose over option over the other. Example of relevant costs are, direct material, direct labor, avoidable fixed costs etc. 2. Irrelevant costs – these costs can be defined as the costs that cannot be avoided in any of the options available or the costs which have been already incurred like sunk costs. Examples of irrelevant costs are unavoidable fixed costs, or the costs which have been already incurred. Requirement 1 To identify: The expected costs under the three alternatives – (a) Make (b) Buy, and leave the facilities idle (c) Buy and use facilities for another product

Question

Brun Company produces its product through two processing departments: Mixing and Baking. Information for the Mixing department follows. Direct Materials Conversion Unit Percent Complete Percent Complete Beginning work in process inventory 7.500 Units started this period 104,500 Units completed and transferred out 100.000 Ending work in process inventory 12.000 100% 25% Beginning work in process inventory Direct materials Conversion $6.800 14.500 $21.300 Costs added this period Drect materials 116,400 Conversion Total costs to account for 1.067,000 1.183.400 $1.204.700 Required 1. Prepare the Mixing department's production cost report for November using the weighted average method Check (1) C$1.000 2. Prepare the November 30 journal entry to transfer the cost of completed units from Mixing to Baking

Answer 1

Question

Chapter 25, Problem E25.19E

To determine

Concept Introduction:

Relevant or avoidable costs and Irrelevant or unavoidable costs –

The major decisions that a business has to take during its operations include dropping of a product, elimination of a segment, buy or make a product, to sell at scrap or rework on the product, to accept special offers etc. All these decisions are taken on the basis of the costs involved. There are two types of costs –

1. Relevant costs or avoidable costs – these costs can be defined as the costs that can be avoided if we choose over option over the other. Example of relevant costs are, direct material, direct labor, avoidable fixed costs etc.

2. Irrelevant costs – these costs can be defined as the costs that cannot be avoided in any of the options available or the costs which have been already incurred like sunk costs. Examples of irrelevant costs are unavoidable fixed costs, or the costs which have been already incurred.

Requirement 1

To identify:

The expected costs under the three alternatives –

(a) Make

(b) Buy, and leave the facilities idle

(c) Buy and use facilities for another product

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Brun Company produces its product through two processing departments: Mixing and Baking. Information for the Mixing department follows. Direct Materials Conversion Unit Percent Complete Percent Complete Beginning work in process inventory 7.500 Units started this period 104,500 Units completed and transferred out 100.000 Ending work in process inventory 12.000 100% 25% Beginning work in process inventory Direct materials Conversion $6.800 14.500 $21.300 Costs added this period Drect materials 116,400 Conversion Total costs to account for 1.067,000 1.183.400 $1.204.700 Required 1. Prepare the Mixing department's production cost report for November using the weighted average method Check (1) C$1.000 2. Prepare the November 30 journal entry to transfer the cost of completed units from Mixing to Baking

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