Cost Accounting
15th Edition
ISBN: 9780133428834
Author: Horngren
Publisher: PEARSON
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Textbook Question
Chapter 9, Problem 9.10Q
What are two ways of reducing the negative aspects associated with using absorption costing to evaluate the performance of a plant manager?
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If an oil rig was built in the sea, the cost to be capitalised is likely to include the cost of constructing the asset and the present value of the cost of dismantling it. If the asset cost $10 million to construct, and would cost $4 million to remove in 20 years, then the present value of this dismantling cost must be calculated. If interest rates were 5%, the present value of the dismantling costs are calculated as follows: $4 million x 1/1.0520 = $1,507,558
The total to be capitalised would be $10 million + $1,507,558 = $11,507,558.
This would be depreciated over 20 years, so 11,507,558 x 1/20 = $575,378 per year.
Each year, the liability would be increased by the interest rate of 5%.
In year 1 this would mean the liability increases by $75,378 (making the year end liability $1,582,936).
This increase is taken to the finance costs in the statement of profit or loss.
General Accounting Question please answer
What is the return on equity? General accounting
Chapter 9 Solutions
Cost Accounting
Ch. 9 - Differences in operating income between variable...Ch. 9 - Why is the term direct costing a misnomer?Ch. 9 - Do companies in either the service sector or the...Ch. 9 - Explain the main conceptual issue under variable...Ch. 9 - Companies that make no variable-cost/fixed-cost...Ch. 9 - The main trouble with variable costing is that it...Ch. 9 - Give an example of how, under absorption costing,...Ch. 9 - What are the factors that affect the breakeven...Ch. 9 - Critics of absorption costing have increasingly...Ch. 9 - What are two ways of reducing the negative aspects...
Ch. 9 - Prob. 9.11QCh. 9 - Describe the downward demand spiral and its...Ch. 9 - Will the financial statements of a company always...Ch. 9 - Prob. 9.14QCh. 9 - The difference between practical capacity and...Ch. 9 - Prob. 9.16ECh. 9 - Prob. 9.17ECh. 9 - Prob. 9.18ECh. 9 - Prob. 9.19ECh. 9 - Prob. 9.20ECh. 9 - Prob. 9.21ECh. 9 - Prob. 9.22ECh. 9 - Prob. 9.23ECh. 9 - Capacity management, denominator-level capacity...Ch. 9 - Prob. 9.25ECh. 9 - Prob. 9.26ECh. 9 - Prob. 9.27ECh. 9 - Prob. 9.28PCh. 9 - Prob. 9.29PCh. 9 - Prob. 9.30PCh. 9 - Prob. 9.31PCh. 9 - Motivational considerations in denominator-level...Ch. 9 - Prob. 9.33PCh. 9 - Prob. 9.34PCh. 9 - Prob. 9.35PCh. 9 - Prob. 9.36PCh. 9 - Prob. 9.37PCh. 9 - Prob. 9.38PCh. 9 - Prob. 9.39PCh. 9 - Prob. 9.40PCh. 9 - Prob. 9.41PCh. 9 - Prob. 9.42P
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Cost control, Why cost control is necessary for a business?; Author: Educationleaves;https://www.youtube.com/watch?v=yMg3gJx48Fg;License: Standard youtube license