Questions

1. What has increased the need for cost systems that accurately deal with indirect manufacturing costs? (5 points)

2. Why should the decision makers of an organization only focus on the relevant costs when making a financial decision? (5 points)

3. What qualitative considerations should be relevant when making a make-or-buy decision? (5 points)

4. When production capacity is limited and obtaining additional customer orders is possible, an organization should take into consideration its opportunity costs in order to evaluate the profitability of these new order. Do you agree with this statement? What are some examples of opportunity costs in this context? (5 points)

Problems

1. Bays Discount Brokerage is trying to determine the cost of supplying computing resources in order to determine how much to charge for trades. The organizations cost analysis is perplexed because Bays has acquired 80 servers to meet peak capacity needs, which occurs between 9:00 a.m. and 5:00 p.m. local time, but only needs the capacity of 20 servers during the remaining time. The costs associated with each server are $3,696 per month and each server is available for use for 24 hours per day for an average of 22 days per month.

(a) What cost per hour would you advise for peak-hour consumption? Explain why you think this cost rate is appropriate?

(b) What cost per hour would you advise for non-peak-hour capacity consumption? Explain why you think this cost rate is appropriate?

2. Miller Company manufactures plastic bottles and sells them to different organizations that manufacture bottled water. Last month, there was no opening inventory. During that month, 25 million bottles were entered into production and 24 million were completed. The units in ending inventory were 100% complete with respect to materials cost and 60% complete with respect to conversion costs. During that month, there were material costs of $500,000 and conversion costs of $246,000.

(a) What was the number of equivalent units work done for conversion costs during that month?

(b) What was the cost per equivalent unit of conversion costs that month?

(c) What is the total cost that will be allocated to units completed and transferred out?

(d) What is the cost that will be allocated to ending work in process?