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Steamco is reviewing its operations to see what additional energy-saving projects it might adopt. The company's manufacturing plant generates its own electricity using a process
Steamco is reviewing its operations to see what additional energy-saving projects it might adopt. The company's manufacturing plant generates its own electricity using a process capturing steam from its production processes. A summary of the use of service departments by other service departments as well as by the two producing departments at the plant follows. Steam Generation 0 Fixed Costs 0 Services Used by Variable Equipment Costs Maintenance 0.40 0 Alpha 0.10 Beta 0.50 Service Department Steam Generation Electric Generating Fixed costs Variable costs Equipment Maintenance 0 0.10 0.10 0.20 0 0 0.05 0.10 0.05 0 0 0.30 0.55 0.50 0.50 0.30 0.15 0.10 Direct costs (in thousands) in the various departments follow: Direct Cost $ 210 Department Steam Generation (S1) Electric Generating: Fixed costs (S2) Variable costs (53) Equipment Maintenance (54) Production Alpha (P1) Beta (P2) 90 240 144 1,800 1,320 Steamco currently allocates costs of service departments to production departments using the step method. The local power company indicates that it would charge $480,000 per year for the electricity that Steamco now generates internally. Management rejected switching to the power company on the grounds that its rates would cost more than the $330,000 ($90,000 + $240,000) cost of the present, company-owned, system. Assume the company could realize $174,000 per year from the sale of the steam now used for electric generating after selling costs. Compute the total relevant internal costs for the company. (Enter your answer in thousands of dollars.) Total relevent internal costs $ 0
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