Cases in Cost Management
Quiz 5 :
Berk Shire Threaded Fasteners
Arctic Insulation Company uses scrap paper along with fiber to produce insulation material in home attics. To produce insulation it uses two sources: 1) Bulk paper 2) Buying paper The unit cost par falling between year 1979 and 1980 appears to be falling. It is not easy to compare the cost of producing each bale as total costs are not taken into account. In year 1979, the total unit cost per bale was $7.89 ($10,697,050/1,355,000). In year 1980, total unit cost per bale was $5.84($9,636,970/1,650,000). Applying the distributing overhead method of G.M., the cost per formed bale for year 1979 was $8.56 and cost of purchased bale was $5.32. The cost per formed bale for year 1980 was $7.53 and cost of purchased bale was $4.29. The above calculation is satisfied with the table of G.M. and might be created on involved spreadsheet.
The cost control issue which was concerned with the president is that the company purchased more bales instead of form 3452. The direct labor cost decreases proportionately to the number of bales formed, and increases on the number of bales purchased. The amount allocated to indirect labor cost has been increased by 8% compared to 20% increase in the number of processed bales. Whole production efficiently rise in year 1980 compared to year 1979. In year 1980 division overhead amount fell by 10% which reveals that not all 22 plants were utilized in this period.
For evaluating formed versus purchased bales prices current cost report is not suitable. Summary cost report does not contain the required information regarding employees, wages, and indirect labor allocation. Item named other OH (very costly item in Depot Oh) is not expanded by deducting the ability to evaluate additional data given in report and give fair conclusion on company cost accounting. Further allocated division overhead is not expanded, but the amount is decreased by 10 percent which might be creating doubt on the plants efficiency.