Consider the potato chip production process at a company such as Frito-Lay . Frito-Lay uses a continuous flow technology that is suited for high volumes of product. At the Plano, Texas, facility, between 10,000 and 10,500 pounds of potato chips are produced each hour. The plant operates 24 hours a day.
It takes 30 minutes to completely produce a bag of potato chips from the raw potato to the packed end product.
1. What product and process characteristics of potato chips dictate the cost accounting system used? Describe the costing system best suited to Frito-Lay.
2. What product and process characteristics dictate the use of an ABC system? What implications does this have for Frito-Lay?
3. When beginning inventories are present, product costing becomes more complicated. Estimate the relative magnitude of beginning inventories at Frito-Lay compared to total production. What implication does this have for the costing system?