Question

Refer to the information provided in Problem 6.51.
Beginning inventories:
Direct materials ............. $ 4,000
Conversion costs .............. 3,200
Costs added during current period:
Direct materials ............. $36,000
Conversion costs ............. 32,000
Physical units:
Units in beginning inventory .......... 2,000
Units started this month ........... 18,000
Total units completed and transferred out .... 14,800
Normal spoilage ............. 1,200
Abnormal spoilage ............ 1,000

REQUIRED
A. Following a material flow analysis, the company’s accountant estimates that 15% of the direct materials and 80% of conversion costs are classified as “waste and emissions.” Assume these percentages apply to both beginning inventories and current period costs.
Prepare a material flow cost report using the FIFO method.
B. Provide a possible explanation for the higher proportion of waste in conversion costs compared to direct materials.
C. Should the managers of Rally Company establish a goal of eliminating all waste and emissions? Explain your reasoning.
D. Suppose the managers are interested in presenting Rally as a company that is concerned about the environment. What are the pros and cons of publicly reporting data about the amount of waste in the company’s manufacturing operations?



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  • CreatedJanuary 26, 2015
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