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?