CP 3-3 Analyzing unit costs Midstate Containers Inc. manufactures cans for the c

Question

CP 3-3 Analyzing unit costs Midstate Containers Inc. manufactures cans for the canned food industry. The operations manager of a can manufacturing operation wants to conduct a cost study investigating the relationship of tin content in the material (can stock) to the energy cost for enamel ing the cans. The enameling was necessary to prepare the cans for labeling. A higher percentage of tin content in the can stock increases the cost of material. The operations manager believed that a higher tin content in the can stock would reduce the amount of energy used in enameling. During the analysis period, the amount of tin content in the steel can stock was increased for every month, from April to September. The following operating reports were available from the controller: August September $14,000 34,800 33,00021,700 28,800 33,000 16,000 April June July 2 Energy 3 |Materials 4 Total cost 51 Units produced 6 Cost per unit 7 13,000 27,000 $ 63,600 57,200 50,000-120,000 | 110.000 T÷ 70,000 | ÷ 90,000 1 -100,000 14,000 35,700 $ 45,900 49,000 28,800 24,200 17,100 0.54 0.53 0.52 0.51 0.51 0.49 he Reserved. May not be copied scanned or duplicated n whole or n part. Due to electronic rights, some thin part content may be suppressed fom the e k and/or eChaptea(s). Edtorul ®vew ha d content does not maena affed the overall leamang ex enene. G ngage La ming reserve enght to ren ve a dno al ment at any tune i subsequent ng ts resnanns require n

Explanation / Answer

As we can see from the above table that materials cost per unit is declining steadily during the period April to September. This is happening when amount of tin content in the steel can stock was increased every month. Thus increase in tin content is leading to decline in materials cost on a per unit basis.

The above table shows that moving from one month to another the materials cost per unit is showing a constant improvement by falling on a regular basis. Thus addition of tin content in can stock is helping the company to reduce its materials cost per unit.

Analysis of energy costs per unit:

We can conclude that even though materials cost per unit is falling due to addition of tin content there is no improvement in energy costs per unit. In fact energy costs per unit are increasing every month.  

April May June July August September Materials cost 13,000.00 28,800.00 24,200.00 14,000.00 17,100.00 16,000.00 Units produced 50,000.00 120,000.00 110,000.00 70,000.00 90,000.00 100,000.00 Materials cost per unit 0.26 0.24 0.22 0.20 0.19 0.16

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