Pluton Makes Particular Plastics for Sale to the Public and the Government

question 11

Multiple Choice

Pluton makes particular plastics for sale to the public and the government. Basic cost data for a 100-pound drum of one particular product called Xentra appears below: $$\begin{array} { | l | r | r | } \hline & \text { Qty } & \text { Cost } \\\hline \text { Chemical Xeta, gals } & 15 & \$ 25.00 \\\hline \text { Chemical Thenta, gals } & 35 & \$ 27.50 \\\hline \text { Base material, lbs } & 20 & \$ 1.00 \\\hline 100 \text {-Ib lined drum } & 1 & \$ 51.83 \\\hline\end{array}$$ Variable factory overheads are estimated to be $1,200,000 per month, when 1,000,000 pounds of various products are produced. The plant employs 20 chemical workers who typically work 175 hours each per month and are paid $24 per hour. Other workers are classified as indirect and are included in fixed overheads. The highly automated plant typically runs 21,000 machine hours per month. The preparation of one 100 lbs batch of Xentra needs ten minutes of direct labor and 75 minutes of machine time. Fixed manufacturing overheads total $3,500,000 per month. Forty percent of these fixed manufacturing overheads are labor-related costs and the balance are machine-related costs. Assuming normal production levels, what is the conversion cost (direct labor and overhead) per drum?

• A)$191.67
• B)$287.40
• C)$311.67
• D)$315.67
• E)None of the above

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Definitions:

Bonds Payable

Bonds payable refers to the long-term debt a company owes to bondholders, representing the amount that is due to be paid back at the bond's maturity date along with periodic interest payments.

Straight-Line Method

A depreciation method that allocates an equal amount of the asset's cost to each accounting period of its useful life.

Effective-Interest Method

A technique of calculating the amortized cost of a bond and the amount of interest expense over its life, correcting for any differences between the issue price and the redemption value.

Interest Expense

Interest expense is a cost incurred by an entity for borrowed funds, reflected on the income statement.