Hydraulic Fracking The Oil Industry - 2025 Words

Hydraulic Fracturing The oil industry in the United States is booming. However, not all oil or natural gasses are available by drilling. There are some oils and gasses trapped inside shale rock. To access these gases, a process called Hydraulic Fracturing, informally known as fracking, was invented. Hydraulic Fracking â€Å"is a controversial oil and gas extraction technique developed in the late 1940s to gain access to fossil energy deposits previously inaccessible to drilling operations. The process†¦literally involves the smashing of rock with millions of gallons of water- along with sand and an undisclosed assortment of chemicals in order to bring gas to the surface. (serc-carelton.edu).† This process combines water, sand, and chemicals†¦show more content†¦Hydraulic Fracturing allows for the United States to gain energy independence. Much in thanks to shale oil and gas, the US has been able to rely less heavily on foreign oil. Extracting oil for the United States in the U.S., al lows for cheaper gas prices. By gaining energy independence, the country â€Å"spends far less on cheaper, domestically, generated power, [and] the money would go primarily to US-owned energy producers (BBC.org).† Energy independence, in addition to benefiting the economy, would help the United States out politically. The country has rocky relations with many of the Middle Eastern countries that produce a large amount of energy resources. Independence would help to sever some of these ties. In an article from Forbes Magazine the author speculated that, â€Å" The Unites States will soon be the world’s largest oil producer, thanks to innovative new extraction technologies [such as fracking] that have revitalized previously dormant wells and also led to a shale gas and oil boom that has galvanized into action a series of once sleepy communities across the upper Great Plains, Texas and beyond. Given such resources, we no longer have to fund our enemies (Forbes.com).† Although economically fracking is a positive thing, there are many disadvantages to the process. Some of these disadvantaged to Hydraulic Fracturing are water contamination, methane and air pollution, andShow MoreRelatedThe Effect Of Hydraulic Fracking On The Oil And Gas Industry1044 Words   |  5 PagesIntroduction Hydraulic Fracking is an oil and gas extraction process used in the past 60 years. The process consists of drilling the underground until reach a shale layer, and them a high-pressure fracking fluid is injecting in this hole to fracture the rock underground, which will provide oil and gas to be extracted. As a huge extraction process it requires large quantities of water, sand and chemicals, which are to produce the fracking fluid, and in most of the cases all this water and chemicalsRead MoreThe Economic Report On Fracking, Is It Worth It?1465 Words   |  6 PagesWeekly Economic Report Fracking, is it Worth it? Ron Withall Business 630, Dr. Lynn Reaser SUBJECT Our dependence on foreign oil and natural gas has created a vulnerability affecting our national security and economic stability. Up until this past decade there was an appreciable decline in our oil and natural gas production in the US and we were tied to world market price fluctuations. Oil prices and natural gas prices rose and fell based on OPEC’s and other large oil and natural gas producers’Read MoreHydraulic Fracturing, or â€Å"Fracking†, is questionable in many people’s eyes. The â€Å"Why† â€Å"How†1700 Words   |  7 PagesHydraulic Fracturing, or â€Å"Fracking†, is questionable in many people’s eyes. 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To define fracking in latent termsRead MoreFracking And Its Early Technological Advancements1564 Words   |  7 Pages â€Æ' Contents Introduction 1 What is Hydraulic Fracking? 2 The Roberts Torpedo, 1864 3 Kelpper Well No. 1, 1947 5 Hydrafrac, 1949 6 The Growth of Hydrafrac, 1949 - 1954 8 Introduction Hydraulic fracking (‘Fracking’) dominates the US oil and gas industry. Although it is currently a politically dividing topic due to environmental concerns (United States Environmental Protection Agency, 2010), the concept behind fracking has been around for over 150 years (Roberts, 1866), and has beenRead MoreThe Oil And Natural Gas Industries1686 Words   |  7 Pages Around the globe, the oil and natural gas industries are a major part of stable and growing economies, as well as, the individual lives of most people. As individuals we use it to run our vehicles, heat our homes, cook, and much more. 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This boomingRead MoreHydraulic Fracturing And Its Effects On The Environment1737 Words   |  7 PagesHydraulic Fracturing has led to less cases of contamination than any other method of oil extraction, which is contrary to popular belief. There have been many useful regulations that turned a once feared industry to an environmentally safe, highly profitable industry. Hydraulic Fracturing is worth the risks it poses on the environment, because it will bolster the U.S. economy and foreign policy, provide billions of Petroleum barrel s and trillions of square feet of natural gas, and it is not as harmfulRead MoreHydraulic Fracturing Has Recently Grown In Popularity As1516 Words   |  7 PagesHydraulic fracturing has recently grown in popularity as a means of energy production. There are advantages and disadvantages, mainly relating to the environment and the economy, of this industry. Although there are pros and cons to both sides of the issue, a compromise needs to be found for both the safety of the environment and to be able to support affordable energy production. Hydraulic fracturing, as an industry, has had a large economic impact by creating jobs. Using natural gas from hydraulicRead MoreHydraulic Fracturing And Its Effects On The Environment1087 Words   |  5 Pages Hydraulic Fracturing Maya Murray Mr. Iwasaki Chun MYP Chemistry Essay 3 May 2015 Maya Murray Mr. Iwasaki Chun MYP Chemistry 3 May 2015 Hydraulic Fracturing â€Å"Our country will have drilled and fracked our way down a blind alley for a short lived energy boom† (qtd. In †¦). Hydraulic fracturing, also known as fracking, is the process of drilling and injecting fluid into the ground at high pressure in order to fracture shale rocks to release natural gases inside. Many people are referring

An Effective Tool for Better Management

Questions: Define manufacturing overhead, and: Cite three examples of typical costs that would be included in manufacturing overhead. Explain why companies develop predetermined overhead rates. Explain why the increase in the overhead rate should not have a negative financial impact on Borealis Manufacturing. Explain how Borealis Manufacturing could change its overhead application system to eliminate confusion over product costs. Describe how an activity-based costing system might benefit Borealis Manufacturing.? Answers: Borealis Manufacturing was previously using QC inspectors for quality control process. The QC inspectors were appointed at each major process and there were a total of 10 inspectors. The salary being paid to the inspectors was charged to the operation as direct labour. However, in order to increase efficiency and quality, the company introduced a computerized video QC system at a cost of $250000. There were 2 QC engineer appointed to operate the cameras. The operating costs of the new QC system and the salary of the two QC engineers is included in the factory overhead in order to calculate the companys manufacturing overhead rate which is based on direct labour. The Vice President of production is worried as the overhead rate has increased after the execution of new QC system. The manufacturing overhead and the overhead rate before and after are as below: Before After Budgeted Manufacturing Overhead 1900000 2100000 Budgeted Direct Labour Cost 1000000 700000 Budgeted Overhead rate 190% 300% Manufacturing Overhead also known as Factory Overhead can be defined as the indirect costs which are incurred in the production of a product along with direct material and direct labour. The manufacturing overhead costs should be assigned to each unit produced so that the cost of goods sold and the inventory can be valued and reported as per the generally accepted principles (GAAP). There are also non manufacturing costs like selling and administrative expenses which are incurred during the course of the business, but these costs are presented in the Income Statement as expenses represent a part of the total cost. They are not assigned to the product for inventory and COGS purposes. There are many costs which form a part of the manufacturing overhead, however three types of costs that will typically be included in production include: Salaries and wages of people involved in inspection of the product, maintenance of the equipment, cleanliness of the manufacturing area, material handling, setting up the manufacturing equipment and the factory management team. Depreciation on the plants and equipments and the facilities used in production Electricity, water, natural gas costs incurred in the production facilities and equipment. A pre- determined overhead rate is the allocation rate which is used by the company to allocate the estimated manufacturing overhead costs to each unit of product for a specified reporting period. The rate is used so that the accounting books can be closed quickly since a lot of time will be wasted in compiling the actual manufacturing overhead and allocating the same. The predetermined rate can be computed as follows: Estimated amount of manufacturing overhead for the period Estimated allocation base for the period There are two bases which can be used for determining the pre determined overhead rate which are Machine Hours and Labour Hours. Machine and labours are directly involved in production of goods and hence it can be identified as to how many hours are required by the machine to produce a part or the time taken by the labour to assemble a part of the machinery. The pre determined overhead rate can be used to allocate the resources available to a company and therefore help in setting of the prices of the product. The overhead rate helps in allocating manufacturing overheads to a particular product. The total manufacturing overhead will be allocated to all the products on basis of overhead rate. No matter how much cost is allocated to which product, the total manufacturing overhead will remain the same and will be reported as the inventory and the cost of goods sold in the financial statements. These amounts will be reasonably correct. Moreover, as long as the factory overhead appears in the financial statements as the cost of goods sold, the financial statements will be accurate and will receive a clean audit report. E.g. in the above case, the total manufacturing costs before the installation of the new system is $1900000 allocated to the products produced by Borealis on the basis of direct labour cost. Even when the manufacturing overhead has increased to $2100000, the same will be allocated on the basis of labour cost. Since the overhead rate is higher in the new system, a product requirin g more labour will be allocated higher manufacturing overhead. However, the total manufacturing overhead as reported in the financial statements in the form of cost of goods sold will remain $2100000, thereby not affecting the financial statements. In order to avoid confusion over the apportionment of indirect costs to the products, Borealis Manufacturing can look at changing its costing system to make it more efficient and appropriate. Currently, the direct labour cost is the allocation base for manufacturing overhead allocation. After installation of the new system, the direct labour cost has gone down from $1000000 to $700000, and the manufacturing overhead as increased from $190000 to $2100000, thus increasing the overhead absorption rate to 300% from 190%. Hence, a product/process requiring more labour will be allocated higher manufacturing overhead even if the product/process does not form a major part of the total production or process of the company. Thus, the allocation might be inappropriate. In order, to remove the inefficiency in resource allocation, Borealis should adopt a costing method which allocates the overhead costs in a more logical manner and not purely on the basis of direct labour cost. Currently there may be products which require higher machine hours and the machine hour rate may be more than the direct labour cost rate. So the products with more machine hours and less labour hours will be allocated lower overhead cost since the overhead rate is based on direct labour cost. Whereas, in terms of costs, more costs are being incurred for the said product. Hence, in order to eliminate this flaw of assigning manufacturing overhead costs on the basis of only one particular basis like machine hours or labour hours/cost is incorrect, a better way of cost apportionment would be through Activity Based Costing (ABC) which takes into consideration the reason for the incurring of the manufacturing overhead i.e. which activity is causing the overhead to incur and then it assigns the costs to the products which demand the most of those activities, thus making the allocation more logical. Activity Based Costing is a two process system where the overhead costs are assigned to the activities in the first stage and then the costs are allocated from these activities to the products in the second stage. The basic assumption in ABC costing is that the overhead costs are incurred due to a number of activities and the different products use these activities in a non- homogenous manner. Thus there may be some activities which are more expensive than the other. A product which uses most of the expensive activity will be assigned higher overhead costs. The various steps involved in Activity Based Costing are as follows: Identification of all activities involved in the process of production Classification of the activity on the basis of cost hierarchy Identification of the total costs for every activity identified Identification of the cost drivers for each activity Estimation of the total units of the cost drivers relevant for each activity Calculation of the activity usage rate by dividing the activity cost per unit by the relevant cost driver Apportionment of the cost of each activity to the product based on the activity rate. In the above case of Borealis, the various activities and the relevant cost drivers to that activity could include: Activity Relevant Cost Driver Production of parts Number of machine hours Assembly of parts Number of labour hours Set up costs Number of set ups Product testing Number of testing hours Designing Number of designer hours Differences in the units Number of differences Packaging Number of units Shipping Number of units Rent Labour cost Many organisations have adopted the ABC costing method of resource allocation as it is more appropriate and logical; however, the system has its own limitations which may hold the company from implementing the system: Expensive implementation the implementation of ABC costing is very expensive and time consuming as it involves breaking down the process into various activities. It can lead to using of company resources as data is collected and entered in the system. Use of software for ABC, appointment of a specialised consultant and training of the employees are other costs of introducing ABC costing. Misinterpretation of Data the accounting standards accept the traditional costing and not the activity based costing. Hence, interpreting the ABC cost allocation with the regular accounting information can lead to misleading and bad decision making. However, the benefits of ABC costing are more as compared to the limitations and a company should use software to integrate its information with the regular cost accounting information. References Mahal, I., Hossain, A., (2015), Activity Based Costing (ABC) An Effective Tool for Better Management, Research Journal of Finance and Accounting, Vol. 6, No.4 Anderson, R., Steven, and Kalpan, (2003), Time Driven Activity Based Costing Joan, M., (2009), Traditional Versus Activity-Based Product Costing Methods: a field study in a Defense Electronics Manufacturing Company, Proceedings from ASBBS Annual Conference Roztocki, N., Schultz, S.M., (2003), Adoption and Implementation of Activtiy- Based Costing: A Web Based Survey, State University of New York at New Paltz School of business