Concept explainers
a.
Draw the flow of the different models through the production process.
a.
Explanation of Solution
Production cost:
Production cost refers to the cost associated with the production process. Direct costs associated with the process and stages of completion are taken into consideration while computing the cost of the production of any product.
Description of the diagram:
The four products go through the process as drawn above. All the four products go through assembly line. Only the products commuter and sport go for polishing before going through packaging. Product retirement goes through special finishing process and not polishing. The only product that has been packaged straight away from assembly line is Gag-Gift. All the products are then converted into finished goods.
The cost will be different for every product as well. Gag-Gift will include assembly and packaging. Commuter and sport will include assembly, polishing and packaging. Retirement includes cost of assembly, special finishing and packaging.
b.
Determine the cost per unit transferred to finished goods inventory for each of the four watches.
b.
Explanation of Solution
Cost per unit:
Total amount accounted for and total units accounted are considered computation of cost per equivalent unit.
Compute the cost per unit transferred to finished goods inventory for each of the four watches:
Particulars | Total | Gag-Gift | Commuter | Sport | Retirement |
Materials | $ 321,000 | $ 15,000 | $ 90,000 | $ 156,000 | $ 60,000 |
Conversion costs: | |||||
Assembly | $ 120,000 | $ 20,000(1) | $ 40,000(2) | $ 52,000(3) | $ 8,000(4) |
Polishing | $ 69,000 | $ 0 | $ 30,000(5) | $ 39,000(6) | $ 0 |
Special finishing | $ 20,000 | $ 0 | $ 0 | $ 0 | $ 20,000(7) |
Packaging | $ 90,000 | $ 15,000(8) | $ 30,000(9) | $ 39,000(10) | $ 6,000(11) |
Total conversion costs | $ 299,000 | $ 35,000 | $ 100,000 | $ 130,000 | $ 34,000 |
Total product cost | $ 620,000 | $ 50,000 | $ 190,000 | $ 286,000 | $ 94,000 |
Number of units | 5,000 | 10,000 | 13,000 | 2,000 | |
Cost per unit | $ 10.00(12) | $ 19.00(13) | $ 22.00(14) | $ 47.00(15) |
Working note 1:
Compute the conversion costs of assembly for Gag-gift:
Working note 2:
Compute the conversion costs of assembly for Commuter:
Working note 3:
Compute the conversion costs of assembly for Sport:
Working note 4:
Compute the conversion costs of assembly for Retirement:
Working note 5:
Compute the conversion costs of polishing for Commuter:
Working note 6:
Compute the conversion costs of polishing for Sport:
Working note 7:
Compute the conversion costs of special packaging for Retirement:
Working note 8:
Compute the conversion costs of packaging for Gag-gift:
Working note 9:
Compute the conversion costs of packaging for Commuter:
Working note 10:
Compute the conversion costs of packaging for Sport:
Working note 11:
Compute the conversion costs of packaging for Retirement:
Working note 12:
Compute the cost per unit transferred to finished goods for Gag-gift:
Working note 13:
Compute the cost per unit transferred to finished goods for Commuter:
Working note 14:
Compute the cost per unit transferred to finished goods for Gag-gift:
Working note 15:
Compute the cost per unit transferred to finished goods for Gag-gift:
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Chapter 8 Solutions
Fundamentals Of Cost Accounting (6th Edition)
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A predetermined overhead rate is used based on direct labor dollars (80 percent of direct labor dollars). Recently, Golding has hired a new controller, Karen Jenkins. After reviewing the product costing procedures, Karen requested a meeting with the divisional manager, Aaron Suhr. The following is a transcript of their conversation: KAREN: Aaron, I have some concerns about our cost accounting system. We make two different models of bows and are treating them as if they were the same product. Now I know that the only real difference between the models is the handle. The processing of the handles is the same, but the handles differ significantly in the amount and quality of wood used. Our current costing does not reflect this difference in direct material input. AARON: Your predecessor is responsible. He believed that tracking the difference in direct material cost wasnt worth the effort. He simply didnt believe that it would make much difference in the unit cost of either model. KAREN: Well, he may have been right, but I have my doubts. If there is a significant difference, it could affect our views of which model is more important to the company. The additional bookkeeping isnt very stringent. All we have to worry about is the Pattern Department. The other departments fit what I view as a process-costing pattern. AARON: Why dont you look into it? If there is a significant difference, go ahead and adjust the costing system. After the meeting, Karen decided to collect cost data on the two models: the Deluxe model and the Econo model. She decided to track the costs for one week. At the end of the week, she had collected the following data from the Pattern Department: a. There were a total of 2,500 bows completed: 1,000 Deluxe models and 1,500 Econo models. b. There was no beginning work in process; however, there were 300 units in ending work in process: 200 Deluxe and 100 Econo models. Both models were 80 percent complete with respect to conversion costs and 100 percent complete with respect to direct materials. c. The Pattern Department experienced the following costs: d. On an experimental basis, the requisition forms for direct materials were modified to identify the dollar value of the direct materials used by the Econo and Deluxe models: Required: 1. Compute the unit cost for the handles produced by the Pattern Department, assuming that process costing is totally appropriate. 2. Compute the unit cost of each handle, using the separate cost information provided on materials. 3. Compare the unit costs computed in Requirements 1 and 2. Is Karen justified in her belief that a pure process-costing relationship is not appropriate? Describe the costing system that you would recommend. 4. In the past, the marketing manager has requested more money for advertising the Econo line. 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In mixing, the ingredients for the cold capsules are measured, sifted, and blended (with materials assumed to be uniformly added throughout the process). The mix is transferred out in gallon containers. The encapsulating department takes the powdered mix and places it in capsules (which are necessarily added at the beginning of the process). One gallon of powdered mix converts into 1,500 capsules. After the capsules are filled and polished, they are transferred to bottling, where they are placed in bottles that are then affixed with a safety seal, lid, and label. Each bottle receives 50 capsules. During March, the following results are available for the first two departments: Overhead in both departments is applied as a percentage of direct labor costs. In the mixing department, overhead is 200% of direct labor. In the encapsulating department, the overhead rate is 150% of direct labor. Required: 1. 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