Recognising that there would be fierce competition to regain lost markets, Management felt that there should be a renewed focus on the productivity and profitability of the operations. The productivity analysis would focus on the Manufacturing department, and the profitability would examine both products. To conduct this analysis, you have extracted the following information for the Manufacturing Department for the month of January: At the start of the month there were 1,000 units in stock, which were 20% complete with respect to conversion costs, and was valued at $ 16,000. During the month, 9,000 units were introduced to the production. At the end of the month there were 1,000 units in stock which were 40% complete with respect to conversion costs. All Materials are added at the start of the process. Costs incurred for the month were: Materials - $ 63,000; Conversion costs - $ 139,840. The Department uses a FIFO costing system. Further examination of the records showed the following: Refrigerators Stoves Sales Mix % 60% 40% Selling Price 2,500 1,200 Variable Costs 2,000 950 Fixed Costs were currently $ 120,000 You have also learnt that there are only 30,000 machine hours available on the present equipment and that the Refrigerators utilizes 2 hours per unit while the stoves uses 2.5 hours. Required by Management: Prepare a Production Cost Report for the Manufacturing Department for the month of January 2021. Compute the quantity of each product that needs to be sold to achieve a break even position. Advise management as to which unit should be given preference in production given the limited number machine hours available.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Recognising that there would be fierce competition to regain lost markets, Management felt that there should be a renewed focus on the productivity and profitability of the operations.

The productivity analysis would focus on the Manufacturing department, and the profitability would examine both products.

To conduct this analysis, you have extracted the following information for the Manufacturing Department for the month of January:

At the start of the month there were 1,000 units in stock, which were 20% complete with respect to conversion costs, and was valued at $ 16,000.
During the month, 9,000 units were introduced to the production.
At the end of the month there were 1,000 units in stock which were 40% complete with respect to conversion costs.
All Materials are added at the start of the process.
Costs incurred for the month were: Materials - $ 63,000; Conversion costs - $ 139,840.
The Department uses a FIFO costing system.

Further examination of the records showed the following:

	Refrigerators	Stoves

Sales Mix %	60%	40%
Selling Price	2,500	1,200
Variable Costs	2,000	950

Fixed Costs were currently $ 120,000

You have also learnt that there are only 30,000 machine hours available on the present equipment and that the Refrigerators utilizes 2 hours per unit while the stoves uses 2.5 hours.

Required by Management:

Prepare a Production Cost Report for the Manufacturing Department for the month of January 2021.
Compute the quantity of each product that needs to be sold to achieve a break even position.
Advise management as to which unit should be given preference in production given the limited number machine hours available.

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