Bundle: Financial & Managerial Accounting, 13th + CengageNOWv2, 2 terms (12 months) Printed Access Card
13th Edition
ISBN: 9781305618909
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 18, Problem 18.4CP
To determine
It is a method of cost accounting, which is used where the production is continuous, and the product needs various processes to complete. This method is used to ascertain the cost of the product at each process or stage of production.
To Prepare: The Memo to JM with a recommendation to management.
Expert Solution & Answer
Explanation of Solution
Memo
From:
LB
Former Plant manager
Company GP
To:
JM
Current Plant manager
Company GP
Re: Analysis of August month increase in unit costs for Papermaking Department.
Dear Mr. JM,
The increase in the unit costs from the month of July to August happened for both the material costs (pulp and chemical) and conversion costs in the papermaking department, as showed in the table below:
| Particulars | July | August |
| Material costs (A) | $295,600 | $304,100 |
| Conversion costs (B) | $146,000 | $149,600 |
| Total cost (A+B) | $441,600 | $453,700 |
| Number of tons (C') | 1,200 | 1,130 |
| Material cost per ton D = (A ÷ C) | $246.33 | $269.12 |
| Conversion cost per ton E =(B ÷ C) | $121.67 | $132.39 |
| Total cost per ton (D + E) | $368 | $401.50 |
Table (1)
An analysis was done to segregate the reason of the increased cost per ton. My interviews designated that there were two possible causes. First, we changed the condition of the green paper in early month of August. This may changed the way the paper machines process the green paper. Therefore, it is feasible that the paper machines have unacceptable settings for the new requirement and are over applying materials. Second one is some question, whether paper machine No.1 is need of maintenance. It is possible that our problem is due to lack of repairs on this machine.
Luckily, we run both colors on paper machine No.1 Therefore; we can divide the analysis among these two possible explanations. I have offered the following cost per ton data for the two paper machines and the two product colors:
Analyzing paper machine:
| Production Run Number | Paper Machine | Color | Materials costs | Conversion costs | Tons |
| 1 | 1 | Green | $40,300 | $18,300 | 150 |
| 2 | 1 | Yellow | $41,700 | $21,200 | 140 |
| 3 | 1 | Green | $44,600 | $22,500 | 150 |
| 4 | 1 | Yellow | $36,100 | $18,100 | 120 |
| Total | $162,700 | $80,100 | 560 | ||
Table (2)
| Paper Machine No.1 | Material cost per ton (A ÷ C) | Conversion cost per ton (B ÷ C) |
| Total direct material costs (A) | $162,700 | |
| Total conversion costs (B) | $80,100 | |
| Tons (C ) | 560 | 560 |
| Cost per ton | $290.54 | $143.04 |
Table (3)
| Production Run Number | Paper Machine | Color | Materials costs | Conversion costs | Tons |
| 5 | 2 | Green | $38,300 | $18,900 | 160 |
| 6 | 2 | Yellow | $33,900 | $15,200 | 140 |
| 7 | 2 | Green | $35,600 | $18,400 | 130 |
| 8 | 2 | Yellow | $33,600 | $17,000 | 140 |
| Total | $141,400 | $69,500 | 570 | ||
Table (4)
| Paper Machine No.2 | Material cost per ton (A ÷ C) | Conversion cost per ton (B ÷ C) |
| Total direct material costs | $141,400 | |
| Total conversion costs | $69,500 | |
| Tons | 570 | 570 |
| Cost per ton | $248.07 | $121.93 |
Table (5)
| Particulars | Paper Machine No.1 (A) | Paper Machine No.2 (B) | Difference (A – C) |
| Material cost per ton | $290.54 | $143.04 | $147.50 |
| Conversion cost per ton | $248.07 | $121.93 | $126.14 |
Table (6)
Product color analysis:
| Production Run Number | Paper Machine | Color | Materials costs | Conversion costs | Tons |
| 1 | 1 | Green | $40,300 | $18,300 | 150 |
| 3 | 1 | Green | $44,600 | $22,500 | 150 |
| 5 | 2 | Green | $38,300 | $18,900 | 160 |
| 7 | 2 | Green | $35,600 | $18,400 | 130 |
| Total | $158,800 | $78,100 | 590 | ||
Table (7)
| Production Run Number | Paper Machine | Color | Materials costs | Conversion costs | Tons |
| 2 | 1 | Yellow | $41,700 | $21,200 | 140 |
| 4 | 1 | Yellow | $36,100 | $18,100 | 120 |
| 6 | 2 | Yellow | $33,900 | $15,200 | 140 |
| 8 | 2 | Yellow | $33,600 | $17,000 | 140 |
| Total | $145,300 | $71,500 | 540 | ||
Table (8)
| Green Paper | Material cost per ton (A ÷ C) | Conversion cost per ton (B ÷ C) |
| Total direct material costs (A) | $158,800 | |
| Total conversion costs (B) | $78,100 | |
| Tons (C ) | 590 | 590 |
| Cost per ton | $269.15 | $132.37 |
Table (9)
| Yellow Paper | Material cost per ton (A ÷ C) | Conversion cost per ton (B ÷ C) |
| Total direct material costs (A) | $145,300 | |
| Total conversion costs (B) | $71,500 | |
| Tons (C ) | 540 | 540 |
| Cost per ton | $269.07 | $132.41 |
Table (10)
| Particulars | Green Paper (A) | Yellow Paper (B) | Difference (A – C) |
| Material cost per ton | $269.15 | $269.07 | $0.08 |
| Conversion cost per ton | $132.37 | $132.41 | ($0.04) |
The outcomes are clear. Paper machine 1 has a considerably higher materials and conversion cost per ton in August. It appears that, the paper machine is over applying pulp. This is resultant in a growth in both the materials and conversion cost per ton. Paper machine No.2 is consecutively at a cost near out chronological cost per ton. There is no proof of a color delinquent. Both color papers are consecutively at or near the same materials and conversion cost per ton. Therefore, the requirement change for green has not performed to reason a problem in the papermaking operation. I
Please let me know if you need any more clarifications on this matter.
Regards,
LB
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Current Attempt in Progress
Production costs chargeable to the Sanding Department in July in Monty Company are $41,160 for materials, $14,700 for labor, and $12,740 for manufacturing overhead. Equivalent units of
production are 29,400 for materials and 19,600 for conversion costs.
Compute the unit costs for materials and conversion costs. (Round answers to 2 decimal places, e.g. 15.25.)
Unit costs
$
Materials
$
Conversion Costs
Prime Cost, Conversion Cost, Preparation of Income Statement: Manufacturing Firm
Kildeer Company makes easels for artists. During the last calendar year, a total of 34,000 easels were made, and 35,000 were sold for $60 each. The actual unit cost is as follows:
Direct materials
$14.00
Direct labor
6.00
Variable overhead
10.00
Fixed overhead
15.00
Total unit cost
$45.00
The selling expenses consisted of a commission of $1.00 per unit sold and advertising co-payments totaling $94,000. Administrative expenses, all fixed, equaled $179,000. There were no beginning and ending work-in-process inventories. Beginning finished goods inventory was $135,000 for 3,000 easels.
Required:
1. Calculate the number and the dollar value of easels in ending finished goods inventory.
2. Prepare a cost of goods sold statement.
3. Prepare an absorption-costing income statement. In addition to dollar amounts, enter the amounts as a percent, rounded to two decimal places. For example, .5235…
In December, Davis Company had the following cost flows: Molding Department Grinding Department Finishing Department Direct materials $111,600 $30,000 $17,200 Direct labor 8,000 13,600 11,600 Applied overhead 8,400 60,400 11,200 Transferred-in cost: From Molding 128,000 From Grinding 232,000 Total cost $128,000 $232,000 $272,000 Required: 1. Prepare the journal entries to transfer costs from (a) Molding to Grinding, (b) Grinding to Finishing, and (c) Finishing to Finished Goods. 2. CONCEPTUAL CONNECTION: Explain how the journal entries differ from a job-order cost system.
CHART OF ACCOUNTS Davis Company General Ledger ASSETS 110 Cash 120 Accounts Receivable 130 Raw Materials 142 Work in Process-Grinding 143 Work in Process-Molding 144 Work in Process-Finishing 150 Overhead Control 160 Finished Goods 180 Accumulated Depreciation LIABILITIES 210 Accounts Payable 220 Wages Payable 230 Utilities Payable 240 Lease Payable 250 Other Payables EQUITY 310 Common Stock 320 Retained…
Chapter 18 Solutions
Bundle: Financial & Managerial Accounting, 13th + CengageNOWv2, 2 terms (12 months) Printed Access Card
Ch. 18 - Which type of cost system, process or job order,...Ch. 18 - In job order cost accounting, the three elements...Ch. 18 - In a job order cost system, direct labor and...Ch. 18 - Why is the cost per equivalent unit often...Ch. 18 - What is the purpose for determining the cost per...Ch. 18 - Rameriz Company is a process manufacturer with two...Ch. 18 - Prob. 7DQCh. 18 - Prob. 8DQCh. 18 - Prob. 9DQCh. 18 - How docs lean manufacturing differ from the...
Ch. 18 - Prob. 18.1APECh. 18 - Job order versus process costing Which of the...Ch. 18 - Units to be assigned costs Lilac Skin Care Company...Ch. 18 - Prob. 18.2BPECh. 18 - Prob. 18.3APECh. 18 - Prob. 18.3BPECh. 18 - Prob. 18.4APECh. 18 - Prob. 18.4BPECh. 18 - Prob. 18.5APECh. 18 - Prob. 18.5BPECh. 18 - Cost of units transferred out and ending work in...Ch. 18 - Prob. 18.6BPECh. 18 - Prob. 18.7APECh. 18 - Process cost journal entries The cost of materials...Ch. 18 - Prob. 18.8APECh. 18 - Using process costs for decision making The costs...Ch. 18 - Entries for materials cost flows in a process cost...Ch. 18 - Flowchart of accounts related to service and...Ch. 18 - Entries for flow of factory costs for process cost...Ch. 18 - Factory overhead rate, entry for applying factory...Ch. 18 - Prob. 18.5EXCh. 18 - Equivalent units of production Units of production...Ch. 18 - Equivalent units of production The following...Ch. 18 - Costs per equivalent unit A. Based upon the data...Ch. 18 - Prob. 18.9EXCh. 18 - Costs per equivalent unit Georgia Products Inc....Ch. 18 - Equivalent units of production and related costs...Ch. 18 - Cost of units completed and in process A. Based on...Ch. 18 - Errors in equivalent unit computation Napco...Ch. 18 - Cost per equivalent unit The following information...Ch. 18 - Costs per equivalent unit and production costs...Ch. 18 - Cost of production report The debits to Work in...Ch. 18 - Cost of production report The Cutting Department...Ch. 18 - Cost of production and journal entries AccuBlade...Ch. 18 - Cost of production and journal entries Lighthouse...Ch. 18 - Prob. 18.20EXCh. 18 - Analyzing process cost elements across product...Ch. 18 - Prob. 18.22EXCh. 18 - Lean manufacturing The following are some quotes...Ch. 18 - Equivalent units of production: average cost...Ch. 18 - Equivalent units of production: average cost...Ch. 18 - Equivalent units of production: average cost...Ch. 18 - Equivalent units of production and related costs...Ch. 18 - Cost per equivalent unit: average cost method The...Ch. 18 - Cost of production report: average cost method The...Ch. 18 - Prob. 18.30EXCh. 18 - Prob. 18.1APRCh. 18 - Prob. 18.2APRCh. 18 - Equivalent units and related costs; cost of...Ch. 18 - Work in process account data for two months; cost...Ch. 18 - Cost of production report: average cost method...Ch. 18 - Entries for process cost system Preston Grover...Ch. 18 - Cost of production report Bavarian Chocolate...Ch. 18 - Equivalent units and related costs; cost of...Ch. 18 - Prob. 18.4BPRCh. 18 - Prob. 18.5BPRCh. 18 - Prob. 18.1CPCh. 18 - Accounting for materials costs In papermaking...Ch. 18 - Prob. 18.3CPCh. 18 - Prob. 18.4CP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Preparation of Income Statement: Manufacturing Firm Laworld Inc. manufactures small camping tents. Last year, 200,000 tents were made and sold for 60 each. Each tent includes the following costs: The only selling expenses were a commission of 2 per unit sold and advertising totaling 100,000. Administrative expenses, all fixed, equaled 300,000. There were no beginning or ending finished goods inventories. There were no beginning or ending work-in-process inventories. Required: 1. Calculate the product cost for one tent. Calculate the total product cost for last year. 2. CONCEPTUAL CONNECTION Prepare an income statement for external users. Did you need to prepare a supporting statement of cost of goods manufactured? Explain. 3. CONCEPTUAL CONNECTION Suppose 200,000 tents were produced (and 200,000 sold) but that the company had a beginning finished goods inventory of 10,000 tents produced in the prior year at 40 per unit. The company follows a first-in, first-out policy for its inventory (meaning that the units produced first are sold first for purposes of cost flow). What effect does this have on the income statement? Show the new statement.arrow_forwardCost Classification Loring Company incurred the following costs last year: Required: 1. Classify each of the costs using the following table format. Be sure to total the amounts in each column. Example: Direct materials, 216,000. 2. What was the total product cost for last year? 3. What was the total period cost for last year? 4. If 30,000 units were produced last year, what was the unit product cost?arrow_forwardEllerson Company provided the following information for the last calendar year: During the year, direct materials purchases amounted to 278,000, direct labor cost was 189,000, and overhead cost was 523,000. During the year, 100,000 units were completed. Refer to Exercise 2.21. Last calendar year, Ellerson recognized revenue of 1,312,000 and had selling and administrative expenses of 204,600. Required: 1. What is the cost of goods sold for last year? 2. Prepare an income statement for Ellerson for last year.arrow_forward
- Direct Labor = $2.25 Materials = $2.30 Plant Overhead = $1.15 Administrative and selling expense = $0.80 Total = $6.50 A 10 percent markup ($0.65) was added to the cost per unit in arriving at the firm’s selling price of $7.15 (plus shipping). In May, LP received an inquiry from Southeast Department Stores concerning the possible purchase of folding chairs for delivery in August. Southeast indicated that they would place an order for 30,000 chairs if the price did not exceed $5.50 each (plus shipping). The chairs could be produced during the slow period using the firm’s existing equipment and workforce. No overtime wages would have to be paid to the workforce in fulfilling the order. Adequate materials were on hand (or could be purchased at prevailing market prices) to complete the order. LP management was considering whether to…arrow_forwardUsing Process Costs for Decision Making The costs of materials consumed in producing good units in the Forming Department of McMillan Company were $129,600 and $132,500 for September and October, respectively. The number of equivalent units produced in September and October was 1,200 tons and 1,250 tons, respectively. Evaluate the change in the cost of materials between the two months. Material cost per ton, September $ Material cost per ton, October The cost of materials by $ per ton between September and October.arrow_forwardUnit Cost, Valuing Goods Transferred Out and EWIP During August, the drilling department of Arenal Inc. completed and transferred out 190,000 units. At the end of August, there were 42,700 units in process, 70% complete. Arenal incurred manufacturing costs totaling $1,759,120. Required: 1. Calculate the unit cost. $ per unit 2. Calculate the cost of goods transferred out and the cost of EWIP. Cost of goods transferred out Cost of ending work in processarrow_forward
- Prime Cost, Conversion Cost, Preparation of Income Statement: Manufacturing Firm Kildeer Company makes easels for artists. During the last calendar year, a total of 34,000 easels were made, and 35,000 were sold for $52 each. The actual unit cost is as follows: Direct materials Direct labor Variable overhead Fixed overhead Total unit cost Required: $15.00 6.00 Ending units Dollar amount 4.00 14.00 The selling expenses consisted of a commission of $0.90 per unit sold and advertising co-payments totaling $94,500. Administrative expenses, all fixed, equaled $176,500. There were no beginning and ending work-in-process inventories. Beginning finished goods inventory was $109,200 for 2,800 easels. $39.00 1. Calculate the number and the dollar value of easels in ending finished goods inventory. 1,800 ✓ 70,200 2. Prepare a cost of goods sold statement. Kildeer Company Statement of Cost of Goods Sold For the Year Ended December 31 Cost of goods manufactured Add: Beginning finished goods…arrow_forwardIn December, Davis Company had the following cost flows: Molding Department Grinding Department Finishing Department Direct materials $112,300 $29,200 $16,800 Direct labor 8,500 13,500 12,100 Applied overhead 9,400 60,800 11,000 Transferred-in cost: From Molding 130,200 From Grinding 233,700 Total cost $130,200 $233,700 $273,600 Required: 1. Prepare the journal entries to transfer costs from (a) Molding to Grinding, (b) Grinding to Finishing, and (c) Finishing to Finished Goods 1. Prepare the Dec. 31 journal entries to transfer costs from (a) Molding to Grinding, (b) Grinding to Finishing, and (c) Finishing to Finished Goods. Refer to the Chart of Accounts for the exact wording of account titles. Question not attempted. PAGE 15 GENERAL JOURNAL Score: 0/76 DATE ACCOUNT POST. REF. DEBIT CREDIT 1 2 3 4 5…arrow_forwardCurrent Attempt in Progress The controller of Oriole Industries has collected the following monthly cost data for use in analyzing the behavior of maintenance costs. Month January February March April May June Total Maintenance Costs $2,860 3,160 3,760 4,660 3,360 5,260 Total Machine Hours 320 370 520 670 520 720arrow_forward
- 1. Allocating activity cost pools to products Burgandy Corporation makes plastic and wooden picture frames. The company has assigned $107,000 in monthly manufacturing overhead costs to two cost pools as follows: $67,000 to power costs, and $40,000 to production set-up costs. Additional monthly data are provided below: Sales revenue Direct materials.. Direct labor.... Machine hours.. Production runs Units produced and sold. Plastic Wooden Frames Frames $254,000 $179,000 $101,000 $38,360 $53,360 $92,720 107,420 7,580 35 29,000 65 59,000 Power costs are allocated to products using machine hours as an activity base. Set-up costs are allocated to products based on the number of production runs each product line requires. (a) Allocate manufacturing overhead from the activity cost pools to each product line. (b) Compare the total per-unit cost of manufacturing plastic frames and wooden frames. (c) On a per-unit basis, which product line appears to be most profitable?arrow_forwardAfter much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for March: Cost Formula Actual Cost in March Utilities $16,500 + $0.13 per machine-hour $ 20,250 Maintenance $39,000 + $1.90 per machine-hour $ 61,300 Supplies $0.60 per machine-hour $ 8,800 Indirect labor $94,400 + $1.60 per machine-hour $ 119,300 Depreciation $68,200 $ 69,900 During March, the company worked 13,000 machine-hours and produced 7,000 units. The company had originally planned to work 15,000 machine-hours during March. Required: 1. Prepare a flexible budget for March. 2. Prepare a report showing the spending variances for March.arrow_forwardPrime Cost and Conversion Cost Grin Company manufactures digital cameras. In January, Grin produced 2,250 cameras with the following costs: Direct materials $440,000 Direct labor 136,000 Manufacturing overhead 736,000 There were no beginning or ending inventories of WIP. Required: If required, round your answers to the nearest cent. 1. What was the total prime cost in January?$ 2. What was the prime cost per unit in January?$per unit 3. What was the total conversion cost in January?$ 4. What was the conversion cost per unit in January?$per unitarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
What is variance analysis?; Author: Corporate finance institute;https://www.youtube.com/watch?v=SMTa1lZu7Qw;License: Standard YouTube License, CC-BY