Question

In: Accounting

Preston Company manufactures car seats in its San Antonio plant. Each car seat passes through the...

Preston Company manufactures car seats in its San Antonio plant. Each car seat passes through the assembly department and the testing department. This problem focuses on the assembly department.


Physical Units

Direct

Conversion

(Car Seats)

Materials

          Costs

Work in​ process, October 1 Superscript aOctober 1a

6,000

              $1,779,000

$585,000  

Started during October 20172017

23,500

Completed during October 20172017

25,500

Work in​ process, October 31 Superscript bOctober 31b

4,000

Total costs added during October 20172017

                $4,888,000

$2,863,500  

Degree of​ completion: direct​ materials, ?%; conversion​ costs, 60​%.

Degree of​ completion: direct​ materials, ?%; conversion​ costs, 75​%.

1.

For each cost​ category, compute equivalent units in the assembly department. Show physical units in the first column of your schedule.

2.

What issues should the manager focus on when reviewing the​ equivalent-unit calculations?

3.

For each cost​ category, summarize total assembly department costs for October

20172017

and calculate the cost per equivalent unit.

4.

Assign costs to units completed and transferred out and to units in ending work in process.

Equivalent Units

Physical

Direct

Conversion

Flow of Production

Units

Materials

Costs

Work in process beginning

Started during current period

To account for

Completed and transferred out during current period

Work in process, ending

Accounted for

Work done to date

Solutions

Expert Solution

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Part 1
Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given)              6,000
Started during current period (given)            23,500
To account for            29,500
Completed and transferred out during current Period            25,500          25,500          25,500
Work in process, ending* (given)              4,000            4,000            3,000
4,000*100% and 75%
Accounted for            29,500
Equivalent units of work done to date          29,500          28,500
Part 2
a. To show better performance, a department supervisor might report a higher degree of completion resulting in understated cost per equivalent unit and overstated operating income.
b. If performance for the period is very good, the department supervisor may be tempted to report a lower degree of completion reducing income in the current perio
c. This has the effect of reducing the costs carried in ending inventory and the costs carried to the following year in beginning inventory.  
d. To guard against the possibility of bias, managers should ask supervisors specific questions about the process they followed to prepare estimates
Part 3 and 4
Total
Production Direct Conversion
Costs Materials Costs
Work in process, beginning (given) $ 2,364,000 $1,779,000 $    585,000
Costs added in current period (given) $ 7,751,500 $4,888,000 $ 2,863,500
Total costs to account for $10,115,500 $6,667,000 $ 3,448,500
Costs incurred to date $6,667,000 $ 3,448,500
Divide by equivalent units of work done to date          29,500          28,500
Cost per equivalent unit of work done to date $           226 $           121
Assignment of costs:
Completed and transferred out (25,500 units) $ 8,848,500 $5,763,000 $ 3,085,500
Work in process, ending (4,000 units) $ 1,267,000 $   904,000 $    363,000
Total costs accounted for $10,115,500 $6,667,000 $ 3,448,500

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