In: Accounting
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.
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Direct |
Conversion |
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(Car Seats) |
Materials |
Costs |
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Work in process, October 1 Superscript aOctober 1a |
6,000 |
$1,779,000 |
$585,000 |
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Started during October 20172017 |
23,500 |
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Completed during October 20172017 |
25,500 |
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Work in process, October 31 Superscript bOctober 31b |
4,000 |
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Total costs added during October 20172017 |
$4,888,000 |
$2,863,500 |
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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 |
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Physical |
Direct |
Conversion |
|
Flow of Production |
Units |
Materials |
Costs |
Work in process beginning |
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Started during current period |
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To account for |
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Completed and transferred out during current period |
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Work in process, ending |
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Accounted for |
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Work done to date |
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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 | ||||||||