Question

Safe Inc. is a service firm that sells home security systems, which it installs and maintains. After the sales force makes initial contact with a new customer and completes the sale, setting up the new service requires two processes: (1) a home visit where the equipment is physically installed and (2) the remote connection from off-site at corporate headquarters. Given the different levels of skill and work required, Safe Inc. tracks costs separately for the Installation and Connection processes. Nevertheless, given the relative simplicity of these processes, Safe Inc. tracks them both on a single product cost report with one direct materials category for the equipment and two conversion cost categories for installation and connection services. Assume that all home installations are completed the same day they are started. After installation, there is sometimes a delay of up to two days before the remote connection is completed. However, in the ideal situation, both the home installation and connection are completed on the same day. What is Safe Inc.’s ending Cost of Contracts Completed and Incomplete Contracts for July, assuming it uses the FIFO costing method? Page 2 * The sales team closed 2,050 new security contracts during July. * Safe Inc. pays its suppliers $400, on average, to purchase one security system. However, the price experiences some variation due to fluctuations in suppliers cost of raw materials. * On average, the installation of each system requires approximately 3 labor hours and establishing and testing the connection requires 2 labor hours. However, Safe Inc. does encounter some variation across employees. * Labor and overhead costs for installation is approximately $20/hour. * Labor and overhead costs for connection costs approximately $35/hour. * Assume that the contracts outstanding at the beginning of July include $1,206 for equipment and $179 of installation costs. * Also assume that Safe Inc. actually incurs $816,270 for new equipment installed during July plus $119,652 of installation costs and $147,825 of connection-related costs. * At the beginning of July, Safe Inc. had 95 incomplete sales contracts. Of these incomplete contracts, 92 were awaiting both installation and connection and 3 had been installed but were still awaiting connection. * At the end of July, Safe Inc. had 120 incomplete sales contracts. Of these incomplete contracts, 114 jobs were awaiting both installation and connection and 6 jobs had been installed but were still awaiting connection.

Answer 1

COMPUTATION OF SYSTEMS INSTALLED AND CONNCETED DURING JULY
PARTICULARS	AMOUNT
OPENING STOCK	95
CLOSING STOCK	120
SALES	2050
PURCHASED	2075
COMPUTATION OF SYSTEMS INSTALLED DURING JULY
PARTICULARS	AMOUNT
OPENING STOCK	92
CLOSING STOCK	114
PURCHASED	2075
PURCHASED	2053
COMPUTATION OF SYSTEMS CONNCETED DURING JULY
PARTICULARS	AMOUNT
OPENING STOCK	3
CLOSING STOCK	6
PURCHASED	2053
PURCHASED	2050
COMPUTATIONM OF COST OF INSTALLED
PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
OPENING STOCK 92*400	36800	COST OF INSTALLATION OF 2053 ITEMS 807132+127774	819906
ITEMS PURCHASED 2075*400	830000
LABOUR COST FOR INSTALLATION 2053*3*20	123180	CLOSING STOCK	170074
	989980		989980
COMPUTATIONM OF COST OF INSTALLED
PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
OPENING STOCK	1385	COST OF INSTALLATION 964791*2050/2053	963381.2
COST INSTALLATION	819906
LABOUR COST FOR INSTALLATION 2053*3*20	143500	CLOSING STOCK	1409.826
	964791		964791