Throughout the chapter, we treated conversion costs (direct labor and manufacturing overhead) as a single resource....

Throughout the chapter, we treated conversion costs (direct labor and manufacturing overhead) as a single resource. Why could we do this without distorting the resulting costs? When would we need to treat them separately?

Solutions

Expert Solution

Total cost of a product is comprised of three elements. ( 1) Material (2) labour and (3) Overhead. In process costing, where most of the organisations choosing this cost accounting system belong to continous production centers we see that conversion cost comparising labor and overhead are incurred in same proportion to work in process. That means most cases we see same percentage of work in process for both of these conversin costs. Thus combining these two different costs into one cost pool does not create any trouble in determination of resulting cost.

Thus we will have same resulting cost wether we compute three cost elements or only two cost elements.

When would we need to treat them separately?

But where there is unequal progress or absence of perfect synchronization between these two conversion cost components, we should seperate them and find the cost per unit in respect of all the three components seperately.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Conversion costs are A. direct materials plus direct labor. B. direct materials plus manufacturing overhead. C....

Conversion costs are A. direct materials plus direct labor. B. direct materials plus manufacturing overhead. C. indirect materials plus indirect labor. D. direct labor plus manufacturing overhead.

Case Prime Cost Conversion Cost Direct Materials Direct Labor Manufacturing Overhead Total Manufacturing Cost A 9,480...

Case Prime Cost Conversion Cost Direct Materials Direct Labor Manufacturing Overhead Total Manufacturing Cost A 9,480 16,460 4,040 11,020 B 10,010 7,330 25,200 42,540 C 55,700 110,300 42,300 D 48,150 19,900 11,750 68,050 E 14,000 24,300 56,200 For each of the following independent cases (A–E), compute the missing values in the table:

Variable costs per unit: Manufacturing: Direct materials $ 27 Direct labor $ 13 Variable manufacturing overhead...

Variable costs per unit: Manufacturing: Direct materials $ 27 Direct labor $ 13 Variable manufacturing overhead $ 2 Variable selling and administrative $ 1 Fixed costs per year: Fixed manufacturing overhead $ 320,000 Fixed selling and administrative expenses $ 90,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $58 per unit. Assume...

MAnufacturing overhead is applied on the basis of direct labor hours. The direct labor hours for...

MAnufacturing overhead is applied on the basis of direct labor hours. The direct labor hours for the period are 500 and the estimated manufacturing overhead is 2000. actual direct labor hours were 160 and actual overhead was 1000. Compute the manufacturing overhead applied during this period.

Variable costs per unit: Direct materials $ 10 Direct labor $ 8 Variable manufacturing overhead $...

Variable costs per unit: Direct materials $ 10 Direct labor $ 8 Variable manufacturing overhead $ 3 Variable selling and administrative expenses $ 6 Fixed costs per year: Fixed manufacturing overhead $ 117,000 Fixed selling and administrative expenses $ 320,000 During the last year, 29,250 units were produced and 24,000 units were sold. The Finished Goods inventory account at the end of the year shows a balance of $110,250 for the 5,250 unsold units. Required: 1. Determine whether the...

Match the following. 1.Direct labor, direct materials, and manufacturing overhead. a. Gross margin 2.Costs that are...

Match the following. 1.Direct labor, direct materials, and manufacturing overhead. a. Gross margin 2.Costs that are expensed in the period they are incurred. b.Controllable costs 3.Sales less variable expenses. c. Manufacturing margin 4.Cost a manager can determine or greatly affect the amount. d. Absorption costing 5.A costing method that includes only variable manufacturing costs. e. Period costs 6.An income statement format that focuses on cost behavior. f. Contribution margin 7.Sales less cost of goods sold. g. Variable costing 8.A costing...

Aspen Company estimates its manufacturing overhead to be $1,121,000 and its direct labor costs to be...

Aspen Company estimates its manufacturing overhead to be $1,121,000 and its direct labor costs to be $590,000 for year 2. Aspen worked on three jobs for the year. Job 2-1, which was sold during year 2, had actual direct labor costs of $178,000. Job 2-2, which was completed, but not sold at the end of the year, had actual direct labor costs of $303,000. Job 2-3, which is still in work-in-process inventory, had actual direct labor costs of $128,000. Actual...

The Littlefield Company applies manufacturing overhead costs to products on the basis of direct labor-hours. The...

The Littlefield Company applies manufacturing overhead costs to products on the basis of direct labor-hours. The standard cost card shows that 12 direct labor-hours are required per unit of product. For August, the company budgeted to work 360,000 direct labor-hours and to incur the following total manufacturing overhead costs: Total fixed overhead costs $475,200 Total variable overhead costs $396,000 During August, the company completed 28,000 units of product, worked 344,000 direct labor-hours, and incurred the following total manufacturing overhead costs:...

Aspen Company estimates its manufacturing overhead to be $631,250 and its direct labor costs to be...

Aspen Company estimates its manufacturing overhead to be $631,250 and its direct labor costs to be $505,000 for year 2. Aspen worked on three jobs for the year. Job 2-1, which was sold during year 2, had actual direct labor costs of $195,600. Job 2-2, which was completed, but not sold at the end of the year, had actual direct labor costs of $326,000. Job 2-3, which is still in work-in-process inventory, had actual direct labor costs of $130,400. Actual...

Aspen Company estimates its manufacturing overhead to be $625,000 and its direct labor costs to be...

Aspen Company estimates its manufacturing overhead to be $625,000 and its direct labor costs to be $500,000 for year 2. Aspen worked on three jobs for the year. Job 2-1, which was sold during year 2, had actual direct labor costs of $195,000. Job 2-2, which was completed, but not sold at the end of the year, had actual direct labor costs of $325,000. Job 2-3, which is still in work-in-process inventory, had actual direct labor costs of $130,000. Actual...

Subjects