Question

Lynda Corporation manufactures two typed of glass sheets: clear glass and colored glass. Department 1 produces clear glass sheets, some of which we sold as finished goods. Others are transferred to Department 2, which adds additional materials to the clear glass sheets to form colored glass sheets, which are sold and finished product. The company something something operation something systems.

During the period, 2 jobs, were completed. Job Alpha was for 10,000 clear glass sheets and required in $200,000 materials. Job Beta was for 5,000 colored sheets and called for materials of $100,000 in department 1 and additional materials of $40,000 in Department 2.

The company strictly adhered to a Just-In-Time (JIT) inventory system for work in process

Conversion costs for the period were as follows:

Department 1              $180,000

Department 2              $50,000

Calculate the cost per unit transferred to finished goods inventory for each job, Alpha and Beta

$_____________   $______________

Alpha                          Beta

Job Beta is being sold to the government on a cost-plus basis. The vice president of marketing suggests that the conversion costs from Department #1 could be allocated on the basis of materials costs, so that he can offer a lower price for Job Alpha.

What do you think of this idea? Does it sound right? Are there any other issues here? Would you advise the company to do this? Explain.

Please show all work!!

Answer 1

Even though if conversion cost in department 1 is fixed as a percentage of material cost for fixing of cost price in beta job there is no effect on cost price fixing of the job beta so the marketing VP suggestion will not give any impact cost price fixing for job beta.