Question

Lean Accounting

Com-Tel Inc. manufactures and assembles two models of smartphones—the Tiger Model and the Lion Model. The process consists of a lean cell for each product. The data that follow concern only the Lion Model lean cell.

For the year, Com-Tel Inc. budgeted the following costs for the Lion Model production cell:

Conversion Cost Categories		Budget
Labor		$122,000
Supplies		49,000
Utilities		18,000
Total		$189,000

Com-Tel plans 2,100 hours of production for the Lion Model cell for the year. The materials cost is $185 per unit. Each assembly requires 12 minutes of cell assembly time. There was no May 1 inventory for either Raw and In Process Inventory or Finished Goods Inventory.

The following summary events took place in the Lion Model cell during May:

a. Electronic parts were purchased to produce 900 Lion Model assemblies in May.
b. Conversion costs were applied for 875 units of production in May.
c. 850 units were completed and transferred to finished goods in May.
d. 800 units were shipped to customers at a price of $500 per unit.

Required:

1. Determine the budgeted cell conversion cost per hour.
$ per hour

2. Determine the budgeted cell conversion cost per unit.
$ per unit

Feedback

1. Cell Conversion Cost Rate = Budgeted Conversion Cost ÷ Planned Hours of Production

2. Conversion Cost for Smartphone = Manufacturing Time × Cell Conversion Cost Rate

Learning Objective 2.

3. Journalize the summary transactions (a) through (d).

a.
b.
c.
d. Sale
d. Cost

Feedback

3. In lean manufacturing, there are fewer transactions to record, thus simplifying the accounting system. Some accounts are combined. For example, all in-process work is combined with raw materials to form a new account, Raw and In Process (RIP) Inventory and direct labor is also combined with other costs to form a new account titled Conversion Costs. Indirect labor is directly assigned to product cells; thus, less factory overhead is allocated to products. The cell conversion rate is similar to a predetermined factory overhead rate, except that it includes all conversion costs in the numerator.

Learning Objective 2.

4. Determine the ending balance in Raw and In Process Inventory and Finished Goods Inventory.

Raw and In Process Inventory:	$
Finished Goods Inventory:	$

5. Lean accounting is different from traditional accounting because it is more and uses control. As a result, the number of transactions are . In many lean operations, purchased materials are charged to a . Direct labor is frequently . Often, nonfinancial performance measures, such as , are used to monitor performance.

Answer 1

1	Budgeted cell conversion cost per hour	=	$1,89,000 / 2,100 hours
		=	$                   90	per hour
2	Budgeted cell conversion cost per unit	=	$90 X 12/60
			$                   18	per unit
3	Account Titles and Explanation	Debit	Credit
	Raw and in process Inventory (900 X $185)	$       1,66,500
	Accounts Payables		$       1,66,500
	(Being raw material purchased for production)
	Raw and in process Inventory (875 X $18)	$           15,750
	Conversion Cost		$           15,750
	(Being conversion cost recorded)
	Finished goods Inventory [($185 + $18) X 850]	$       1,72,550
	Raw and in process Inventory		$       1,72,550
	(being units completed recorded)
	Accounts receivables (800 X $500)	$       4,00,000
	Sales		$       4,00,000
	(Being sales recorded)
	Cost of Goods sold [($185 + $18) X 800]	$       1,62,400
	Finished goods Inventory		$       1,62,400
	(Being cost of goods sold recorded)
4	Raw and In process Inventory	=	$             9,700
	($1,66,500 + $15,750 - $1,72,550)
	Finished goods Inventory	=	$           10,150
	($1,72,550 - $1,62,400)