Question

Brokia Electronics manufactures three cell phone models, which differ only in the components included: Basic, Photo, and UrLife. Production takes place in two departments, Assembly and Special Packaging. The Basic and Photo models are complete after Assembly. The UrLife model goes from Assembly to Special Packaging and is completed there. Data for July are shown in the following table. Conversion costs are allocated based on the number of units produced. There are no work-in-process inventories.

	Total			Basic (20,000 units)			Photo (20,000 units)			UrLife (10,000 units)
Materials	$	2,300,000		$	486,000		$	1,206,000		$	608,000
Conversion costs:
Assembly	$	2,164,300
Special Packaging		606,000
Total conversion costs	$	2,770,300

A. What is the cost per unit transferred to finished goods inventory for each of the three phones in July?

B. The UrLife model is sold only to the government on a cost-plus basis. The marketing vice president suggests that conversion costs in Assembly could be allocated on the basis of material costs so he can offer a lower price for the Basic model.

1. What cost would be reported for the three models if the marketing vice president's suggestion is adopted?

PLEASE SHOW ALL WORK AND STEPS, THANK YOU

Answer 1

a. Cost per unit transferred to finished goods inventory for each of the phones in July is calculated as follows:

	Basic	Photo	Ur Life
number of units	20,000	20,000	10,000
Materials	486,000	1,206,000	608,000
Conversion costs:
Assembly	865,720	865,720	432,860
special packaging(only for Ur life)	nil	nil	606,000
Total cost	1,351,720	2,071,720	1,646,860
Cost per unit	67.586	103.586	164.686

working notes:

1.conversion cost is calculated as:( total cost / total units)*no. of units per product

for basic = (2,164,300 / 50,000)*20,000 = 865,720

for photo = (2,164,300 / 50,000)*20,000 = 865,720

for Ur life = (2,164,300 / 50,000)*20,000 = 432,860

2. Total cost is calculated as : assembly cost + special packaging

3. cost per unit is calculated as : total cost / number of units

b. 1.Cost per unit if Vice president's suggestion is accepted:

	Basic	Photo	Ur life
Materials	486,000	1,206,000	608,000
Conversion costs :
Assembly	457,326	1,134,846	572,128
Special packaging (only for Ur life)	nil	nil	606,000
Total cost	943,326	2,340,846	1,786,128
Per unit cost	47.166	117.042	178.613

1.conversion cost is calculated as:( total assembly cost / total material cost)*material cost per product

for basic = (2,164,300 / 2,300,000)*486,000 = 457,326

for photo = (2,164,300 / 2,300,000)*1,206,000 = 1,134,846

for Ur life = (2,164,300 / 2,300,000)*608,000 = 572,128

2. Total cost is calculated as : assembly cost + special packaging

3. cost per unit is calculated as : total cost / number of units