Question

Westgate Inc. uses a lean manufacturing strategy to manufacture DVR (digital video recorder) players. The company manufactures DVR players through a single product cell. The budgeted conversion cost for the year is $702,000 for 1,800 production hours. Each unit requires 10 minutes of cell process time. During March, 970 DVR players were manufactured in the cell. The materials cost per unit is $60. The following summary transactions took place during March:

Materials were purchased for March production.

Conversion costs were applied to production.

970 DVR players were assembled and placed in finished goods.

920 DVR players were sold for $221 per unit.

a. Determine the budgeted cell conversion cost per hour. If required, round to the nearest dollar.
$ per hour

b. Determine the budgeted cell conversion cost per unit. If required, round to the nearest dollar.
$ per unit

c. Journalize the summary transactions (1)–(4) for March.

1.
2.
3.
4. Sale
4. Cost

Answer 1

a) Budgeted cell conversion cost per hour:

i) Total budgeted convversion cost for the year: $ 702,000

ii) Total budgeted production hours: 1800 hours

iii) Budgeted cell conversion cost per hour (i/ii): 702000/1800 = $ 390/ hour

a) Budgeted cell conversion cost per unit:

i) Total budgeted convversion cost for the year: $ 702,000

ii) Total budgeted production hours: 1800 hours

iii) Process time per unit: 10 minutes

iv) Budgeted units to be produced (ii*60/iii): 1800*60/10 = 10800 units

v) Budgeted cell conversion cost per unit (i/iv) : 702000/10800 = $ 65/ unit

c) Journal Entries for the month of march:

Particulars Dr. Amt ($) Cr. Amt ($)

1. Material/ Purchase a/c Dr. 58200

To Bank/ Cash a/c 58200

(Being material purchased)

[970*60 = $ 58200]

2. WIP/ Cost of production a/c Dr. 63050

To Conversion Cost a/c 63050

(Being conversion cost applied)

[970*65 = $ 63050]

3. Finished Goods/DVR a/c Dr. 121250

To Material/ Purchase a/c 58200

To WIP/ Cost of production a/c 63050

(Being 970 units manufactured)

4. Sales a/c Dr. 203320

To Finished Goods/DVR a/c 115000

To Profit and Loss a/c 88320

(Being 920 units sold and profit transferred

to profit and loss account)