Assurer Inc. uses the weighted-average method
- Assurer Inc. uses the weighted-average method in its process costing system. The
following data concern the operation of the company’s first processing department for a
recent month.
Work in process, beginning
Units in process
Percent complete with respect to materials
Percent complete with respect to conversion
300
80%
70%
Costs in the beginning inventory:
Materials cost
Conversion cost
$ 1,368
8,064
Units started into production during the month
Units completed and transferred out
11,000
11,000
Costs added to production during the month
Materials cost
Conversion cost
$ 64,948
412,179
Work in process, ending:
Units in process
Percent complete with respect to materials
Percent complete with respect to conversion
300
80%
10%
Required (10 points)
a. Determine the equivalent units of production
b. Determine the cost per equivalent unit
c. Determine the cost of ending work in process inventory.
d. Determine the cost of units transferred to the next department
- The sales manager at Burton Company is convinced that a $30,000 expenditure on
advertising will increase unit sales by 50% without any other increase in fixed expenses.
The sales manager has asked you, the Chief Financial Officer, to determine what the
impact will be on the company’s net operating income if he is correct. Burton
Company’s contribution format income statement for the most recent year is below.
Show all of your work. (10 points)
Sales (13,000 units) $325,000
Variable expenses
221,000
Contribution Margin 104,000
Fixed Expenses
117,000
Net operating loss
$( 13,000) - DuraDisc Corporation produces two types of compact discs: standard and high-grade.
The standard CDs are used primarily in computer drives and are designed for data storage
rather than accurate sound reproduction. The company only recently began producing the
higher-quality, high- grade model to enter the lucrative music-recording market. Since the
new product was introduced, profits have seen only a modest increase. Management
expected a significant profit increase related to rapidly growing sales of the high-grade
discs. Management believes the accounting system may not be accurately allocating costs
to products.
Management has asked you to investigate the cost allocation problem. You find that
manufacturing overhead is currently assigned to products based on the direct labor costs
in the products. Last year’s manufacturing overhead was $880,000, based on production
of 320,000 standard CDs and 120,000 high-grade CDs. Selling prices last year averaged
$3.60 per standard disc and $5.80 per high-grade disc. Direct labor and direct materials
costs for last year were as follows:
Standard
High-Grade
Total
Direct Labor
$160,000
$ 80,000
$240,000
Direct Materials
$125,000
$114,000
$239,000
Management believes three activities cause overhead costs. The cost drivers and related
costs are as follows:
Activity Level
Cost Assigned
Number of Production Runs
Quality Tests Performed
Shipping Orders Processed
Total Overhead
$300,000
$360,000
$220,000
$880,000
Standard
High-Grade
Total
20
12
100
10
18
50
30
30
150
Required (20 point)
a. How much of the overhead will be assigned to each product if the three cost drivers are
used to allocate overhead? What would be the cost per unit produced for each product?
b. How much of the overhead would have been assigned to each product if direct labor
cost had been used to allocate overhead? What would have been the total cost per unit
produced for each product?
c. How might the results explain why profits did not increase as much as management
expected?
