SOLUTIONS TO CASES

CASE 4-39 (45 MINUTES)

1. Equivalent units of material.........................................................................................8,000

Equivalent units of conversion....................................................................................7,500

2. Cost per equivalent unit of material.............................................................................$3.30

Cost per equivalent unit of conversion........................................................................$2.80

3. October 31 work-in-process inventory........................................................................$4,700

Cost of goods completed and transferred out.............................................................$42,700

4. Weighted-average unit cost of completed leather belts...............................................$6.10

These answers are supported by the following process-costing schedules. The firm's cost per
belt used for planning and control, $5.35, is substantially lower than the actual cost per belt
incurred in October, $6.10. Management should investigate this situation to determine whether
production costs can be reduced. If not, then the cost used for planning and control purposes
should be changed to reflect the firm's actual experience.

CALCULATION OF EQUIVALENT UNITS: LAREDO LEATHER CO. - DALLAS PLANT

Weighted-Average Method
Percentage
of
Completion
with Respect Equivalent Units
Physical to Direct
Units Conversion Material Conversion
Work in process, October 1................ 400  25%
Units started during October............... 7,600
Total units to account for..................... 8,000

Units completed and transferred . .out

during October.................................... 7,000  100% 7,000 7,000
Work in process, October 31.............. 1,000  50% 1,000   500
Total units accounted for..................... 8,000
Total equivalent units.......................... 8,000 7,500
CASE 4-39 (CONTINUED)

CALCULATION OF COSTS PER EQUIVALENT UNIT: DALLAS PLANT

Weighted-Average Method
Direct
Material Conversion Total
Work in process, October 1.................................. $ 1,250 $   300 $ 1,550  
Costs incurred during October..............................  25,150  20,700  45,850  
Total costs to account for...................................... $26,400 $21,000 $47,400  
Equivalent units.................................................... 8,000 7,500
Costs per equivalent unit...................................... $3.30 $2.80 $6.10  

ANALYSIS OF TOTAL COSTS: DALLAS PLANT

Weighted-Average Method

Cost of goods completed and transferred out during October:

( number of units ¿ ) ¿ ¿ ¿ 7,000$6.10 $42,700

¿ ..........................

Cost remaining in October 31 work-in-process inventory:

Direct material:

(number of¿)(equivalent¿) ( units of¿ )¿ ¿¿ 1,000$3.30 $3,300

¿ .............................

Conversion:

(number of¿)(equivalent¿) ( units of¿)¿¿¿ 500$2.80  1,400

¿ ........................................

Total cost of October 31 work in process.................................................... $4,700

CASE 4-39 (CONTINUED)

Check: Cost of goods completed and transferred out............. $42,700

Cost of October 31 work-in-process inventory............   4,700
Total costs accounted for........................................... $47,400

5. If the units were 60 percent complete as of October 31, there would be 7,600 equivalent
units with respect to conversion. (To see this, just change the 500 in the right-hand
column of the equivalent-units table in the solution to requirement (4) to 600. This
changes the last number in the right-hand column from 7,500 to 7,600.)

Now the unit cost of conversion drops from $2.80, as currently computed, to $2.76
(rounded, $21,000 ÷ 7,600). Thus, the unit cost drops from $6.10 to $6.06 (rounded).

As controller, Jeff Daley has an ethical obligation to refuse his friend's request to alter the
estimate of the percentage of completion. What Daley can do is to help Murray think of
some legitimate ways to bring about real cost reductions. Several ethical standards for
management accountants (listed in Chapter 1) apply in this situation. Among the relevant
standards are the following:

Competence:

 Provide decision support information and recommendations that are accurate, clear,
concise, and timely.
Credibility:

 Communicate information fairly and objectively.

 Disclose all relevant information that could reasonably be expected to influence an

intended user's understanding of the reports, analyses, and recommendations.