Week 6 Assignment: Chapter 6 and 10 Exercises

Professor Wilson

September 8, 2015

Gida Abdelaziz

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 Chapter 6 Questions

39. WrapAround makes one-size-fits-most capes. Each cape goes through the same conversion process,
but three types of fabric (Dacron, denim, and cotton) are available. The company uses a standard costing
system, and standard costs for each type of cape follow.

.:.
Material is added at the start of production. In March 2013, there was no beginning WIP Inventory and
2,500 capes were started into production. Of these, 300 were Dacron, 500 were denim, and 1,700 were
cotton. At the end of March, 100 capes (50 Dacron, 20 denim, and 30 cotton) were not yet complete. The
stage of completion for each cost component for the 100 unfinished capes is as follows:
Material ………………….. 100% complete
Direct labor ……………… 25% complete
Overhead ………………… 35% complete
a. Determine the total cost of the capes completed and transferred to Finished Goods Inventory.
b. Determine the total cost of the capes in the ending WIP Inventory.

SOLUTION:

a. Beginning WIP Inventory 0 Started & completed 2,400

Started 2,500 Ending WIP Inventory 100
Total 2,500 Units accounted for 2,500

Material Labor Overhead

Started and completed 2,400 2,400 2,400

Ending WIP Inventory 100 25 35
EUP 2,500 2,425 2,435

Cost of goods transferred out:

Direct material:
Dacron (250 × $10) $ 2,500

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 Denim (480 × $8) 3,840
Cotton (1,670 × $12) 20,040 $26,380
Direct labor (2,400 × $9) 21,600
Overhead (2,400 × $6) 14,400
Total $62,380

b. Cost of ending WIP Inventory:

Direct material:
Dacron (50 × $10) $500
Denim (20 × $8) 160
Cotton (30 × $12) 360 $1,020
Direct labor (25 × $9) 225
Overhead (35 × $6) 210
Total $1,455
56. Octavia Corp.’s products are manufactured in three separate departments: Molding, Curing, and
Finishing. Materials are introduced in Molding; additional material is added in Curing. The following
information is available for the Curing Department for May 2010:

Beginning WIP Inventory (degree of completion: transferred in,

100%; direct material, 80%; direct labor, 40%; overhead, 30%) ……… 8,000 units

Transferred in from Molding …………………………………………………. 40,000 units

Ending WIP Inventory (degree of completion: transferred in, 100%;

direct material, 70%; direct labor, 50%; overhead, 40%) ………………….4,000 units

Transferred to Finishing

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 .:.

Prepare, in good form, a weighted average cost of production report for the Curing Department for
May 2010.

SOLUTION:

Octavia Corp. Curing Dept.

Cost of Production Report

For the Month Ended May 31, 2013

Production Data:

Units TI DM DL OH

Beginning WIP inventory 8,000

Units started 40,000

Units to account for 48,000

Beginning WIP inventory 8,000 8,000 8,000 8,000 8,000

Started & completed 36,000 36,000 36,000 36,000 36,000

Ending WIP inventory 4,000 4,000 2,800 2,000 1,600

Units accounted for 48,000 48,000 46,800 46,000 45,600

Cost Data:

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 Total TI DM DL OH

Beginning WIP inventory $278,872 $200,160 $42,504 $31,360 $4,848

Current costs 2,739,020 1,620,000 333,300 517,880 267,840

Cost to account for $3,017,892 $1,820,160 $375,804 $549,240 $272,688

Divided by EUP ÷ 48,000 ÷ 46,800 ÷ 46,000 ÷ 45,600

Cost per EUP $63,87 $37.92 $8.03 $11.94 $5.98

Cost Assignment:

Transferred out (44,000 × $63.87) $2,810,280

Ending WIP inventory:

TI (4,000 × $37.92) $151,680

DM (2,800 × $8.03) 22,484

DL (2,000 × $11.94) 23,880

OH (1,600 × $5.98) 9,568 207,612

Total cost accounted for $3,017,892

57. Use the information for Octavia Corp. in Problem 56, except assume that the company uses FIFO
costing. Prepare, in good form, a FIFO cost of production report for the Curing Department for May 2013.

SOLUTION

Octavia Corp. Curing Dept.

Cost of Production Report

For the Month Ended May 31, 2013

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 Production Data:

Units TI DM DL OH

Beginning WIP inventory 8,000

Units started 40,000

Units to account for 48,000

Beginning WIP inventory 8,000 0 1,600 4,800 5,600

Started & completed 36,000 36,000 36,000 36,000 36,000

Ending WIP inventory 4,000 4,000 2,800 2,000 1,600

Units accounted for 48,000 40,000 40,400 42,800 43,200

Cost Data:

Total TI DM DL OH

Beginning WIP inventory $278,872

Current costs 2,739,020 $1,620,000 $333,300 $517,880

$267,840

Cost to account for $3,017,892

Divided by EUP ÷ 40,000 ÷ 40,400 ÷ 42,800 ÷ 43,200

Cost per EUP $67.05 $40.50 $8.25 $12.10

$6.20

Cost Assignment:

Transferred out:

Beginning WIP inventory $278,872

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 Complete beginning inventory:

DM (1,600 × $8.25) $13,200

DL (4,800 × $12.10) 58,080

OH (5,600 × $6.20) 34,720 106,000

Started & completed (36,000 × $67.05) 2,413,800

Total cost of transferred out $2,798,672

Ending WIP inventory:

TI (4,000 × $40.50) $162,000

DM (2,800 × $8.25) 23,100

DL (2,000 × $12.10) 24,200

OH (1,600 × $6.20) 9,920 219,220

Total cost accounted for $3,017,892

Chapter 10 Questions

12.

High Frequency manufactures and sells MP-3 players. Information on last year’s operations (sales and
production of the 2013 model) follows.

Sales price per unit ………………… $70

Costs per unit

Direct material ……………………… $16

Direct labor …………………………. 14

Overhead (50% variable) …………… 12

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 Selling costs (40% variable) ………… 20

Production in units …………………. 10,000

Sales in units ……………………….. 9,500

At this time (April 2014), the 2014 model is in production and it renders the 2013 model obsolete. If
the remaining 500 units of the 2013 model MP-3 players are to be sold through regular channels, what
is the minimum price the company would accept for the radios?

SOLUTION

The minimum price is equal to the incremental cost of selling the obsolete units.

The only cost that will be incurred to sell the units is the variable selling cost which = $20 × 0.40 = $8. If
the firm can sell the units for more than $8, the firm is better off than it would be by simply destroying
the unsold units.

20. Sierra Sound Systems makes electronic products. Because the employees of one of the company’s
plants are on strike, the Chicago plant is operating at peak capacity. It makes two electronic products:
MP3 players and PDAs. Presently, the company can sell as many of each product as can be made, but
making a PDA takes twice as long in production labor time as an MP3 player. The company’s production
capacity is 100,000 labor hours per month. Data on each product are as follows:

.:.

a. How many of each product should the Chicago plant make? Explain your answer.

b. What qualitative factors would you consider in making this product mix decision?

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 SOLUTION:

a. MP3 Players PDAs

Contribution margin $14 $20
Divide by labor time per unit ÷1 ÷2
CM per unit of labor time $14 $10

Because the company can sell as many of either product as it can make, it should make only MP3
players. The company should make 100,000 MP3 players.

b. The company should consider the need to provide a market assortment of goods and the
possibility of customer preferences permanently changing to PDAs not made by Sierra Sound
Systems. This is acknowledging the possible long-term consequences of a short-term problem
solution.

Work Citied Page

Kinney, Michael R., and Cecily A. Raeburn. Cost ACCOUNTING: Foundations and Evolutions. N.p.: n.p.,
n.d. Print.

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