Chapter 4.

Process Costing and Hybrid Product-Costing Systems

199

Units
Ceralam sheets (sold after the rolling operation) Nonreflective housing (sold after the punching operation Reflective housing (sold after the dipping operation) T o t a l. 12.000 5.000 3.000 20.000

Direct Materials Used in Ceralam Sheets

$ 480,000 200,000 120,000 $800.000

Direct Materials Used in Dipping

$30,000 $30.000

The cost incurred in producing the varios Ceralam products in the Winnipeg plant during March are shown in the following table. Manufacturing overhead is applied on the basis of direct-labor dollars at the rate of 150 percent

Rolling Direct Material.. Direct Labor........

Manufacturing overhead.... T o t a l. $800,000 300,000 450,000 $1,550,000

Molding
0 $112,000 168,000 $280,000

Punching
0 $128,000 192,000 $320,000

Dipping
$30,000 45,000 $67,500 $142,500

Orbital Industries Of Canada uses operation costing for its Ceralam operations in the Winnipeg plant, Required : 1. Prepare a table that includes the following information for each of the four operations. Total conversion cost Units manufactured Conversion cost per unit 2. Prepare a second table that includes the following information for each product (i.e.,rolled Ceralam sheets, nonreflective Ceralam housings, and reflective Ceralam housings). Total manufacturing cost Units manufactured Total cost per unit

3. Prepare journal entries to record the flow of all manufacturing cost through the Winnipeg plants Ceralam operations during March. (ignore the journal entries to record sal es revenue) 4. Build a spreadsheet : Construct an Exel spreadsheet to solve requirements 1 and 2 above. Show how the solution will change if the following data change : the cost of direct material used in dipping was $45,000 and the overhead application rate is 200% of directlabor cost. CASE Laredo Learther Company manufactures higt-quaity goods.The companys profits have declined during the past nine months. In an attempt to isolate the causes of poor profit performance, management is investigating the manufacturing operations od each of its products. One of the companys main product is leather belts. The belts are produced in a single, continuous process in the Dallas Plant. During the process, leather are sewn, punched, and dyed. The belts then enter a final finishing stageto conclude the process. Labor and overhead are applied continuously during the manufacturing process. The firm uses the weighted-average method to calculate its unit costs. The leather belts produced at the Dallas Plant are sold wholesale for $9,95 each. Management wants to compare the current manufacturing costs per unit with the market prices for leather belts. Top management has asked the Dallas plant controller to submit data on the cost manufacturing the leather belts for the month of October. These cost will be used to determine. Whether modifications in the production process should be initiated or whether an increases in the selling price of the belts is justified. The cost per belt used for planning and control is $5,35. The work-in-process inventory consisted of 400 partially completed units on October 1. The belts were 25 percent complete as to conversion. The cost included in the inventory on October 1 were as follows; Leather strips Buckles Conversion costs Total $ 990 260 300

$ 1,550

During October 7,600 leather strips were placed into production. A total of 7.000 leather belts were completed. The work-in-process inventory on October 31 consisted of 1,000 belts, which were 50 percent complete as to conversion. The cost charged to production during October were as follows ; Leather strips Buckles Conversion costs Total $19,900 5,250 20,700 $45,850

Required ; in order to provide cost data regarding the manufacturing of leather belts in the Dallas Plant to the top management of Laredo Leather Company, compute the following amounts for the month of October. 1. The equivalent units for material and conversion. 2. The cost per equivalent units for material and conversion. 3. The assignment of production cost to the October 31 work-in-process inventory and to goods transferred out. 4. The weighted-average unit cost of leather belts completed and transferred to finished goods. Comment on the companys cost per belt used for planning and control. 5. Laredo Leather Companys production manager, jack Murray, has been under pressure from the company president to reduce the cost of conversion. In spite of several attempts to reduce conversion costs, they have remained more or less constant. Now murray is faced with an upcoming meeting with the company president, at which he will have to explain why he has failed to reduce conversion cost. Murray has approached his frend, Jeff Daley, who is the corporate controller, with the following request: Jeff, Im under pressures to reduce cost in the production process. There is no way to reduce material cost, so Ive got to get the conversion cost down. If I can show just a little progress in next weeks meeting with the president, then I can buy a little time to try some other costcutting measures Ive been considering. I want you to do me a favor. If we raise the estimate of the percentage of completion of Octobers inventory to 60 percent, that will increase the number of equivalent units. Then the unit conversion cost will be a little lower. By how much would Murrays suggested manipulation lower the unit conversion cost? What should Daley do? Discuss this situation, citing specific ethical standars for managerial accountants.