Saratoga Systems produces a single product. The production process requires all material to be brought to the shop floor before any work begins. The material is then processed and assembled and then transferred to finished goods inventory. Every unit is completely identical in specification and use, and no customization is possible. Because of the cost of the product, only a few units are produced in any one month. During June, only three units were started, and these were labelled ID061, ID062, and ID063. There was no beginning inventory of any kind on June 1. Records from the raw material store and employee time records show the following requisitions and direct labor costs: Direct Material Direct Labor ID061 $19,800 $ 19,000 ID062 18,100 16,000 ID063 21,500 5,200 The difference in the material cost represents the historical cost of material purchased at different times. The difference in labor cost represents the difference in seniority (not skill) of the individual employees. Overhead for the month of June totaled $70,350. During March, ID061 and ID062 were completed and transferred to finished goods. ID063 was still in process on June 30. Required: Suppose Saratoga Systems uses a job cost system and applies overhead to products based on direct labor cost. What will be the cost of the units transferred to finished goods? What will be the amount in Work-in-Process Ending Inventory? Suppose Saratoga Systems uses process costing and ID063 was 50 percent complete with respect to conversion cost (direct labor and overhead cost). Assume that direct materials cost is not traced to individual units. What will be the cost of the units transferred to finished goods? What will be the amount in Work-in-Process Ending Inventory? Based on the provided information, does process costing appear to be sufficient?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Saratoga Systems produces a single product. The production process requires all material to be brought to the shop floor before any work begins. The material is then processed and assembled and then transferred to finished goods inventory. Every unit is completely identical in specification and use, and no customization is possible. Because of the cost of the product, only a few units are produced in any one month.

During June, only three units were started, and these were labelled ID061, ID062, and ID063. There was no beginning inventory of any kind on June 1. Records from the raw material store and employee time records show the following requisitions and direct labor costs:

	Direct Material	Direct Labor
ID061	$19,800	$ 19,000
ID062	18,100	16,000
ID063	21,500	5,200

The difference in the material cost represents the historical cost of material purchased at different times. The difference in labor cost represents the difference in seniority (not skill) of the individual employees.

Overhead for the month of June totaled $70,350.

During March, ID061 and ID062 were completed and transferred to finished goods. ID063 was still in process on June 30.

Required:

Suppose Saratoga Systems uses a job cost system and applies overhead to products based on direct labor cost. What will be the cost of the units transferred to finished goods? What will be the amount in Work-in-Process Ending Inventory?
Suppose Saratoga Systems uses process costing and ID063 was 50 percent complete with respect to conversion cost (direct labor and overhead cost). Assume that direct materials cost is not traced to individual units. What will be the cost of the units transferred to finished goods? What will be the amount in Work-in-Process Ending Inventory?
Based on the provided information, does process costing appear to be sufficient?

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