Southward Company has implemented a JIT flexible manufacturing system. John Richins, controller of the company, has decided to reduce the accounting requirements given the expectation of lower inventories. For one thing, he has decided to treat direct labor cost as a part of overhead and to discontinue the detailed direct labor accounting of the past. The company has created two manufacturing cells, each capable of producing a family of products: the radiator cell and the water pump cell. The output of both cells is sold to a sister division and to customers who use the radiators and water pumps for repair activity. Product-level overhead costs outside the cells are assigned to each cell using appropriate drivers. Facility-level costs are allocated to each cell on the basis of square footage. The budgeted direct labor and overhead costs are as follows: Radiator Cell Water Pump Cell Direct labor costs $168,400 $108,410 Direct overhead 656,760 395,550 Product sustaining 261,020 114,270 Facility level 151,560 87,900 Total conversion cost $1,237,740 $706,130 The predetermined conversion cost rate is based on available production hours in each cell. The radiator cell has 42,100 hours available for production, and the water pump cell has 29,300 hours. Conversion costs are applied to the units produced by multiplying the conversion rate by the actual time required to produce the units. The radiator cell produced 76,200 units, taking 0.50 hour to produce one unit of product (on average). The water pump cell produced 100,000 units, taking 0.25 hour to produce one unit of product (on average). Other actual results for the year are as follows: Direct materials purchased and issued $1,601,000 Direct labor costs 276,810 Overhead 1,667,060 All units produced were sold. Any conversion cost variance is closed to Cost of Goods Sold. Required: 1. Calculate the predetermined conversion cost rates for each cell. If required, round your answers to the nearest cent. Radiator Cell per hour Water Pump Cell per hour
Southward Company has implemented a JIT flexible manufacturing system. John Richins, controller of the company, has decided to reduce the accounting requirements given the expectation of lower inventories. For one thing, he has decided to treat direct labor cost as a part of
| Radiator Cell | Water Pump Cell | |||
| Direct labor costs | $168,400 | $108,410 | ||
| Direct overhead | 656,760 | 395,550 | ||
| Product sustaining | 261,020 | 114,270 | ||
| Facility level | 151,560 | 87,900 | ||
| Total conversion cost | $1,237,740 | $706,130 |
The predetermined conversion cost rate is based on available production hours in each cell. The radiator cell has 42,100 hours available for production, and the water pump cell has 29,300 hours. Conversion costs are applied to the units produced by multiplying the conversion rate by the actual time required to produce the units. The radiator cell produced 76,200 units, taking 0.50 hour to produce one unit of product (on average). The water pump cell produced 100,000 units, taking 0.25 hour to produce one unit of product (on average).
Other actual results for the year are as follows:
| Direct materials purchased and issued | $1,601,000 |
| Direct labor costs | 276,810 |
| Overhead | 1,667,060 |
All units produced were sold. Any conversion cost variance is closed to Cost of Goods Sold.
Required:
1. Calculate the predetermined conversion cost rates for each cell. If required, round your answers to the nearest cent.
| Radiator Cell | per hour | |
| Water Pump Cell | per hour |
2. Prepare
| a. | Raw Materials and In Process Inventory | ||
| Accounts Payable | |||
| b. | Conversion Cost Control | ||
| Accounts Payable | |||
| Wages Payable | |||
| c. | Finished Goods Inventory | ||
| Raw Materials and In Process Inventory | |||
| Conversion Cost Control | |||
| d. | Cost of Goods Sold | ||
| Finished Goods Inventory | |||
| e. | Cost of Goods Sold | ||
| Conversion Cost Control |
3. Repeat Requirement 2, assuming that the second trigger point is the sale of the goods. Round amounts to the nearest dollar if rounding is required. For a compound transaction, if an amount box does not require an entry leave it blank. Prepare your entries in the following order: (a) purchase of raw materials, (b) incurrence of direct labor and overhead costs, (c) completion and sale of goods, and (d) recognition of the variance between applied and actual production costs.
| a. | Raw Materials and In Process Inventory | ||
| Accounts Payable | |||
| b. | Conversion Cost Control | ||
| Accounts Payable | |||
| Wages Payable | |||
| c. | Cost of Goods Sold | ||
| Raw Materials and In Process Inventory | |||
| Conversion Cost Control | |||
| d. | Cost of Goods Sold | ||
| Conversion Cost Control |
4. Why is there no need to have a work-in-process inventory account?
5. Two variants of backflush costing were presented in which each used two trigger points, with the second trigger point differing. Suppose that the only trigger point for recognizing
| a. | Conversion Cost Control | ||
| Accounts Payable | |||
| Wages Payable | |||
| b. | Cost of Goods Sold | ||
| Accounts Payable | |||
| Conversion Cost Control | |||
| c. | Cost of Goods Sold | ||
| Conversion Cost Control |
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