What is the cost per unit transferred to finished goods inventory for each of the three phones in July? b. The UrLife model is sold only to the government on a cost-plus basis. The marketing vice president suggests that conversion costs in Assembly could be allocated on the basis of material costs so he can offer a lower price for the Basic model. 1. What cost would be reported for the three models if the marketing vice president's suggestion is adopted? 2. Would this be ethical? Assume the conversion costs are not related to material dollars.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Brokia Electronics manufactures three cell phone models, which differ only in the components included: Basic, Photo, and UrLife. Production takes place in two departments, Assembly and Special Packaging. The Basic and Photo models are complete after Assembly. The UrLife model goes from Assembly to Special Packaging and is completed there. Data for July are shown in the following table. Conversion costs are allocated based on the number of units produced. There are no work-in-process inventories.
| Total | total | Basic (40,000 units) |
Photo (20,000 units) |
UrLife (10,000 units) |
|||||||||
| Materials | $ | 2,380,000 | $ | 494,000 | $ | 1,214,000 | $ | 672,000 | |||||
| Conversion costs: | |||||||||||||
| Assembly | $ | 2,284,800 | |||||||||||
| Special Packaging | 614,000 | ||||||||||||
| Total conversion costs | $ | 2,898,800 | |||||||||||
Required:
a. What is the cost per unit transferred to finished goods inventory for each of the three phones in July?
b. The UrLife model is sold only to the government on a cost-plus basis. The marketing vice president suggests that conversion costs in Assembly could be allocated on the basis of material costs so he can offer a lower price for the Basic model.
1. What cost would be reported for the three models if the marketing vice president's suggestion is adopted?
2. Would this be ethical? Assume the conversion costs are not related to material dollars.
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