Chapter 12, Problem 12E

a)

To determine

Determine the conversion cost per hour for the budgeted cell.

Explanation of Solution

Lean Manufacturing: Lean manufacturing aims at reducing the cost and minimizing the waste involved in the production, in order to optimize the value for the product or the service.

Lean Accounting: Lean accounting refers to the accounting standards that support the concepts of lean manufacturing. They record and reflect the transactions done to assist lean manufacturing.

Conversion Cost: The cost involved in the conversion of the raw material into the processed product is known as the conversion cost.

Calculate the conversion cost per hour for the budgeted cell.

$\begin{array}{c}\text{Conversion cost per hour = }\frac{\text{Total Conversion Cost}}{\text{Total Time Taken}}\\ \text{= }\frac{\text{\$600,000}}{\text{2,000 hours}}\\ \text{= \$300 per hour}\end{array}$

Hence, the conversion cost per hour for the budgeted cell is $300 per hour.

b)

To determine

Calculate the conversion cost per unit for the budgeted cell.

Explanation of Solution

Calculate the conversion cost per unit for the budgeted cell.

$\begin{array}{c}\text{Conversion cost per unit = }\frac{\text{Time Taken per unit }}{\text{Cost per unit}}\times \text{ Conversion cost per hour}\\ \text{= }\frac{\text{21 minutes}}{\text{\$60}}\times \text{ \$300}\\ \text{= \$105 per unit}\end{array}$

Hence, the conversion cost per hour for the budgeted cell is $105 per unit.

c)

To determine

Journalize the given transactions.

Explanation of Solution

1. Materials purchased to produce 500 units.

Date	Account Title	Debit ($)	Credit ($)
March	Raw and In-Process Inventory  (1)	$30,000
	Accounts payable		$30,000
	(Purchase of goods on account)

Table (1)

• • Raw materials are purchased, which is an asset increased. Hence debit the raw and in-process inventory with $30,000.
• • Accounts payable is a liability increased; hence credit the accounts payable account with $30,000.

Working Note:

(1) Calculate the amount of goods purchased.

    $\begin{array}{c}\text{Raw and In-Process Inventory= Cost per unit }\times \text{ Number of units}\\ \text{= \$60 }\times \text{ 500 units}\\ \text{= \$30,000}\end{array}$

The cost of raw and in-process inventory is $30,000.

2. Conversion cost applied to 500 units.

Date	Account Title	Debit ($)	Credit ($)
March	Raw and In-Process Inventory  (2)	$52,500
	Conversion Costs		$52,500
	(The conversion costs involved in the production)

Table (2)

• • Value is added to the raw materials, which is an asset increased. Hence debit the raw and in-process inventory with $52,500.
• • Conversion cost is an expense which reduces the stockholder's equity; hence credit the conversion cost account with $52,500.

Working Note:

(2) Calculate the amount value added.

    $\begin{array}{c}\text{Raw and In-Process Inventory= Conversion Cost per unit}\times \text{Number of units}\\ \text{= }\$105\times \text{500 units}\\ \text{= \$}52,500\end{array}$

The cost of conversion for 500 units is $52,500.

3.Completion of 500 units of DVR players.

Date	Account Title	Debit ($)	Credit ($)
March	Finished Goods Inventory  (3)	$82,500
	Raw and In-Process Inventory		$82,500
	(The completion of 500 units placed in finished goods)

Table (3)

• • Value is added to the finished goods, which is an asset increased. Hence debit the finished goods inventory with $82,500.
• • Value of the raw materials, which is an asset, is decreased. Hence credit the raw and in-process inventory with $82,500.

Working Note:

(3) Calculate the amount value added.

    $\begin{array}{c}\text{Finished Goods Inventory= }\left(\begin{array}{l}\text{Cost per unit }+\\ \text{Conversion Cost per unit}\end{array}\right)\times \text{Number of units}\\ \text{= }\left(\$60+\$105\right)\times \text{500 units}\\ \text{= \$165}\times \text{500 units}\\ \text{= \$82,500}\end{array}$

The cost of conversion for 550 units is $82,500.

4. Sold 480 units of DVR players.

Date	Account Title	Debit ($)	Credit ($)
March	Accounts receivable	$115,200
	Sales   (4)		$115,200
	(Sold 480 units of DVR players)

Table (4)

• • Accounts receivable, which is an asset, is increased. Hence debit the accounts receivable account with $115,200.
• • Sales are revenue generated, which increases stockholder's equity. Hence credit the sales with $115,200.

Working Note:

(4) Calculate the amount value added.

    $\begin{array}{c}\text{Sales = Price per unit}\times \text{Number of units}\\ \text{= \$240}\times \text{480 units}\\ \text{= \$115,200}\end{array}$

The sales price for 480 units is $115,200.

5. Record the cost of goods sold.

Date	Account Title	Debit ($)	Credit ($)
March	Cost of Goods sold  (5)	$79,200
	Finished Goods Inventory		$79,200
	(The cost of goods sold is recorded)

Table (5)

• • Cost of goods sold, is an asset decreased. Hence debit the cost of goods sold with $79,200.
• • Finished goods inventory, which is an asset, is decreased. Hence credit the finished goods inventory with $79,200.

Working Note:

(5) Calculate the amount value added.

    $\begin{array}{c}\text{Cost of Goods sold } \text{= }\left(\begin{array}{l}\text{Cost per unit }+\\ \text{Conversion Cost per unit}\end{array}\right)\times \text{Number of units}\\ \text{= }\left(\$60+\$105\right)\times \text{480 units}\\ \text{= \$165}\times \text{480 units}\\ \text{= \$79,200}\end{array}$

The cost of goods sold for 480 units is $79,200.