Concept explainers
Lean accounting
Modern Lighting Inc. manufactures lighting fixtures, using lean manufacturing methods. Style Omega has a materials cost per unit of $16. The budgeted conversion cost for the year is $308,000 for 2,200 production hours. A unit of Style Omega requires 18 minutes of cell production time. The following transactions took place during June:
- 1. Materials were acquired to assemble 620 Style Omega units for June.
- 2. Conversion costs were applied to 620 Style Omega units of production.
- 3. 600 units of Style Omega were completed in June.
- 4. 580 units of Style Omega were sold in June for $100 per unit.
- A. Determine the budgeted cell conversion cost per hour.
- B. Determine the budgeted cell conversion cost per unit.
- C. Journalize the summary transactions (1)–(4) for June.
a)
Calculate 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.
Hence, the conversion cost per hour for the budgeted cell is $140 per hour.
b)
Calculate the conversion cost per unit for the budgeted cell.
Explanation of Solution
Calculate the conversion cost per unit for the budgeted cell.
Hence, the conversion cost per hour for the budgeted cell is $42 per unit.
c)
Journalize the given transactions.
Explanation of Solution
- 1. Materials purchased to produce 620 units.
Date | Account Title | Debit ($) | Credit ($) |
June | Raw and In-Process Inventory (1) | $9,920 | |
Accounts payable | $9,920 | ||
(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 $9,920.
- • Accounts payable is a liability increased; hence credit the accounts payable account with $9,920.
Working Note:
(1) Calculate the amount of goods purchased.
The cost of raw and in-process inventory is $9,920.
2. Conversion cost applied to 620 units.
Date | Account Title | Debit ($) | Credit ($) |
June | Raw and In-Process Inventory (2) | $26,040 | |
Conversion Costs | $26,040 | ||
(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 $26,040.
- • Conversion cost is an expense which reduces the stockholder's equity; hence credit the conversion cost account with $26,040.
Working Note:
(2) Calculate the amount value added.
The cost of conversion for 500 units is $26,040.
3. Completion of 600 units of Style Omega.
Date | Account Title | Debit ($) | Credit ($) |
June | Finished Goods Inventory (3) | $34,800 | |
Raw and In-Process Inventory | $34,800 | ||
(The completion of 600 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 $34,800.
- • Value of the raw materials, which is an asset, is decreased. Hence credit the raw and in-process inventory with $34,800.
Working Note:
(3) Calculate the amount value added.
The cost of conversion for 600 units is $34,800.
4. Sold580 units of Style Omega.
Date | Account Title | Debit ($) | Credit ($) |
June | Accounts receivable | $58,000 | |
Sales (4) | $58,000 | ||
(Sold 480 units of Style Omega) |
Table (4)
- • Accounts receivable, which is an asset, is increased. Hence debit the accounts receivable account with $58,000.
- • Sales are revenue generated, which increases stockholder's equity. Hence credit the sales with $58,000.
Working Note:
(4) Calculate the amount value added.
The sales price for 580 units is $58,000.
5. Record the cost of goods sold.
Date | Account Title | Debit ($) | Credit ($) |
June | Cost of Goods sold (5) | $33,640 | |
Finished Goods Inventory | $33,640 | ||
(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 $33,640.
- • Finished goods inventory, which is an asset, is decreased. Hence credit the finished goods inventory with $33,640.
Working Note:
(5) Calculate the amount value added.
The cost of goods sold for 580 units is $33,640.
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Chapter 13 Solutions
Managerial Accounting
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