Chapter 27, Problem 27.14EX

a)

To determine

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.

To Determine: The conversion cost per hour for the budgeted cell.

Explanation of Solution

Calculate the conversion cost per hour for the budgeted cell.

$\begin{array}{c}\text{Conversion cost per hour = }\frac{\text{Total Conversion Cost}}{\text{Total Time Taken}}\\ \text{= }\frac{\text{\$420,000}}{\text{2,000 hours}}\\ \text{= \$210 per hour}\end{array}$

Hence, the conversion cost per hour for the budgeted cell is $210 per hour.

b)

To determine

The conversion cost per unit for the budgeted cell.

Explanation of Solution

Calculate the conversion cost per unit for the budgeted cell.

$\begin{array}{c}\text{Conversion cost per unit = }\frac{\text{Time Taken per unit }}{\text{Cost per unit}}\times \text{ Conversion cost per hour}\\ \text{= }\frac{\text{9 minutes}}{\text{\$60}}\times \text{ \$210}\\ \text{= \$31}\text{.50 per unit}\end{array}$

Hence, the conversion cost per hour for the budgeted cell is $31.50 per unit.

c)

To determine

To Journalize: The given transactions.

Explanation of Solution

1.

Materials purchased for July production.

Date	Account Title	Debit ($)	Credit ($)
July	Raw and In-Process Inventory  (1)	$148,500
	Accounts payable		$148,500
	(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 $148,500.
• Accounts payable is a liability increased; hence credit the accounts payable account with $148,500.

Working Note:

Calculate the amount of goods purchased.

$\begin{array}{c}\text{Raw and In-Process Inventory= Cost per unit }\times \text{ Number of units}\\ \text{= \$135 }\times \text{ 1,100 units}\\ \text{= \$148,500}\end{array}$ (1)

The cost of raw and in-process inventory is $148,500.

2.

Conversion cost applied to production.

Date	Account Title	Debit ($)	Credit ($)
July	Raw and In-Process Inventory  (2)	$34,650
	Conversion Costs		$34,650
	(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 $34,650.
• Conversion cost is an expense which reduces the stockholder's equity; hence credit the conversion cost account with $34,650.

Working Note:

Calculate the amount value added.

$\begin{array}{c}\text{Raw and In-Process Inventory= Conversion Cost per unit}\times \text{Number of units}\\ \text{= }\$31.50\times \text{1,100 units}\\ \text{= \$}34,650\end{array}$ (2)

The cost of conversion for produced units is $34,650.

3.

Completion of 1,100 units of DVR players.

Date	Account Title	Debit ($)	Credit ($)
July	Finished Goods Inventory  (3)	$183,150
	Raw and In-Process Inventory		$183,150
	(The completion of 1,100 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 $183,150.
• Value of the raw materials, which is an asset, is decreased. Hence credit the raw and in-process inventory with $183,150.

Working Note:

Calculate the amount value added.

$\begin{array}{c}\text{Finished Goods Inventory= }\left(\begin{array}{l}\text{Cost per unit }+\\ \text{Conversion Cost per unit}\end{array}\right)\times \text{Number of units}\\ \text{= }\left(\$135+\$31.50\right)\times \text{1,100 units}\\ \text{= \$166}\text{.50}\times \text{1,100 units}\\ \text{= \$183,150}\end{array}$ (3)

The cost of conversion for 1,100 units is $183,150.

4.

Sold 1,060 units of DVR players.

Date	Account Title	Debit ($)	Credit ($)
July	Accounts receivable	$355,100
	Sales   (4)		$355,100
	(Sold 1,060 units of DVR players)

Table (4)

• Accounts receivable, which is an asset, is increased. Hence debit the accounts receivable account with $355,100.
• Sales are revenue generated, which increases stockholder's equity. Hence credit the sales with $355,100.

Working Note:

Calculate the amount value added.

$\begin{array}{c}\text{Sales = Price per unit}\times \text{Number of units}\\ \text{= \$335}\times 1,06\text{0 units}\\ \text{= \$355,100}\end{array}$ (4)

The sales price for 480 units is $355,100.

5.

Record the cost of goods sold.

Date	Account Title	Debit ($)	Credit ($)
July	Cost of Goods sold  (5)	$176,490
	Finished Goods Inventory		$176,490
	(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 $176,490.
• Finished goods inventory, which is an asset, is decreased. Hence credit the finished goods inventory with $176,490.

Working Note:

Calculate the amount value added.

$\begin{array}{c}\text{Cost of Goods sold } \text{= }\left(\begin{array}{l}\text{Cost per unit }+\\ \text{Conversion Cost per unit}\end{array}\right)\times \text{Number of units}\\ \text{= }\left(\$135+\$31.50\right)\times \text{1,060 units}\\ \text{= \$166}\text{.50}\times \text{1,060 units}\\ \text{= \$176,490}\end{array}$ (5)

The cost of goods sold for 480 units is $176,490