Chapter 27, Problem 27.15EX

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.

$\begin{array}{c}\text{Conversion cost per hour = }\frac{\text{Total Conversion Cost}}{\text{Total Time Taken}}\\ \text{= }\frac{\text{\$193,200}}{\text{2,100 hours}}\\ \text{= \$92 per hour}\end{array}$

Hence, the conversion cost per hour for the budgeted cell is $92 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.

$\begin{array}{c}\text{Conversion cost per unit = }\frac{\text{Time Taken per unit }}{\text{Cost per unit}}\times \text{ Conversion cost per hour}\\ \text{= }\frac{\text{15 minutes}}{\text{60 minutes}}\times \text{ \$92}\\ \text{= \$23 per unit}\end{array}$

Hence, the conversion cost per hour for the budgeted cell is $23 per unit.

c)

To determine

To Journalize: The given transactions.

Explanation of Solution

1.

Materials purchased to produce 700 units.

Date	Account Title	Debit ($)	Credit ($)
December	Raw and In-Process Inventory  (1)	$31,500
	Accounts payable		$31,500
	(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 $31,500.
• Accounts payable is a liability increased; hence credit the accounts payable account with $31,500.

Working Note:

Calculate the amount of goods purchased.

$\begin{array}{c}\text{Raw and In-Process Inventory = Cost per unit }\times \text{ Number of units}\\ \text{= \$45 }\times \text{ 700 units}\\ \text{= }\$31,500\end{array}$ (1)

The cost of raw and in-process inventory is $31,500.

2.

Conversion cost applied to 700 units.

Date	Account Title	Debit ($)	Credit ($)
December	Raw and In-Process Inventory  (2)	$16,100
	Conversion Costs		$16,100
	(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 $16,100.
• Conversion cost is an expense which reduces the stockholder's equity; hence credit the conversion cost account with $16,100.

Working Note:

Calculate the amount value added.

$\begin{array}{c}\text{Raw and In-Process Inventory= Conversion Cost per unit}\times \text{Number of units}\\ \text{= }\$23\times \text{700 units}\\ \text{= \$1}6,100\end{array}$ (2)

The cost of conversion for 700 units is $16,100.

3.

Completion of 685 units of Style Omega.

Date	Account Title	Debit ($)	Credit ($)
December	Finished Goods Inventory  (3)	$46,580
	Raw and In-Process Inventory		$46,580
	(The completion of 685 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 $46,580.
• Value of the raw materials, which is an asset, is decreased. Hence credit the raw and in-process inventory with $46,580.

Working Note:

Calculate the amount value added.

$\begin{array}{c}\text{Finished Goods Inventory= }\left(\begin{array}{l}\text{Cost per unit }+\\ \text{Conversion Cost per unit}\end{array}\right)\times \text{Number of units}\\ \text{= }\left(\$45+\$23\right)\times 685\text{ units}\\ \text{= \$68}\times \text{685 units}\\ \text{= \$46,580}\end{array}$ (3)

The cost of conversion for 685 units is $46,580.

4.

Sold 670 units of Style Omega.

Date	Account Title	Debit ($)	Credit ($)
December	Accounts receivable	$85,760
	Sales   (4)		$85,760
	(Sold 670 units of Style Omega)

Table (4)

• Accounts receivable, which is an asset, is increased. Hence debit the accounts receivable account with $85,760.
• Sales are revenue generated, which increases stockholder's equity. Hence credit the sales with $85,760.

Working Note:

Calculate the amount value added.

$\begin{array}{c}\text{Sales = Price per unit}\times \text{Number of units}\\ \text{= \$128}\times \text{670 units}\\ \text{= \$85,760}\end{array}$ (4)

The sales price for 670 units is $85,760.

5.

Record the cost of goods sold.

Date	Account Title	Debit ($)	Credit ($)
December	Cost of Goods sold  (5)	$45,560
	Finished Goods Inventory		$45,560
	(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 $45,560.
• Finished goods inventory, which is an asset, is decreased. Hence credit the finished goods inventory with $45,560.

Working Note:

Calculate the amount value added.

$\begin{array}{c}\text{Cost of Goods sold } \text{= }\left(\begin{array}{l}\text{Cost per unit }+\\ \text{Conversion Cost per unit}\end{array}\right)\times \text{Number of units}\\ \text{= }\left(\$45+\$23\right)\times 670\text{ units}\\ \text{= \$68}\times \text{670 units}\\ \text{= \$45,560}\end{array}$ (5)

The cost of goods sold for 670 units is $45,560