Chapter 8, Problem 47E

a.

To determine

Draw the flow of the different models through the production process.

Explanation of Solution

Production cost:

Production cost refers to the cost associated with the production process. Direct costs associated with the process and stages of completion are taken into consideration while computing the cost of the production of any product.

Description of the diagram:

The four products go through the process as drawn above. All the four products go through assembly line. Only the products commuter and sport go for polishing before going through packaging. Product retirement goes through special finishing process and not polishing. The only product that has been packaged straight away from assembly line is Gag-Gift. All the products are then converted into finished goods.

The cost will be different for every product as well. Gag-Gift will include assembly and packaging. Commuter and sport will include assembly, polishing and packaging. Retirement includes cost of assembly, special finishing and packaging.

b.

To determine

Determine the cost per unit transferred to finished goods inventory for each of the four watches.

Explanation of Solution

Cost per unit:

Total amount accounted for and total units accounted are considered computation of cost per equivalent unit.

Compute the cost per unit transferred to finished goods inventory for each of the four watches:

Particulars	Total	Gag-Gift	Commuter	Sport	Retirement
Materials	$ 321,000	$ 15,000	$ 90,000	$ 156,000	$  60,000
Conversion costs:
Assembly	$ 120,000	$ 20,000(1)	$ 40,000(2)	$ 52,000(3)	$ 8,000(4)
Polishing	$ 69,000	$ 0	$ 30,000(5)	$ 39,000(6)	$ 0
Special finishing	$ 20,000	$ 0	$ 0	$ 0	$ 20,000(7)
Packaging	$ 90,000	$ 15,000(8)	$ 30,000(9)	$ 39,000(10)	$ 6,000(11)
Total conversion costs	$ 299,000	$ 35,000	$ 100,000	$ 130,000	$ 34,000
Total product cost	$ 620,000	$ 50,000	$ 190,000	$ 286,000	$ 94,000
Number of units		5,000	10,000	13,000	2,000
Cost per unit		$ 10.00(12)	$ 19.00(13)	$ 22.00(14)	$ 47.00(15)

Working note 1:

Compute the conversion costs of assembly for Gag-gift:

$\begin{array}{c}\text{Conversion}\text{cost}\text{=}\frac{\text{Conversion}\text{cost}\text{of}\text{assembly}}{\text{Number}\text{of}\text{units}\text{(conversion}\text{cost)}}\text{×}\text{Number}\text{of}\text{units}\\ \text{=}\frac{\text{\$120,000}}{\text{30,000}}\text{×}\text{5,000}\\ \text{=}\$4\times 5,000\\ =\$20,000\end{array}$

Working note 2:

Compute the conversion costs of assembly for Commuter:

$\begin{array}{c}\text{Conversion}\text{cost}\text{=}\frac{\text{Conversion}\text{cost}\text{of}\text{assembly}}{\text{Number}\text{of}\text{units}\text{(conversion}\text{cost)}}\text{×}\text{Number}\text{of}\text{units}\\ \text{=}\frac{\text{\$120,000}}{\text{30,000}}\text{×}10\text{,000}\\ \text{=}\$4\times 10,000\\ =\$40,000\end{array}$

Working note 3:

Compute the conversion costs of assembly for Sport:

$\begin{array}{c}\text{Conversion}\text{cost}\text{=}\frac{\text{Conversion}\text{cost}\text{of}\text{assembly}}{\text{Number}\text{of}\text{units}\text{(conversion}\text{cost)}}\text{×}\text{Number}\text{of}\text{units}\\ \text{=}\frac{\text{\$120,000}}{\text{30,000}}\text{×}13\text{,000}\\ \text{=}\$4\times 13,000\\ =\$52,000\end{array}$

Working note 4:

Compute the conversion costs of assembly for Retirement:

$\begin{array}{c}\text{Conversion}\text{cost}\text{=}\frac{\text{Conversion}\text{cost}\text{of}\text{assembly}}{\text{Number}\text{of}\text{units}\text{(conversion}\text{cost)}}\text{×}\text{Number}\text{of}\text{units}\\ \text{=}\frac{\text{\$120,000}}{\text{30,000}}\text{×}2\text{,000}\\ \text{=}\$4\times 2,000\\ =\$8,000\end{array}$

Working note 5:

Compute the conversion costs of polishing for Commuter:

$\begin{array}{c}\text{Conversion}\text{cost}\text{=}\frac{\text{Conversion}\text{cost}\text{of}\text{polishing}}{\text{Number}\text{of}\text{units}\text{(conversion}\text{cost)}}\text{×}\text{Number}\text{of}\text{units}\\ \text{=}\frac{\text{\$69,000}}{\text{23,000}}\text{×}10\text{,000}\\ \text{=}\text{\$3}\text{×}10\text{,000}\\ \text{=}\text{\$30,000}\end{array}$

Working note 6:

Compute the conversion costs of polishing for Sport:

$\begin{array}{c}\text{Conversion}\text{cost}\text{=}\frac{\text{Conversion}\text{cost}\text{of}\text{polishing}}{\text{Number}\text{of}\text{units}\text{(conversion}\text{cost)}}\text{×}\text{Number}\text{of}\text{units}\\ \text{=}\frac{\text{\$69,000}}{\text{23,000}}\text{×}13\text{,000}\\ \text{=}\text{\$3}\text{×}13\text{,000}\\ \text{=}\text{\$39,000}\end{array}$

Working note 7:

Compute the conversion costs of special packaging for Retirement:

$\begin{array}{c}\text{Conversion}\text{cost}\text{=}\frac{\text{Conversion}\text{cost}\text{of}\text{retirement}}{\text{Number}\text{of}\text{units}\text{(conversion}\text{cost)}}\text{×}\text{Number}\text{of}\text{units}\\ \text{=}\frac{\text{\$20,000}}{\text{2,000}}\text{×}\text{2,000}\\ \text{=}\text{\$10}\text{×}\text{2,000}\\ \text{=}\text{\$20,000}\end{array}$

Working note 8:

Compute the conversion costs of packaging for Gag-gift:

$\begin{array}{c}\text{Conversion}\text{cost}\text{=}\frac{\text{Conversion}\text{cost}\text{of}\text{packaging}}{\text{Number}\text{of}\text{units}\text{(conversion}\text{cost)}}\text{×}\text{Number}\text{of}\text{units}\\ \text{=}\frac{\text{\$90,000}}{\text{30,000}}\text{×}\text{5,000}\\ \text{=}\text{\$3}\text{×}\text{5,000}\\ \text{=}\text{\$15,000}\end{array}$

Working note 9:

Compute the conversion costs of packaging for Commuter:

$\begin{array}{c}\text{Conversion}\text{cost}\text{=}\frac{\text{Conversion}\text{cost}\text{of}\text{packaging}}{\text{Number}\text{of}\text{units}\text{(conversion}\text{cost)}}\text{×}\text{Number}\text{of}\text{units}\\ \text{=}\frac{\text{\$90,000}}{\text{30,000}}\text{×}10\text{,000}\\ \text{=}\text{\$3}\text{×}10\text{,000}\\ \text{=}\text{\$30,000}\end{array}$

Working note 10:

Compute the conversion costs of packaging for Sport:

$\begin{array}{c}\text{Conversion}\text{cost}\text{=}\frac{\text{Conversion}\text{cost}\text{of}\text{packaging}}{\text{Number}\text{of}\text{units}\text{(conversion}\text{cost)}}\text{×}\text{Number}\text{of}\text{units}\\ \text{=}\frac{\text{\$90,000}}{\text{30,000}}\text{×}13\text{,000}\\ \text{=}\text{\$3}\text{×}13\text{,000}\\ \text{=}\text{\$39,000}\end{array}$

Working note 11:

Compute the conversion costs of packaging for Retirement:

$\begin{array}{c}\text{Conversion}\text{cost}\text{=}\frac{\text{Conversion}\text{cost}\text{of}\text{packaging}}{\text{Number}\text{of}\text{units}\text{(conversion}\text{cost)}}\text{×}\text{Number}\text{of}\text{units}\\ \text{=}\frac{\text{\$90,000}}{\text{30,000}}\text{×}2\text{,000}\\ \text{=}\text{\$3}\text{×}2\text{,000}\\ \text{=}\text{\$6,000}\end{array}$

Working note 12:

Compute the cost per unit transferred to finished goods for Gag-gift:

$\begin{array}{c}\text{Cost}\text{per}\text{unit}\text{=}\frac{\text{Total}\text{cost}}{\text{Number}\text{of}\text{units}}\\ \text{=}\frac{\text{\$50,000}}{\text{5,000}}\\ \text{=}\text{\$10}\end{array}$

Working note 13:

Compute the cost per unit transferred to finished goods for Commuter:

$\begin{array}{c}\text{Cost}\text{per}\text{unit}\text{=}\frac{\text{Total}\text{cost}}{\text{Number}\text{of}\text{units}}\\ \text{=}\frac{\text{\$190,000}}{\text{10,000}}\\ \text{=}\text{\$19}\end{array}$

Working note 14:

Compute the cost per unit transferred to finished goods for Gag-gift:

$\begin{array}{c}\text{Cost}\text{per}\text{unit}\text{=}\frac{\text{Total}\text{cost}}{\text{Number}\text{of}\text{units}}\\ \text{=}\frac{\text{\$286,000}}{\text{13,000}}\\ \text{=}\text{\$22}\end{array}$

Working note 15:

Compute the cost per unit transferred to finished goods for Gag-gift:

$\begin{array}{c}\text{Cost}\text{per}\text{unit}\text{=}\frac{\text{Total}\text{cost}}{\text{Number}\text{of}\text{units}}\\ \text{=}\frac{\text{\$94,000}}{\text{2,000}}\\ \text{=}\text{\$47}\end{array}$