Concept explainers
a)
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.
a)
Explanation of Solution
Calculate the conversion cost per hour for the budgeted cell.
Hence, the conversion cost per hour for the budgeted cell is $92 per hour.
b)
The conversion cost per unit for the budgeted cell.
b)
Explanation of Solution
Calculate the conversion cost per unit for the budgeted cell.
Hence, the conversion cost per hour for the budgeted cell is $23 per unit.
c)
To Journalize: The given transactions.
c)
Explanation of Solution
1.
Materials purchased to produce 700 units.
Date | Account Title | Debit ($) | 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.
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.
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.
The cost of conversion for 685 units is $46,580.
4.
Sold 670 units of Style Omega.
Date | Account Title | Debit ($) | Credit ($) |
December | $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.
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.
The cost of goods sold for 670 units is $45,560
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Chapter 27 Solutions
Financial & Managerial Accounting
- Salisbury Bottle Company manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows: At the beginning of March, Salisburys management planned to produce 500,000 bottles. The actual number of bottles produced for March was 525,000 bottles. The actual costs for March of the current year were as follows: a. Prepare the March manufacturing standard cost budget (direct labor, direct materials, and factory overhead) for Salisbury, assuming planned production. b. Prepare a budget performance report for manufacturing costs, showing the total cost variances for direct materials, direct labor, and factory overhead for March. c. Interpret the budget performance report.arrow_forwardStandard unit cost and journal entries The normal capacity of Algonquin Adhesives Inc. is 40,000 direct labor hours and 20,000 units per month. A finished unit requires 6 lb of materials at an estimated cost of 2 per pound. The estimated cost of labor is 10.00 per hour. The plant estimates that overhead (all variable) for a month will be 40,000. During the month of March, the plant totaled 34,800 direct labor hours at an average rate of 9.50 an hour. The plant produced 18,000 units, using 105,000 lb of materials at a cost of 2.04 per pound. 1. Prepare a standard cost summary showing the standard unit cost. 2. Make journal entries to charge materials and labor to Work in Process.arrow_forwardBusiness Specialty, Inc., manufactures two staplers: small and regular. The standard quantities of direct labor and direct materials per unit for the year are as follows: The standard price paid per pound of direct materials is 1.60. The standard rate for labor is 8.00. Overhead is applied on the basis of direct labor hours. A plantwide rate is used. Budgeted overhead for the year is as follows: The company expects to work 12,000 direct labor hours during the year; standard overhead rates are computed using this activity level. For every small stapler produced, the company produces two regular staplers. Actual operating data for the year are as follows: a. Units produced: small staplers, 35,000; regular staplers, 70,000. b. Direct materials purchased and used: 56,000 pounds at 1.5513,000 for the small stapler and 43,000 for the regular stapler. There were no beginning or ending direct materials inventories. c. Direct labor: 14,800 hours3,600 hours for the small stapler and 11,200 hours for the regular stapler. Total cost of direct labor: 114,700. d. Variable overhead: 607,500. e. Fixed overhead: 350,000. Required: 1. Prepare a standard cost sheet showing the unit cost for each product. 2. Compute the direct materials price and usage variances for each product. Prepare journal entries to record direct materials activity. 3. Compute the direct labor rate and efficiency variances for each product. Prepare journal entries to record direct labor activity. 4. Compute the variances for fixed and variable overhead. Prepare journal entries to record overhead activity. All variances are closed to Cost of Goods Sold. 5. Assume that you know only the total direct materials used for both products and the total direct labor hours used for both products. Can you compute the total direct materials and direct labor usage variances? Explain.arrow_forward
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- Algers Company produces dry fertilizer. At the beginning of the year, Algers had the following standard cost sheet: Algers computes its overhead rates using practical volume, which is 54,000 units. The actual results for the year are as follows: a. Units produced: 53,000 b. Direct materials purchased: 274,000 pounds at 2.50 per pound c. Direct materials used: 270,300 pounds d. Direct labor: 40,100 hours at 17.95 per hour e. Fixed overhead: 161,700 f. Variable overhead: 122,000 Required: 1. Compute price and usage variances for direct materials. 2. Compute the direct labor rate and labor efficiency variances. 3. Compute the fixed overhead spending and volume variances. Interpret the volume variance. 4. Compute the variable overhead spending and efficiency variances. 5. Prepare journal entries for the following: a. The purchase of direct materials b. The issuance of direct materials to production (Work in Process) c. The addition of direct labor to Work in Process d. The addition of overhead to Work in Process e. The incurrence of actual overhead costs f. Closing out of variances to Cost of Goods Soldarrow_forwardZoller Company produces a dark chocolate candy bar. Recently, the company adopted the following standards for one bar of the candy: During the first week of operation, the company experienced the following actual results: a. Bars produced: 143,000. b. Ounces of direct materials purchased: 901,200 ounces at 0.21 per ounce. c. There are no beginning or ending inventories of direct materials. d. Direct labor: 11,300 hours at 17.30.arrow_forwardFresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (150,000 units) during the first month, creating an ending inventory of 20,000 units. During February, the company produced 130,000 units during the month but sold 150,000 units at 500 per unit. The February manufacturing costs and selling and administrative expenses were as follows: a. Prepare an income statement according to the absorption costing concept for the month ending February 28. b. Prepare an income statement according to the variable costing concept for for the month ending February 28. c. What is the reason for the difference in the amount of operating income reported in (a) and (b)?arrow_forward
- Multiple production department factory overhead rates The total factory overhead for Bardot Marine Company is budgeted for the year at 600,000 divided into two departments: Fabrication, 420,000, and Assembly, 180,000. Bardot Marine manufactures two types of boats: speedboats and bass boats. The speedboats require 8 direct labor hours in Fabrication and 4 direct labor hours in Assembly. The bass boats require 4 direct labor hours in Fabrication and 8 direct labor hours in Assembly. Each product is budgeted for 250 units of production for the year. Determine (A) the total number of budgeted direct labor hours for the year in each department, (B) the departmental factory overhead rates for both departments, and (C) the factory overhead allocated per unit for each product using the department factory overhead allocation rates.arrow_forwardZippy Inc. manufactures a fuel additive, Surge, which has a stable selling price of 44 per drum. The company has been producing and selling 80,000 drums per month. In connection with your examination of Zippys financial statements for the year ended September 30, management has asked you to review some computations made by Zippys cost accountant. Your working papers disclose the following about the companys operations: Standard costs per drum of product manufactured: Materials: Costs and expenses during September: Chemicals: 645,000 gallons purchased at a cost of 1,140,000; 600,000 gallons used. Empty drums: 94,000 purchased at a cost of 94,000; 80,000 drums used. Direct labor: 81,000 hours worked at a cost of 816,480. Factory overhead: 768,000. Required: Calculate the following for September, using the formulas on pages 421422 and 424 (Round unit costs to the nearest whole cent and compute the materials variances for both Surge and for the drums.): 1. Materials quantity variance. 2. Materials purchase price variance. 3. Labor efficiency variance. 4. Labor rate variance.arrow_forward
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