Managerial Accounting
Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Chapter 13, Problem 12E

a)

To determine

Determine the conversion cost per hour for the budgeted cell.

a)

Expert Solution
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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.

Conversion cost per hour = Total Conversion CostTotal Time Taken$600,0002,000 hours=  $300 per hour

Hence, the conversion cost per hour for the budgeted cell is $300 per hour.

b)

To determine

Calculate the conversion cost per unit for the budgeted cell.

b)

Expert Solution
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Explanation of Solution

Calculate the conversion cost per unit for the budgeted cell.

Conversion cost per unit = Time Taken per unit Cost per unit × Conversion cost per hour21 minutes$60 × $300=  $105 per unit

Hence, the conversion cost per hour for the budgeted cell is $105 per unit.

c)

To determine

Journalize the given transactions.

c)

Expert Solution
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Explanation of Solution

1. Materials purchased to produce 500 units.

DateAccount Title Debit ($)  Credit ($)
MarchRaw and In-Process Inventory  (1)$30,000 
      Accounts payable  $30,000
 (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 $30,000.
  • • Accounts payable is a liability increased; hence credit the accounts payable account with $30,000.

Working Note:

(1) Calculate the amount of goods purchased.

    Raw and In-Process Inventory= Cost per unit × Number of units= $60 × 500 units= $30,000

The cost of raw and in-process inventory is $30,000.

2. Conversion cost applied to 500 units.

DateAccount Title Debit ($)  Credit ($)
March Raw and In-Process Inventory  (2)$52,500 
      Conversion Costs $52,500
 (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 $52,500.
  • • Conversion cost is an expense which reduces the stockholder's equity; hence credit the conversion cost account with $52,500.

Working Note:

(2) Calculate the amount value added.

    Raw and In-Process Inventory= Conversion Cost per unit×Number of units$105 ×500 units= $52,500

The cost of conversion for 500 units is $52,500.

3.Completion of 500 units of DVR players.

DateAccount Title Debit ($)  Credit ($)
March Finished Goods Inventory  (3)$82,500 
      Raw and In-Process Inventory $82,500
 (The completion of 500 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 $82,500.
  • • Value of the raw materials, which is an asset, is decreased. Hence credit the raw and in-process inventory with $82,500.

Working Note:

(3) Calculate the amount value added.

    Finished Goods Inventory= (Cost per unit +Conversion Cost per unit)×Number of units($60+$105)×500 units= $165×500 units= $82,500

The cost of conversion for 550 units is $82,500.

4. Sold 480 units of DVR players.

DateAccount Title Debit ($)  Credit ($)
March Accounts receivable   $115,200 
      Sales   (4) $115,200
 (Sold 480 units of DVR players)  

Table (4)

  • • Accounts receivable, which is an asset, is increased. Hence debit the accounts receivable account with $115,200.
  • • Sales are revenue generated, which increases stockholder's equity. Hence credit the sales with $115,200.

Working Note:

(4) Calculate the amount value added.

    Sales = Price per unit×Number of units= $240×480 units= $115,200

The sales price for 480 units is $115,200.

5. Record the cost of goods sold.

DateAccount Title Debit ($)  Credit ($)
March Cost of Goods sold  (5)$79,200 
      Finished Goods Inventory $79,200
 (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 $79,200.
  • • Finished goods inventory, which is an asset, is decreased. Hence credit the finished goods inventory with $79,200.

Working Note:

(5) Calculate the amount value added.

    Cost of Goods sold  (Cost per unit +Conversion Cost per unit)×Number of units($60+$105)×480 units= $165×480 units= $79,200

The cost of goods sold for 480 units is $79,200.

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Managerial Accounting

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