MGT 402 – Cost and Management Accounting, ASSIGNMENT – FALL 2009?

Bell Computers, LTD., located in Liverpool, England, assembles a standardized personal computer from parts it purchases from various suppliers. The production process consists of several steps, starting with assembly of the “mother” circuit board, which contains the central processing unit. This assembly takes place in the CPU Assembly Department. The company recently hired a new accountant who prepared the following partial production report for the department for January using the weighted-average method:


Quantity Schedule:


Units to be accounted for:


Work in process, January 01 10,000


(Materials 90% complete; Conversion 80% complete)


Started into production 58,000


Total units 68,000


Units accounted for as follows:


Completed and transferred out 60,000


Work in Process, January 31 8,000


(Materials 75% complete; Conversion 50% complete)


Total units 68,000


Total Cost:


Cost to be accounted for:


Work in Process, January 01 £ 26,800


Cost added in the department 175,600


Total cost £ 202,400


Cost Reconciliation:


Cost accounted for as follows:


Completed and transferred out £ 186,000


Work in Process, January 31 16,400


Total cost £ 202,400


The company’s management would like some additional information about January’s operation in the CPU Assembly Department. (The currency in England is the pound, which is denoted by the symbol “£”.)


Required:


1. How many units were stared and completed during January?


2. What were the equivalent units for January for material and conversion costs?


3. What were the costs per equivalent unit for January? The following additional


data are available concerning the department’s cost:


Particular Total


£


Material


£


Conversion


£


Work in Process, January 01 26,800 18,000 8,800


Cost added during January 175,600 114,000 61,600


4. Verify the accountant’s ending work in process inventory figure (£16,400) given in the report.


5. What criticism can be made of the unit costs that have been computed using weighted –Average Method by the company and which method is superior for computing unit cost under process costing based on your criticism?|||Assignment MGT 402 Cost and Management Accounting-Fall 2009





Answer:





1:





Units started during January =


Started 58,000 + Remaining Material WIP (10,000*10 % )+Conversion (10,000* 20 %)


= 58,000 + 1000 + 2000 = 61,000





Units started during January = 61,000








Units Completed during January = 60,000 (Qty. Schedule)








2:





Equivalent Units for January = completed units + closing WIP units + Abnormal loss units





Material = 60,000 + ( 8,000* 75 % ) = 66,000





Conversion = 60,000 + ( 8,000* 50 % ) = 64,000





Material = 66,000 equivalent units





Conversion = 64,000 equivalent units








3:





Cost per equivalent units for January = opening WIP cost + cost added during the year / Eq.Units





Material = 18,000 + 114,000 = 132,000 / 66,000 = 2.0 eq.unit





Conversion = 8,800 + 61,600 = 70,400 / 64,000 = 1.10 per eq.unit





Material = 2.0 equivalent unit





Conversion = 1.10 per equivalent unit








4:





Verification of ending WIP fig:





Material = 8,000 * 75 % = 6,000 * 2.0 = 12,000





Conversion = 8,000 * 50 % = 4,000 * 1.10 = 4,200





Verified 16,400








5:





Criticism :





The unit cost calculated above using weighted average method ignores the percentage of completion of units which already have been completed up to some extent in the last period i.e., it does not take into account the opening WIP adjustment while computing cost per unit. The weighted average method; opening stock values are added to current costs to provide an overall average cost per equivalent unit.





In practice the FIFO method is little used, for two main reasons:





1. It is more complicated to operate.





2. In process costing, it seems unrealistic to relate costs for the previous period to the current


period of activities.





It is therefore concluded that weighted average method best suited for several reasons.|||Cost of the production report





Material conversion


Complete unit 60000 60000


Opening WIP 8000*75/100=6000 8000*50/100=4000


Total 66000 64000





Pre unit cost





Material 132000/66000=2


conversion 70400/64000=1.1


Total 3.1





Cost Apportionment (weighted Average Method)





Transfer to next department


60000*3.1= 186000


Work in process


Material 6000*2=12000


Conversion cost 4000*1.1=4400 16400


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