Computing equivalent units and assigning cost to completed units and ending work in process.

Principles of Management Accounting

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#1 -Computing equivalent units and assigning cost to completed units and ending work in process; no beginning inventory or cost transferred in [30-45 mins].

Sue Electronics makes CD players in three processes: assembly, programming, and packaging. Direct materials are added at the beginning of the assembly process. Conversion cost are incurred evenly throughout the process. The Assembly Department had no work in process on March 31. In mid-April, Sue Electronics started production on 100,000 CD players. Of this number, 76100 CD players were assembled during April and transferred out to the Programming Department. The April 30 work in process in the Assembly Department was 40% of the way through the assembly process Direct materials costing $375,720 were placed in production in Assembly during April, and direct labor of $157,700 and manufacturing overhead of $98,505 were assigned to that department.

Requirements

1. Draw a time line for the Assembly Department.

2. Use the time line to help you compute the number of equivalent units and the cost per equivalent unit in the Assembly Department for April.

3. Assign total costs in the Assembly Department to (a) units completed and transferred to Programming during April and (b) units still in process at April 30.

4. Prepare a T-account for Work in Process Inventory – Assembly to show its activity during April, including the April 30 balance.

#2 -Computing equivalent units and assigning cost to completed units and ending WIP inventory, two materials, added at different points; no beginning inventory or cost transferred in.

Root’s Exteriors produces exterior siding for homes. The Preparation Department begins with wood, which is chopped into small bits. At the end of the process, an adhesive is added. Then the wood/adhesive mixtures goes on to the Compression Department, where the wood is compressed into sheets. Conversion costs are added evenly throughout the preparation process. March data for the Preparation Department are as follows (in millions):

Sheets

Costs

Beginning work in process inventory

0 sheets

Beginning work in process inventory

$ 0

Started production

3,300 sheets

Costs adding during March:

Completed and transferred out to

Wood

2,600

Compression in March

1.900 sheets

Adhesives

1,365

Ending work in process inventory (45%

Direct labor

640

Of the way through the preparation proceed

—-

Manufacturing overhead

2,445

1,400 sheets

Total costs

$7,050

Requirements

1. Draw a time line for the Preparation Department.

2. Use the time line to help you compute the equivalent. (Hint: East direct material added at a different point in the production process requires its own equivalent unit computation.)

3. Compute the total costs of the units (sheets)

a. Completed and transferred out tot the Compression Department

b. In the Preparation Department’s Ending work in process inventory.

4. Prepare the journal entry to record the cost of the sheets completed and transferred out to the Compression Department.

5. Post the journal entries to the Work in process inventory—Preparation T-account. What is the ending balance?

#3 -Break even sales; sales to earn a target operating income; contribution margin income statement.

British Productions performs London shows. The average show sells 1,200 tickets at $50 per ticket. There are 120 shows a year. The average show has a cast of 70, each earning an average of $300 per show. The cast is paid after each show. The other variable cost is a program –printing cost of $7 per guest. Annual fixed costs total $459,000.

#4 – Computing breakeven sales and sales needed to earn a target operating income; graphing CVP relationships; sensitivity analysis.

Big Time Investor Group is opening an office in Dallas. Fixed monthly costs are office rent ($8,200), depreciation on office furniture ($1,500), utilities ($2,300), special telephone lines ($1,300), a connection with an online brokerage service ($2,900), and the salary of a financial planner ($11,800). Variable costs include payments to the financial planner (9% of revenue), advertising (12% of revenue), supplies and postage (4% of revenue), and usage fees for the telephone lines and computerized brokerage service (5% of revenue).

Requirements

1. Use the contribution margin ratio CVP formula to compute Big Time’s breakeven revenue in dollars. If the average trade leads to $800 in revenue for Big Time, how many trades must be made to break even?

2. Use the income statement equation approach to compute the dollar revenues needed to earn a target monthly operating income of $11,200.

3. Graph Big Time’s CVP relationships. Assume that an average trade leads to $800 in revenue for Big Time. Show the breakeven point, the sales revenue line, the fixed cost line, the total cost line, the operating loss area, the operating income area, and the sales in units (trades) and dollars when monthly operating income of $11,200 is earned. The graph should range from 0 to 80 units.

4. Suppose that the average revenue Big Time earns increases to $900 per trade. Compute the new breakeven point in trades. How does this affect the breakeven point?
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