Leslie Limited hired a new accountant in January of 2014. Her name is Emma. Emma

Question

Leslie Limited hired a new accountant in January of 2014. Her name is Emma. Emma, a Dal co op student, only has a little experience with Process Costing, recently prepared a report that summarizes production and costs for Department #1 for January Here it Emma's report Work in progress inventory Jan lst - 8,000 S20,000 (of which S5,000 is materials and units: materials 100% complete, conversion | $15,000 is conversion costs) costs 80% complete Materials costs added in Januarv Conversion costs added in Janu Total costs of Department #1: S27,000 S75,000 S122,000 Department #1 costs assigned to Units completed and transferred to Dept #2 50,000 units at $2.44 each Work in progress inventory, Jan 315t -5,000 units: materials 100% complete, conversion 75% complete S122,000 The President of Leslie Limited reads the above report and becomes quite frustrated and confused. He does not understand how unit costs assigned in Dept. #1 could have increased despite the cost cutting efforts that have been made Required #1: Prepare a report for Department #1 showing how much cost should have been assigned to the units completed and transferred to Department #2 and to the ending WIP nventorv Required #2: Explain to the President why the unit cost appearing on Emma's report was highe than anticipated. Have the cost cutting strategies worked?

Explanation / Answer

1)

3750     [5000*.75]

costt assigned to units completed and transfered out = 50000 [ .58182+ 1.67442]

                   = 50000* 2.25624

                  = $ 112812

cost assigned to ending WIP = [.58182*5000]+[1.67442*3750]

               = 2909.1+ 6279.08

              = $ 9188.18   [ROUNDED TO 9188]

b)The EMMA report shows the higher unit cost ($ 2.44 per unit ) because she has allocated all the cost incurred to unit completed and transfered out and not to units in ending WIP resuling in higher cost per unit .

as per our calculation ,unit cost = .58182+1.67442 = 2.25624 per unit

since the cost is higher than anticipated cost,cost strategies didnt worked

Material conversion Units completed and transfered out 50000 50000 Ending WIP 5000

3750     [5000*.75]

Equivalent units 55000 53750 cost incurred 27000+5000=32000 75000+15000 = 90000 cost per equivalent unit 32000/55000 =$ .58182 90000/53750=$ 1.67442

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