Lean Accounting The annual budgeted conversion costs for a lean cell are $180,00

Question

Lean Accounting

The annual budgeted conversion costs for a lean cell are $180,000 for 2,000 production hours. Each unit produced by the cell requires 18 minutes of cell process time. During the month, 550 units are manufactured in the cell. The estimated materials costs are $32 per unit. Provide the following journal entries:

a. Materials are purchased to produce 600 units.

b. Conversion costs are applied to 550 units of production.

c. 500 units are completed and placed into finished goods.

Explanation / Answer

Budgeted Conversion Cost   $ 180,000 Total Production hours = 2,000 hours Conversion cost per production hour ( 180,000/2,000 ) = $ 90 per hour Production time per unit produce = 18 minutes Conversion cost per unit ( $ 90 /60 min *18 min) = $ 27 per unit Material cost per unit = $ 32 per unit Total cost per unit produce (Material cost pe runit+ conversion cost perunit) = 32+27 = $ 59 per unit Material Required per unit = $32 per unit Material purchase for 600 units (32*600) = $ 19,200 Conversion cost per unit produce = $ 27 per unit Conversion Cost applied for 550 units =( 550 units@27) = $14,850 Total cost of goods complete per unit = $ 59 per unit Number of units completed = 500 units Total Cost of Goods completed = (500 units@59) = $ 29,500 JOURNAL ENTRIES S.no. Accounts title and explanation Dr. in $ Cr. In $ A. Raw and In process Inventory Dr. 19,200 Accounts Payable Cr. 19,200 (For purchase of raw material for 600 units@32) B. Raw and in process inventory Dr. 14,850 Conversion Cost Cr. 14,850 (For applied conversion cost to in process inventory for 550 units@27) C. Finished Goods Inventory Dr. 29,500 Raw and in Process Inventory Cr. 29,500 (For completing 500 units at a total cost of $ 59 per unit)

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