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Chapter 18: Q14SE (page 1009)

Miller Company sells several products. Sales reports show that the sales volume of its most popular product has increased the past three quarters while overall profits have decreased. How might production cost reports assist management in making decisions about this product?

Short Answer

Expert verified

Managers see how the costs are required to make a product with the help of a production cost report.

Step by step solution

01

Meaning of Production cost

The overall cost paid by a firm to make a given amount of an item or provide a benefit alludes to the cost of production. The cost of production is portrayed in financial matters as the costs exhausted to urge the components of production required within the manufacturing handle of a product, such as labor, land, and capital.

02

 Production cost report helps the management to decide on this product

The production report will show management how much it costs to produce the product. The company can see if the direct materials or conversion prices have increased. They can either identify a strategy to cut expenses or evaluate and must be raised the sales price.

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Most popular questions from this chapter

Question: What are equivalent units of production?

Question: Cadwell manufactures cell phones. The conversion costs to produce cell phones for November are added evenly throughout the process in the Assembly Department. The company uses the weighted-average method. For each of the following separate assumptions, calculate the equivalent units of production for conversion costs in the ending Work-in-Process Inventory for the Assembly Department:

1. 12,000 cell phones were 60% complete

2. 21,000 cell phones were 40% complete

Rick Pines and Joe Lopez are the plant managers for High Mountain Lumber鈥檚 particle board division. High Mountain Lumber has adopted a just-in-time management philosophy. Each plant combines wood chips with chemical adhesives to produce particle board to order, and all product is sold as soon as it is completed. Laura Green is High Mountain Lumber鈥檚 regional controller. All of High Mountain Lumber鈥檚 plants and divisions send Green their production and cost information. While reviewing the numbers of the two particle board plants, she is surprised to find that both plants estimate their ending Work-in-Process Inventories at 75% complete, which is higher than usual. Green calls Lopez, whom she has known for some time. He admits that to ensure their division would meet its profit goal and that both he and Pines would make their bonus (which is based on division profit), they agreed to inflate the percentage completion. Lopez explains, 鈥淒etermining the percent complete always requires judgment.

Whatever the percent complete, we鈥檒l finish the Work-in-Process Inventory first thing next year.鈥�

Requirements

  1. How would inflating the percentage completion of ending Work-in-Process Inventory help Pines and Lopez get their bonus?
  2. The particle board division is the largest of High Mountain Lumber鈥檚 divisions. If Green does not correct the percentage completion of this year鈥檚 ending Work-in-Process Inventory, how will the misstatement affect High Mountain Lumber鈥檚 financial statements?
  3. Evaluate Lopez鈥檚 justification, including the effect, if any, on next year鈥檚 financial statements.
  4. Address the following: What is the ethical issue? What are the options? What are the potential consequences? What should Green do?

Sea Worthy uses three processes to manufacture lifts for personal watercrafts: forming a lift鈥檚 parts from galvanized steel, assembling the lift, and testing the completed lift. The lifts are transferred to finished goods before shipment to marinas across the country. Sea Worthy鈥檚 Testing Department requires no direct materials. Conversion costs are incurred evenly throughout the testing process. Other information follows for October 2018:

UNITS

Beginning work-in-process inventory

2,300 units

Transferred in from assembling department during the period

6,800 units

Completed during the period

4,100 units

Ending work in process inventory (40% complete for conversion work)

5,000 units

COSTS

Beginning work in process inventory (transferred in costs, \(93,400, conversion costs, \)18,100)

$111,500

Transferred in from the assembly department during the period

671,000

Conversion cost added during the period

49,000

The cost transferred into Finished Goods Inventory is the cost of the lifts transferred out of the Testing Department. Sea Worthy uses weighted-average process costing.

Requirements

1. Prepare a production cost report for the Testing Department.

2. What is the cost per unit for lifts completed and transferred out to Finished Goods Inventory? Why would management be interested in this cost?

Refer to your answers from Exercise E18-21.

Requirements

1. Prepare the journal entries to record the assignment of direct materials and direct labor and the allocation of manufacturing overhead to the Blending Department. Also, prepare the journal entry to record the costs of the gallons completed and transferred out to the Packaging Department. Assume labor costs are accrued and not yet paid.

2. Post the journal entries to the Work-in-Process Inventory鈥擝lending T-account.

What is the ending balance?

3. What is the average cost per gallon transferred out of the Blending Department

into the Packaging Department? Why would the company managers want to

know this cost?
See all solutions

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