Question - Aspirin Company manufactures packages of aspirin for retail sale. Aspirin Company's costing system uses two cost categories, direct materials and conversion costs. Each packaged product must pass through two departments: Assembly and Packaging. For the Assembly Department direct materials are added at the beginning of the production process. Conversion costs are added evenly throughout production.
Current data for the Assembly Department:
Work in process, beginning inventory - 285,000 units
Direct materials
Conversion costs (65% complete)
Units started (current period) - 800,000 units
Work in process, ending inventory: 195,000 units
Direct materials
Conversion costs (20% complete)
Current period costs for the Assembly Department:
Work in process, beginning inventory:
Direct materials - $80,000
Conversion costs - $120,000
Direct materials costs added this period - $500,000
Conversion costs added this period - $800,000
Required: Complete each of the following questions. For problems: show your work, provide labels and descriptions of amounts, be organized in your work and clearly show your solution to the question.
1. Calculate the Assembly Department's physical flow of units, equivalent units, cost per equivalent unit and assign costs to completed work and ending work in process using the weighted average method of processing costing.
2. Calculate the Assembly Department's physical flow of units, equivalent units, cost per equivalent unit and assign costs to completed work and ending work in process using the FIFO method of processing costing.
3. Aspirin Co.'s controller, Sarah, and Assembly Department manager, Gordy, have determined the weighted average method best represents the flow of units and costs for Aspirin's manufacturing process. Sarah has expressed concern that the cost per equivalent unit is higher than the budgeted amount. Since Gordy's performance is evaluated on cost control, Gordy is considering increasing the ending work-in-process estimated completion percentage to 50%.
a. Using the weighted average method, what is the new cost per equivalent unit for direct materials and conversion costs with the ending WIP completion percentage at 50%? Also recalculate the costs assigned to the two inventory categories.
b. Discuss the implications of Gordy's actions as relates to cost control. (For full credit, your answer should be no less than 50 words).
c. You are the management accountant that reports directly to Gordy and you prepared the analysis changing the 20% to 50% completion percentage based on instructions from Gordy only - with no associated operations data supporting the change. You are aware of the cost control and performance measurement implications. What should you do? (For full credit, your answer should be no less than 50 words).