Question 1:
Forever Green Co. manufactures artificial Christmas trees. In 2004, Forever Green only produced one type of tree, the Merry Green Tree. However, in 2005 Forever Green introduced a new, top-of-the-line product, the Green as can be Tree. The two products require different materials and are manufactured in separate batches. Overhead is allocated on the basis of machine hours. The information from 2005 is as follows:
Total Merry Green Green As Can Be
Units produced 110,000 100,000 10,000
Materials cost $4,800,000 $4,000,000 $800,000
Direct labor cost $9,900,000 $9,000,000 $900,000
Machine hours 130,000 100,000 30,000
Overhead $100,000
Please answer the following:
1. For each product, what is the cost per unit using process costing?
2. For each product, what is the cost per unit using job-order costing?
3. Which costing method is more accurate for this example? Explain
4. Assume Forever Green decides to use process costing to calculate unit cost. If Forever Green prices its trees at a 30% markup on cost, what would be the unit price for the trees? Is this a good pricing strategy or is one product being overcharged and the other being undercharged?
Question 2:
Elements of the Departmental Production Report:
Pet Products manufactures dry dog food. The following information pertains to the month of February:
Beginning work-in-process 5,000 pounds
Started into production 6,000 pounds
Completed 4,000 pounds
Ending work-in-process 7,000 pounds (60% complete as to materials, 40% complete as to conversion costs)
Costs in beginning work-in-process:
Direct materials $10,000
Conversion costs 2,460
Costs incurred during February:
Direct materials $5,990
Conversion costs 4,000
Pet Products uses a process costing system to value its inventories.
Please answer the following:
1. Compute the cost per equivalent unit for materials.
2. Compute the cost per equivalent unit for conversion.
3. Compute the value of ending WIP
4. Compute the value of the units completed.