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Scenario: Davis Skaros has recently been promoted to production manager. The company uses process costing. He has just started to receive various managerial reports, including the production cost report you prepared. It showed his department had 2,000 equivalent units in ending inventory. His department has had a history of not keeping enough inventory on hand to meet demand. He has come to you, very angry, and wants to know why you credited him with only 2,000 units when he saw on his production line at the end of the month 4,000 units.

Prepare a maximum 300-word response and explain to Mr. Skaros why his production cost report showed only 2,000 equivalent units in ending inventory. In accounting terms, explain to him the concept of equivalent units versus the physical units on the production floor.

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Irving Heathcote
Irving HeathcoteLv2
29 Mar 2018

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Resources: Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Committee (SEC) Tutorial help on Excel® and Word functions can be found on the Microsoft® Office website. There are also additional tutorials via the web offering support for Office products.

Scenario: Davis Skaros has recently been promoted to production manager. The company uses process costing. He has just started to receive various managerial reports, including the production cost report you prepared. It showed his department had 2,000 equivalent units in ending inventory.

His department has had a history of not keeping enough inventory on hand to meet demand. He has come to you, very angry, and wants to know why you credited him with only 2,000 units when he saw on his production line at the end of the month 4,000 units.

Prepare a maximum 300-word response and explain to Mr. Skaros why his production cost report showed only 2,000 equivalent units in ending inventory. In accounting terms, explain to him the concept of equivalent units versus the physical units on the production floor.

Question #1:

Leslie Limited is a manufacturing company that makes a single product – the “Whatchamacallit” Whatchamacallits go through two processing departments – Department #1 and Department #2.

The cost to manufacture a “Whatchamacallit” has historically been in the range of $2.94 to $3.00, with 80% of the cost being from Department #1. However, due to increased competition putting a squeeze on sales prices, Leslie’s management has realized that the cost to manufacture “Whatchamacallits” must be reduced. In recent months, several cost-cutting strategies have been put into place, particularly in Department #1. Leslie’s senior management team is anxiously awaiting the production report for Department #1 for the month of January to see whether the cost cutting strategies have worked.

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 1st – 8,000 units: materials 100% complete, conversion costs 80% complete

$20,000 (of which $5,000 is materials and $15,000 is conversion costs)

Materials costs added in January:

$27,000

Conversion costs added in January:

$75,000

Total costs of Department #1:

$122,000

Department #1 costs assigned to:

Units completed and transferred to Dept #2: 50,000 units at $2.44 each.

$122,000

Work in progress inventory, Jan 31st – 5,000 units: materials 100% complete, conversion 75% complete

_

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 inventory.

Required #2: Explain to the President why the unit cost appearing on Emma’s report was higher than anticipated. Have the cost cutting strategies worked?

Scenario: Cabinets, Inc., is a large manufacturer of modular kitchen cabinets, sold primarily to builders and developers. The company uses a standard cost system. Standard production costs have been developed for each type of cabinet; these costs and any cost variances are charged to the production department. A budget also has been developed for the sales department. The sales department is credited with the gross profit on sales (measured at standard cost) and is charged with selling expenses and any variations between budgeted and actual selling expenses.

In early April, the manager of the sales department asked the production department to fill a rush order of kitchen cabinets for a tract of 120 homes. The sales manager stated that the entire order must be completed by May 31. The manager of the production department argued that an order of this size would take 12 weeks to produce. The sales manager answered, “The customer needs it on May 31, or we don’t get the business. Do you want to be responsible for our losing a customer who makes orders of this size?”

Of course, the production manager did not want to take that responsibility. Therefore, he gave in and processed the rush order by having production personnel work overtime through April and May. As a result of the overtime, the performance reports for the production department in those months showed large, unfavorable labor rate variances. The production manager, who in the past had prided himself on coming in under budget, now has very ill feelings toward the sales manager. He also has stated that the production department will never again accept a rush order.

(MUST POST FIRST) Initial Post – As an employee, write an internal memo to your manager addressing the following:

Identify any problem that you see in the company’s standard cost system or in the manner in which cost variances are assigned to the responsible managers.

Make recommendations for changing the cost accounting system to reduce or eliminate any problems that you have identified.

For your response post, you will be taking on the role of the manager and respond to your employee’s memo. Inform the employee as to what specific managerial decisions, conclusions, and/or judgments can you make from the information provided in that memo. Do not respond to a memo that has already received a managerial response.

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