Question: Europe Electronics SNC manufactures microchips in large quantities. Each microchip undergoes assembly and testing. The total assembly costs during January 2015 were: Direct materials used............................720
Direct materials used............................€720 000
Conversion costs...................................760 000
Total manufacturing costs.....................€1 480 000
Required
1. Assume there was no opening stock on 1 January 2015. During January, 10 000 microchips were placed into production and all 10 000 microchips were fully completed at the end of January. What is the unit cost of an assembled microchip in January 2015?
2. Assume that during February 10 000 microchips were placed into production. Further assume the same total assembly costs for January are also incurred in February, but only 9000 microchips are fully completed at the end of February. All direct materials had been added to the remaining 1000 microchips. However, on average, these remaining 1000 microchips were only 50% complete as to conversion costs. (a) What are the equivalent units for direct materials and conversion costs and their respective equivalent unit costs for February? (b) What is the unit cost of an assembled microchip in February?
3. Explain the difference in your answers to requirements 1 and 2.
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1 Direct materials cost per unit 720000 10000 72 Conversion cost per unit 760000 10000 76 Assembly Department cost per unit 148 2 Solution Exhibit 411A calculates the equivalent units of direct materials and conversion costs in the Assembly Department of Europe Electronics SNC in February 2015 Solution Exhibit 411B calculates equivalent unit costs Direct materials cost per unit 72 Conversion cost per unit 80 Assembly Department cost per unit 152 3 The difference in the Assembly Department cost per unit calculated in requirements 1 and 2 arises because the costs incurred in January and February are the same but fewer equivalent units of work are done in February relative to January In January all 10000 units introduced are fully completed resulting in 10000 equivalent units of work done with respect to direct materials and conversion costs In February of the 10000 units introduced 10000 equivalent units of work is done with respect to direct materials but only 9500 equivalent units of work is done with respect to conversion costs The Assembly Department cost per unit is therefore higher Solution Exhibit 411A Steps 1 and 2 Summarise output in physical units and calculate equivalent units Assembly Department of Europe Electronics SNC for February 2015 Step 2 Equivalent units Flow of Production Step 1 Physical units Direct materials Conversion costs Completed and transferred out during current period 9000 9000 9000 Add work in progress closing 1000 x 100 1000 x 50 1000 00000 1000 500 Total accounted for 10000 10000 9500 Deduct work in progress opening 0 0 0 Started during current period Work done in current period only 10000 10000 9500 Solution Exhibit 411B Step 3 Calculate equivalent unit costs Assembly Department of Europe Electronics SNC for February 2015 Direct materials Conversion costs Costs added during February given 720000 760000 Divide by equivalent units of work done in February 2015 from Solution Exhibit 411 ... View full answer
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