Road Tire Corporation makes several lines of automobile and truck tires. The company operates in a competitive
Question:
The company controller has been asked to review the product costing information that supports pricing decisions on the radial line. In preparing her report, she collected the following data for last year, the most recent full year of operations:
Units started and completed last year totaled 80,400. Attached to the beginning Work in Process Inventory account were direct materials costs of $123,660 and conversion costs of $57,010. A review of the conversion costs revealed, however, an error in the production account. The correct conversion cost being charged to the production account should have been $2,129,616 instead of $2,401,200. This resulted in overly high overhead costs being charged to the production account.
The radial has been selling for $92 per tire. This price was based on last years unit data plus a 75 percent markup to cover operating costs and profit. The companys three main competitors have been charging about $87 for a tire of comparable quality. The companys process costing system adds all direct materials at the beginning of the process, and conversion costs are incurred uniformly throughout the process.
1. Identify what inaccuracies in costs, inventories, and selling prices result from the companys cost-charging error.
2. Prepare a revised process cost report for 2014. (Round total costs to whole dollars.)
3. What should have been the minimum selling price per tire this year?
4. Suggest ways of preventing such errors in thefuture.
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Step by Step Answer:
Principles of Accounting
ISBN: 978-1133626985
12th edition
Authors: Belverd E. Needles, Marian Powers and Susan V. Crosson