ABC company has made some major accounting changes. The controller has decided to combine direct labor...

 

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ABC company has made some major accounting changes. The controller has decided to combine direct labor cost with overhead. The company has created two manufacturing cells, each capable of producing radiator cell and water pump cell. The output of both cells is sold to a division within the corporation. Product-level overhead costs outside the cells are assigned to each cell using appropriate drivers. Facility-level costs are allocated to each cell on basis of square footage. The budgeted direct labor and overhead costs are as follows: Direct labor costs Direct overhead Product sustaining Facility level Total conversion cost Water Pump Radiator Cell Cell $ 190,000 $ 110,000 720,000 360,000 269,990 107,800 180,000 90,000 $ 1,359,990 $ 667,800 The predetermined conversion cost rate is based on available production hours in each cell. The radiator cell has 40,500 hours available for production The water pump cell has 22.500 hours available for production Conversion costs are applied to units produced by multiplying the conversion rate by the actual time required to produce the units All units produced are sold. Any conversion cost variance is closed to Cost of Goods Sold. Other actual results for the year are as follows: Direct materials purchased and issued Direct labor costs Overhead 81,000 units produced 90,000 units produced $1,500,000 300,000 1,890,000 0.5 hour to produce one unit 0.25 hour to produce one unit Required: You will be graded on the accuracy of your answer along with using proper account titles. 1. Calculate the predetermined conversion cost rates for the Radiator cell and the Water Pump cell. Use cell referencing to calculate your rates 2. Prepare all the journal entries using the backflush accounting. Assume two trigger points (1) the purchase of raw materials and (2) the completion of goods as the second trigger point. 3. Redo all the journal entries using the backflush accounting, but assume the second trigger point is the sales of goods. 4. Redo all the journal entries using the backflush accounting, but assume there is one trigger point and that trigger point is sales of goods. 5. Explain why a company would use the backflush approach in #4 where there is only one trigger point. Solution: Provide your solution below. Make sure you use cell referencing and proper account titles for all journal entries. ABC company has made some major accounting changes. The controller has decided to combine direct labor cost with overhead. The company has created two manufacturing cells, each capable of producing radiator cell and water pump cell. The output of both cells is sold to a division within the corporation. Product-level overhead costs outside the cells are assigned to each cell using appropriate drivers. Facility-level costs are allocated to each cell on basis of square footage. The budgeted direct labor and overhead costs are as follows: Direct labor costs Direct overhead Product sustaining Facility level Total conversion cost Water Pump Radiator Cell Cell $ 190,000 $ 110,000 720,000 360,000 269,990 107,800 180,000 90,000 $ 1,359,990 $ 667,800 The predetermined conversion cost rate is based on available production hours in each cell. The radiator cell has 40,500 hours available for production The water pump cell has 22.500 hours available for production Conversion costs are applied to units produced by multiplying the conversion rate by the actual time required to produce the units All units produced are sold. Any conversion cost variance is closed to Cost of Goods Sold. Other actual results for the year are as follows: Direct materials purchased and issued Direct labor costs Overhead 81,000 units produced 90,000 units produced $1,500,000 300,000 1,890,000 0.5 hour to produce one unit 0.25 hour to produce one unit Required: You will be graded on the accuracy of your answer along with using proper account titles. 1. Calculate the predetermined conversion cost rates for the Radiator cell and the Water Pump cell. Use cell referencing to calculate your rates 2. Prepare all the journal entries using the backflush accounting. Assume two trigger points (1) the purchase of raw materials and (2) the completion of goods as the second trigger point. 3. Redo all the journal entries using the backflush accounting, but assume the second trigger point is the sales of goods. 4. Redo all the journal entries using the backflush accounting, but assume there is one trigger point and that trigger point is sales of goods. 5. Explain why a company would use the backflush approach in #4 where there is only one trigger point. Solution: Provide your solution below. Make sure you use cell referencing and proper account titles for all journal entries.

Answer rating: 100% (QA)

1 Predetermined Conversion Cost Rates Radiator Cell Predetermined Conversion Cost Rate Total Conversion Cost Available Production Hours 667800 40500 hours 1647 per hour Water Pump Cell Predetermined C... View the full answer