Part B

3) By reference to the above data, explain:

a. Variable costs in the context of cost-volume-profit (CPV) analysis? (5 Marks)

b. Fixed costs in the context of CPV analysis? (5 Marks)

c. Contribution margin in the context of CPV analysis? (5 Marks)

Problem Set 2

Carries Limited has two departments, the assembly department and the testing department in its brake-pad manufacturing plant, where each brake-pad is conveyed through each department.

Carries process-costing system consist of two cost categories: Single direct cost (direct materials) and a single indirect-cost category (conversion costs).

Direct materials are added at the beginning of the process. Conversion costs are added evenly during the process. When the assembly department finishes work on each brake-pad, it is immediately transferred to testing. Carries uses the weighted-average method of process costing.

Data for the assembly department for October 2019 are as follows:

Physical Units

(Brake Pads) Direct Materials Conversion Costs

Work in process, October 1x 6,000 $1,200,000 $ 400,750

Started during October 2019 21,000

Completed during October 2019 23,500

Work in process, October 31y 3,500

Total costs added during October 2019 $4,600,000 $2,456,500

x Degree of completion: direct materials, 100%; conversion costs, 60%.

y Degree of completion: direct materials, 100%; conversion costs, 70%.

Required:

Part A

1. Compute equivalent units in the assembly department, for each cost category? (10 Marks)

2. Summarize total assembly department costs for October 2019 for each cost category, and calculate the cost per equivalent unit? (10 Marks)

3. Assign total costs to units completed and transferred out and to units in ending work in process? (10 Marks)