Sunshine Beach Company manufactures a suntan lotion, called Surtan, in 350-ml plastic bottles. Surtan is sold in
Question:
On June 30, 2012, Jill Ritzman, the chief accountant for the past 20 years, opted to take early retirement. Her replacement, Sid Benili, had extensive accounting experience with motels in the area but only limited contact with manufacturing accounting. During July, Sid correctly accumulated the following production quantity and cost data for the mixing department.
Production quantities: Work in process, July 1, 8,000 litres, 75% complete; started into production 91,000 litres; work in process, July 31, 5,000 litres, 20% complete. Materials are added at the beginning of the process.
Production costs: Beginning work in process $88,000, comprising $21,000 of materials costs and $67,000 of conversion costs; incurred in July-materials $573,000, conversion costs $769,000. Sid then prepared a production cost report on the basis of physical units started into production. His report showed a production cost of $15.71 per litre of Surtan. The management of Sunshine Beach was surprised at the high unit cost. The president comes to you, as Jill's top assistant, to review Sid's report and prepare a correct report if necessary.
Instructions
(a) Show how Sid arrived at the unit cost of $15.71 per litre of Surtan.
(b) Explain what error(s) did Sid make in preparing his production cost report.
(c) Prepare a correct production cost report for July.
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Related Book For
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1118033890
3rd Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly
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