Refer to the information provided in problem 8.23.

Required

(a) Prepare a process cost report using the FIFO method.

(b) Explain how a standard cost report would differ from the FIFO report you just produced.

(c) Under what circumstances would a standard cost report be preferable to a FIFO cost report? Explain your answer.

Problem 8.23.

Tiffany Campbell is the cost accountant in Computer Components (CC), a small manufacturing entity. CC produces components for one of the large computer manufacturers. Its strategy is to provide highly reliable components at the lowest possible price. To help maintain cost competitiveness, Tiffany produces two process cost reports each month, one based on the FIFO method and the other based on the standard cost method. When the reports are complete, costs from the two systems are compared. If actual costs are under control (that is, within the standard costs) for a particular division, the manager receives a small bonus. If costs have been under control throughout the year, a larger bonus is given at the end of December.

This month Tiffany investigated the results for Kevin Meledrez’s division. Actual direct material costs were higher than standard cost, so the equivalent unit cost was higher than the standard. When she spoke to Kevin about the direct material costs in his division, he argued that the standard cost needs to be changed because the current supplier increased the cost of a particular part. Kevin believes that he should not be held responsible for costs that are not under his control; when prices change, the standard should also change.

Tiffany asked Kevin whether he had investigated other vendors who sell the same part to see whether the price change was across the board for all vendors. Kevin says that he has used this vendor for a number of years and is satisfied with the quality and timeliness of delivery. He does not believe that another vendor would provide the same quality and service, so he does not want to consider changing suppliers at this time.