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AI; 10.4 locating the Eost ol gcrap LB 6 HI Technology designs and manufactures solid-state computer chips. In one of its production departments, a 6-inch circular wafer is fabricated by laying down successive layers of silicon and then etching circuits into the layers. Each wafer contains 100 separate solid-state computer chips. Alter a wafer is manufactured, the 100 chips are cut out of the wafer, initially tested, mounted into protective covers and electrical leads attached. A final quality control test is then performed. The initial testing proceSI lonsists of successive stages of heating and cooling the chips and testing how they work. If 99 percent of each chip's circuits work properly after the testing, it is classied as a high-density {HD} chip. If between T5 percent and 99 percent of a chip's circuits work properly, it is classied as a low-density {LD} chip. If fewer than T5 percent of the circuits work, it is discarded. Twenty wafers are manufactured 495 per batch In each batch, 50 percent of the chips are HD, 20 percent are LD, and 30 percent are discarded. HD chips are sold to defense contractors and LD chips to consumer electronics firms. Chips sold to defense contractors require diHerent types of mountings, packaging, and distribution channels than chips sold to consumer electronics firms do. HD chips sell for $30 each and LD chips sell for $16 each. Each batch of 20 wafers costs $29,100: $3,000 to produce, test, and sort; $21,100 for mounting, attaching leads, nal inspection and distribution costs ($14,500 for HD chips and $0,600 for LD chips). The $29,100 total cost per batch consists of direct labor, direct materials, and variable overhead. The following report summarizes the operating data per hatch: ITI Technology seamisacmasawas a... it00206;"mumntoia: """""""""""" 3 {iii """""""""""" iianmnmmiim Total costs 52?, l 00 \"4,550 55,0 20 5 0,?30 Revenue 36,400 30,000 * 6,4 ' " '0 Total costs '20, l 00 l4,.550 5,3 20 0,?30 Proltt par batch $ ?,300 \"5,450 3 500 \"3330] * $30,000 = 50% s 20 wafers a: 100 chips per wafer x $30 per chip. \" 56,400 = 20% x 20 wafers s 100I chips per wafer a $16 per chip. The cost of scrap is charged to a plant-wide overhead account, which is then allocated directly to the lines of business based on prots in the line of business. a. Critically evaluate ITI's method of accounting for HD and LD chips. is. What suggestions would you offer ITI's management