Chapter 4 Case Study Laredo Leather Company

Laredo Leather Company manufactures high-quality leather goods. The companys profits have declined

during the past nine months. In an attempt to isolate the causes of poor profit performance, management is investigating the manufacturing operations. of each of its products.

One of the companys main products is leather belts. The belts are produced in a single, continuous process in the Dallas Plant. During the process, leather strips are sewn, punched, and dyed. the belts then enter a final finishing stage to conclude the process. Labor and overhead are applied continuously during the manufacturing process. All materials, leather strips, and buckles are introduced at the beginning of the process. The firm uses the weighted-average method to calculate its unit cost.

The leather belts produced at the Dallas Plant are sold wholesale for $9.95 each. Management wants to compare the current manufacturing costs per unit with the market prices for leather belts. Top management has asked the Dallas plant controller to submit data on the cost of the manufacturing the leather belts for the month of October. These cost data will be used to determine whether modifications in the production process should be initiated or whether an increase in the selling price of the belts is justified. The cost per belt used for planning and control is $5.25.

The work-in-process inventory consisted of 400 partially completed units on October 1. The belts were 25 percent complete as to conversion. The cost included in the inventory on October 1 were as follows:

Leather strips.. $ 990

Buckles $260

Conversion costs . $300

Total ..$1,550

During October, 7,600 leather strips were placed into production. A total of 6,250 leather belts were completed. The work-in-process inventory on October 31 consisted of 1,750 belts, which were 50 percent complete as to conversion.

The costs charged to production during October were as follows:

Leather strips.. $ 19,900

Buckles $ 5,250

Conversion costs . $20,700 Total ..$45,850

Required:

You are the pant controller of Laredo Leather Company. In order to provide cost data regarding the manufacture of leather belts in the Dallas Plant to the top management of Laredo Leather Company, write a memo that includes the following and information and recommendations to m compute the following amounts for the month of October.

1. What is the equivalent units for material and conversion? (Show calculation)
2. What is the cost per equivalent unit of material and conversion? (Show calculation)

Information for Question 3 & 4.

With all information in the case being the same except,

2. 1. Total of 5975 leather belts were completed
   2. The work-in-process inventory on October 31 consisted of 2025 belts, which were 50 percent complete as to conversion
3. What is the equivalent units for material and conversion? (Show calculation)
4. What is the cost per equivalent unit of material and conversion? (Show calculation)