Karen: Well, he may have been right, but I have my doubts. If there is a significant difference, it could affect our views of which model is more important to the company. The additional bookkeeping isn't very stringent. All we have to worry about is the pattern department. The other departments fit what I view as a process-costing pattern. Aaron: Why don't you look into it? If there is a significant difference, go ahead and adjust the costing system. After the meeting, Karen decided to collect cost data on the two models: the Deluxe model and the Econo model. She decided to track the costs for one week. At the end of the week, she had collected the following data from the pattern department: a. There were total of 2,500 bows completed: 1,000 Deluxe models and 1,500 Econo models. b. There was no BWIP; however, there were 300 units in EWIP: 200 Deluxe and 100 Econo models. Both models were 80% complete with respect to conversion costs and 100% complete with respect to materials. C. The pattern department experienced the following costs: Direct materials $114,000 Direct labor 45,667 d. On an experimental basis, the requisition forms for materials were modified to identify the dollar value of the materials used by the Econo and Deluxe models: Econo model $30,000 Deluxe model 84,000 Required: 1. Compute the unit cost for the handles produced by the pattern department assuming that process costing is totally appropriate. Round unit cost in your computations as well as the answer to the nearest cent. X per unit 2. Compute the unit cost of each handle using the separate cost information provided on materials. Round unit cost in your computations as well as the answer to the nearest cent. Econo model X Deluxe model X per unit 3. Compare the unit costs computed in Requirements 1 and 2. Is Karen justified in her belief that a pure process-costing relationship is not appropriate? Yes 4. In the past, the marketing manager has requested more money for advertising the Econoline. Aaron has repeatedly refused to grant any increase in this product's advertising budget because its per-unit profit (selling price minus manufacturing cost) is so low. Given the results in Requirements 1 through 3, was Aaron justified in his position? The profitability of the Econo line was being understated by nearly $22, while that of the Deluxe line was overstated by over $29 producing an erroneous $51 difference in profitability under the current process-costing system. This easily could be enough difference to make the marketing manager's request for additional advertising dollars a sound one. It is quite possible that Aaron was wrong in not granting the request wrong because he was using the wrong cost information. Feedback Karen: Well, he may have been right, but I have my doubts. If there is a significant difference, it could affect our views of which model is more important to the company. The additional bookkeeping isn't very stringent. All we have to worry about is the pattern department. The other departments fit what I view as a process-costing pattern. Aaron: Why don't you look into it? If there is a significant difference, go ahead and adjust the costing system. After the meeting, Karen decided to collect cost data on the two models: the Deluxe model and the Econo model. She decided to track the costs for one week. At the end of the week, she had collected the following data from the pattern department: a. There were total of 2,500 bows completed: 1,000 Deluxe models and 1,500 Econo models. b. There was no BWIP; however, there were 300 units in EWIP: 200 Deluxe and 100 Econo models. Both models were 80% complete with respect to conversion costs and 100% complete with respect to materials. C. The pattern department experienced the following costs: Direct materials $114,000 Direct labor 45,667 d. On an experimental basis, the requisition forms for materials were modified to identify the dollar value of the materials used by the Econo and Deluxe models: Econo model $30,000 Deluxe model 84,000 Required: 1. Compute the unit cost for the handles produced by the pattern department assuming that process costing is totally appropriate. Round unit cost in your computations as well as the answer to the nearest cent. X per unit 2. Compute the unit cost of each handle using the separate cost information provided on materials. Round unit cost in your computations as well as the answer to the nearest cent. Econo model X Deluxe model X per unit 3. Compare the unit costs computed in Requirements 1 and 2. Is Karen justified in her belief that a pure process-costing relationship is not appropriate? Yes 4. In the past, the marketing manager has requested more money for advertising the Econoline. Aaron has repeatedly refused to grant any increase in this product's advertising budget because its per-unit profit (selling price minus manufacturing cost) is so low. Given the results in Requirements 1 through 3, was Aaron justified in his position? The profitability of the Econo line was being understated by nearly $22, while that of the Deluxe line was overstated by over $29 producing an erroneous $51 difference in profitability under the current process-costing system. This easily could be enough difference to make the marketing manager's request for additional advertising dollars a sound one. It is quite possible that Aaron was wrong in not granting the request wrong because he was using the wrong cost information. Feedback