Managerial accounting

KarSeat (KS) manufactures car seats for children aged 1 4 years old. It produces three models: Basic, Mid, and Super. Only the Basic model is produced locally in a twostep process involving two departments: Fabrication and Assembly. Plastic frames are made in Fabrication department and transferred to Assembly department at the beginning of each month. KS uses First-in-First-out (FIFO) process costing. In Assembly department, all direct material components are added at the beginning of the manufacturing process. On the other hand, conversion cost is added evenly throughout the manufacturing process. Car seats are inspected when the product is 80% complete and normal spoilage criteria is 2% of inspected units during the month. The completed car seats are transferred to storage till they are sold and shipped to distributors in various countries. During March 20x2, there were 3,300 units of car seats in beginning work-in-process (WIP) at 1 March 20x2. These units were 50% complete. At the end of March 20x2, there were 500 units in WIP that were 60% complete. During March 20x2, 66,700 units of car seats were started. At the end of March 20x2, 68,800 units were transferred to storage.

The following table summarises the cost of beginning WIP and current costs incurred in Assembly department for March 20x2:

Beginning WIP @ 1 March 20x2 in Assembly Dept Current cost incurred for March 20x2 in Assembly Dept

Transferred in cost (TIC) $33,000 $641,654

Direct material 13,200 250,125

Conversion costs 660 27,204

Total $46,860 $918,983

Required:

(a) Use FIFO process costing to calculate cost of goods manufactured and cost of spoiled units of car seats in Assembly department. In addition, compute the cost per Basic car seat (nearest cent) for March 20x2 (In your answer, clearly show the costs per equivalent unit to the nearest cent for each cost category). (18 marks)

(b) KS rewards production managers based on cost control. Production managers in Fabrication and Assembly are paid a bonus if individual production manager achieves a 5% cost savings per unit of output in their respective departments. Is this scheme appropriate for both managers? Explain. (7 marks)