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eXcel CASE 6-18 Effect of Incorrect Costing aeross Departments-Weighted-Average Method [LO2 Q, L03 , LO4, LO5e) Tavia Limited manufactures a plastic gasket that is used in automobile engines. The gaskets go through three processing departments: Mixing, Forming, and Stamping. The company's accountant (who is very inexperienced) has prepared a summary of production and costs for the Forming Department for October, as follows: $ 22,420 Work in process inventory, October 1 (8,000 units; materials 100% complete; conversion "/s complete) Costs transferred in from the Mixing Department 81,480 Material added during October (added when processing is 50% complete in the Forming Department) 27,600 Conversion costs added during October 96,900 Total departmental costs $228,400 Forming Department costs assigned to: Units completed and transferred to the Stamping Department (100,000 units at $2.284 each) $228,400 Work in process inventory, October 31 (5,000 units, conversion 2/5 complete) Total departmental costs assigned $228.400 Consists of cost transferred in, $8,820; materials cost, $3,400; and conversion costs, $10,200 After mulling over the data above, Tavia's president commented, "I can't understand what's happening here. Despite a concentrated effort at cost re duction, our unit cost actually went up in the Forming Department last month. With that kind of performance, ycar-end bonuses are out of the question for the people in that department." Required: a) Prepare a production report for the Forming department in October using the weighted average method, listing the / 1 t 1 a 4- After mulling over the data above, Tavia's president commented, "I can't understand what's happening here. Despite a concentrated effort at cost reduction, our unit cost actually went up in the Forming Department last month. With that kind of performance, year-end bonuses are out of the question for the people in that department." Required: a) Prepare a production report for the Forming department in October using the weighted average method, listing the Equivalent units of production and Cost per equivalent unit Costs transferred to the Stamping department Cost of Work in Process ending inventory in the Forming department b) Compare the unit cost calculated in a) to the unit cost of $2.284 that was presented to the President by the company accountant. Explain any difference in the cost per unit. c) Shortly before final reports were published, the Forming department manager contacted the company accountant asking that the following changes be made to the ending Work in Process account materials 50% complete conversion costs 95% complete What would be the effect of this change on current results and what would you advise the company accountant to do in this situation? Prepare a production report for October using the FIFO method. d) e) Assume that the company undertook a major expense reduction program in October. Which of the 2 methods Weighted Average or FIFO would be more useful for management to use in evaluating the effectiveness of the expense reduction program. Explain why. / 1 1
