Question Luck Dat Company (\"LDC') manufactures high-quality leather goods. The company's prots have declined during the last six months. In an attempt to isolate the causes of poor prot performance, management is investigating the manufacturing operations of each of its products. One of the company's main products is men's luxuryr leather belts. The belts are produced in a single, continuous process in the Hanoi plant. During the process, leather strips are sewn, punched, and dyed. The belts then enter a nal nishing stage to conclude the process. Labour and overhead are applied continuously during the manufacturing process. All material, leather strips, and buckles are introduced at the beginning of the process. The firm uses the FIFO method to calculate its unit costs. The leather belts produced in the Hanoi plant are sold wholesale for $7.07 each. The pricing is based on a gross margin of 25% per belt used for planning and control. The current cost per belt used for planning and control is $5.30. The $5.30 was derived based on actual production cost for the previous year. It does not take into account any spoilage cost. Management wants to compare the current manufacturing costs per unit with the market prices for leather belts. Current market price for belts is $130. The market for men's luxury leather belts is very competitive. Top management has asked the Hanoi plant controller to submit data on the cost of manufacturing the leather belts for the month of November. The cost data will be used to determine whether modifications in the manufacturing process should be initiated or whether an increase in the wholesale selling price of the belts is justified. The work-in-process (WIP) inventory consisted of 40,000 partially completed units on November 1. The belts were 25 % complete as to conversion cost. The costs included in the inventory on November 1 were as follows: Leather strips $96,000 Buckles 46,000 Conversion costs 16,000 Total $158,000During November 760,000 leather strips were placed into production. A total of 700,000 leather belts were completed. The WIP inventory on November 30 consisted of 70,000 belts, which were 10 percent complete as to conversion. The costs charged to production during November were as follows: Leather strips $1,945,600 Buckles 874,000 Conversion costs 1,141,390 Total $3,960,990 A production operator accidently dyed and cut $45,600 of leather into the wrong size and wrong colour. The cost of leather is included in cost of leather strips reported for November. All belts are inspected at the end of the production process. Inspection is very stringent as the belts are for the luxury market. Belts that do not pass the inspection are discarded. Normal spoilage is set at 8% of belts inspected based on previous year's spoilage quantities. All completed belts were sold on the last day of November shipped at the wholesale price. Cash from the sale was collect in mid-December. Total monthly support department cost for November (included in MOH) is $49,000 or $0.07 per equivalent unit for conversion costs. LDC closes any variances in manufacturing overhead (MOH) to cost of goods sold account in the month incurred. The MOH variance for Nov is $23,000 (unfavourable). LDC has a gross profit target of 25%.Required (a) Use process costing to calculate the unit production costs for the leather belts for the month of November. In your production cost report, you should compute the cost per equivalent unit for each cost category (to the nearest cent). Compute the spoilage costs (normal and abnormal), ending WIP, cost of goods sold for the month of November. Did LDC achieved its profit target? Explain if the use of FIFO or Weighted Average method for process costing is irrelevant for LDC during November (State any assumptions you made). (40 marks)
