Sun Electronics, Ltd manufactures 12 inch wafers that are sold to manufacturers of CPUs. Sun operates two adjacent plants for the production of wafers. The first plant (ingot plant) converts Silica (SiO2) into one kilogram ingots that, upon completion, are transferred to the second plant (the wafer plant) which converts them into silicon wafers using the following processes: Shaping and Slicing, Lapping, Treating, and Polishing. In the Shaping and Slicing Process, the rough ingot is ground into a cylindrical shape. Next, the ingot is cut into thin wafers using a machine with a multi-wire slurry saw. In the Lapping Process saw marks and other defects are removed from both sides of the wafers, after which they are flattened to achieve the desired thickness. After abrasions are removed from the wafers during the Treating Process they are heated to remove any other impurities. Finally, in the Polishing Process, the wafers are polished and then cleaned.

During the month of September Sun Electronics' wafer plant placed 1,000 kilograms of ingot into production (in the Shaping and Cutting process). Historically, the Shaping and Slicing Process transfers out 90 wafers for each kilogram of ingot placed into production. The FIFO method is used to calculate unit costs and determine the cost of goods transferred to Lapping. The following information summarizes the activity for the Shaping and Slicing Process:

Upon reviewing the results for September, John Hope, the manager of the wafer plant noted that the September performance of the Shaping and Slicing operation simply confirmed past observation that the current production process produces too much waste. The yield of 90 wafers per kilogram of ingot was at least 10 to 20 wafers per kilogram less than what many competitors were producing in a similar operation. A recent study by the plant's engineering department found that using a multi-wire slurry saw for slicing ingots was slow and generated a lot of wastes. The slurry, made up of a fluid and abrasive particles, is poured on a steel wire to facilitate the slicing of the silicon ingot. The cutting activity, however, produces silicon debris which contaminates the slurry, which then must be cleaned before the slurry is used again. Moreover, the action wears the wire and it must be changed after each cut. The engineering department recommended replacing slurry wire-sawing with diamond-plated wire cutting. The slurry is replaced with diamond particles with an accompanying cooling liquid. The new process is faster, the liquid is more easily cleaned, and the wire can be used for many cuts. The cutting produces less silicon waste and yields more wafers per kilogram of ingot. The engineering department also recommended a new grinding machine for initial shaping of the ingots. Both changes should increase the yield from 10 to 20 wafers per kilogram of ingot, with an increase of 10 being the most likely outcome once workers learn the new processes.

The changes should also reduce costs because of greater productivity. As workers learn how to use the new machinery, labor time will decrease with accompanying reductions in labor and variable overhead costs. Total overhead costs currently represent 200 percent of direct labor costs with variable and fixed overhead costs accounting for 50 percent of total respectively. Direct labor is paid at $15 per direct labor hour. Engineering is confident that most of the learning effects will be completed by the time 32 ingots are processed. Processing of the first kilogram ingot is expected to take about the same labor time as currently used (12 hours). However, using an 80 percent learning curve, the time of 12 hours per ingot is expected to decrease significantly once workers have processed 32 ingots.

With the proposed changes, John also decided to implement a standard cost system to help control future waste and costs. Implementing the standard cost system would begin with the Shaping and Slicing Department and then be expanded to the other departments. In preparing the initial standard cost sheet for the first process, John directed the accounting department to use an increase of 10 wafers per kilogram over the current value when setting the materials standard. He also set a standard price for the silica ingot at $105 per kilogram (price agreed upon with the ingot plant manager). For direct labor, he decided to use the historical price of $15 per hour and asked that the labor time standard be based on the 32 ingot learning curve value. Standard overhead rates would be based on the assumption that fixed overhead per month will be the same as what was incurred in September. Normal volume is assumed to be the direct labors hours associated with the volume of ingots processed in September. Variable overhead rates are expected to be the same per direct labor hour as in September but the total variable overhead should decrease.

Once the standard cost sheet is completed, John wants to use it to calculate the cost of goods transferred out and the value of ending work in process for the month of September for the Shaping and Slicing Department. He also wants to calculate efficiency variances for materials, labor, and variable overhead to assess the potential effect of the new shaping and cutting process.

a. Beginning work in process on September 1 consisted of 100 kilograms of ingot, 40 percent complete with respect to conversion costs. Costs associated with the partially completed units are as follows: Direct material ingots 10,440 Direct labor 6,300 Overhead 12,600 b, Ending work in process on September 30 consisted of 300 kilograms of ingot, 30 percent complete with respect to conversion costs. c. Units completed and transferred out during September: 72,000 wafers. Costs added during September are as follows: Direct material ingots 108,000 Direct labor 153,000 Overhead 306,000 *Overhead is applied using a departmental rate of 200 percent of direct labor cost. d. The journal entry to record the incurrence of added direct materials costs in the shaping and Cutting process during September would include a debit to work in process Shaping & Cutting and a credit to materials inventory The journal entry to record the incurrence of added direc labor costs in the shaping & Cutting process during September would include a debit to work in process Shaping & Cutting and a credit to wages payable. The journal entry to record the incunrence of added factory overhead costs in the Shaping & Cutting process during September would include a debit to work in process Shaping & Cutting and a credit to overhead Control a. Beginning work in process on September 1 consisted of 100 kilograms of ingot, 40 percent complete with respect to conversion costs. Costs associated with the partially completed units are as follows: Direct material ingots 10,440 Direct labor 6,300 Overhead 12,600 b, Ending work in process on September 30 consisted of 300 kilograms of ingot, 30 percent complete with respect to conversion costs. c. Units completed and transferred out during September: 72,000 wafers. Costs added during September are as follows: Direct material ingots 108,000 Direct labor 153,000 Overhead 306,000 *Overhead is applied using a departmental rate of 200 percent of direct labor cost. d. The journal entry to record the incurrence of added direct materials costs in the shaping and Cutting process during September would include a debit to work in process Shaping & Cutting and a credit to materials inventory The journal entry to record the incurrence of added direc labor costs in the shaping & Cutting process during September would include a debit to work in process Shaping & Cutting and a credit to wages payable. The journal entry to record the incunrence of added factory overhead costs in the Shaping & Cutting process during September would include a debit to work in process Shaping & Cutting and a credit to overhead Control