Question

Cornwall Valve Ltd., in its first year of operations, produced 100,000 valves and sold 88,000 in its first year of operations. It carries its finished goods inventory at the average unit cost of production. There was no WIP inventory at year-end. Additional data follows:

Variable costs per unit                                                        Annual fixed costs

Direct materials                              $22                             Selling & administrative $500,000

Direct labour                                   $28                             Manufacturing O/H       $500,000

Manufacturing O/H                        $45

Sales commissions                        $ 8

REQUIRED:

A. Determine the cost of the ending finished goods inventory.

B. Calculate the total conversion costs incurred.

Part B

The accounting records of Perth Company revealed the following costs, among others. Circle the conversion costs:

1. Head office insurance                                  $        12,000
2. Indirect materials used                                            21,300
3. Advertising                                                                15,000
4. Direct labour                                                             445,000
5. Depreciation on salespersons’ cars                      20,000
6. Soap in factory washrooms                                    2,000
7. Packing crates for shipping                                    18,000

Answer 1

1.a.
Total Manufacturing Costs = 100000 x ($22+28+45) + 500000 = $10,000,000
Cost per unit = $10000000/100000 = $100 per unit

Cost of ending inventory = 12000 x $100 = $1,200,000

1.b.
Total Conversion Cost incurred = 100000 x ($28+45) + 500000 = $7,800,000

Part B
Following are the conversion costs

1. Indirect materials used                                            21,300
2. Soap in factory washrooms                                    2,000