TCO F) Bingham Corporation uses the weighted-average method in its process costi
ID: 2424498 • Letter: T
Question
TCO F) Bingham Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below. Work in process, beginning: Units in beginning work-in-process inventory 400 Materials costs $6,900 Conversion costs $2,500 Percentage complete for materials 80% Percentage complete for conversion 15% Units started into production during the month 6,000 Units transferred to the next department during the month 5,000 Materials costs added during the month $112,500 Conversion costs added during the month $210,300 Ending work in process: Units in ending work-in-process inventory 1,200 Percentage complete for materials 60% Percentage complete for conversion 30% Required: Calculate the equivalent units for materials (using the weighted-average method) for the month in the first processing department. (Points : 25) (Ignore income taxes in this problem.) Five years ago, the City of Paranoya spent $30,000 to purchase a computerized radar system called W.A.S.T.E. (Watching Aliens Sent To Earth). Recently, a sales rep from W.A.S.T.E. Radar Company told the city manager about a new and improved radar system that can be purchased for $50,000. The rep also told the manager that the company would give the city $10,000 in trade on the old system. The new system will last 10 years. The old system will also last that long but only if a $4,000 upgrade is done in 5 years. The manager assembled the following information to use in the decision regarding which system is more desirable: Old System New System Cost of radar system....................... $30,000 $50,000 Current salvage value...................... $10,000 – Salvage value in 10 years................. $5,000 $8,000 Annual operating costs.................... $34,000 $29,000 Upgrade required in 5 years............ $4,000 – Discount rate................................... 14% 14% Required: a. What is the City of Paranoya's net present value for the decision described above? Use the total cost approach. b. Should the City of Paranoya purchase the new system or keep the old system?
Explanation / Answer
Answer for subpoint a:
NPV of the new system is as follows:
As the NPV of the old system is less, it should be continued.
Particulars % of completion Equivalent units Units of materials Material cost Calculations Beginning work in process(A) 80% 320 400 $6,900.00 Added: During the month (B)=C+B-A 5400 6000 $112,500.00 formula is closing work in process+transferred during the month - Opening work in process. Total equivalent units processed =A+B and related costs 5720 $119,400.00 Equivalent unit cost of material $20.87 (6900+112500)/(320+5400) Minus: Transferred during the month (C ) 5000 5000 $104,370.63 $20.87*5000 units Ending work in progress (D) 60% 720 1200 $15,029.37 $20.87 *720Related Questions
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