Right Now Video Inc. uses a lean manufacturing strategy to manufacture DVR (digi

Question

Right Now Video Inc. uses a lean manufacturing strategy to manufacture DVR (digital video recorder) players. The company manufactures DVR players through a single product cell. The budgeted conversion cost for the year is $280,500 for 1,700 production hours. Each unit requires 9 minutes of cell process time. During July, 1,200 DVR players are manufactured in the cell. The materials cost per unit is $145. The following summary transactions took place during July:

Determine the budgeted cell conversion cost per hour.

Journalize the summary transactions for July. Refer to the Chart of Accounts for exact wording of account titles.

Jul. 1 Materials are purchased for July production. 3 Conversion costs were applied to production. 15 1,200 DVR players are assembled and placed in finished goods. 25 1,160 DVR players are sold for $370 per unit.

Explanation / Answer

SOLUTION

(A) Budgeted cell conversion cost rate = Total conversion costs/Available annual hours

= $280,500 / 1,700 hours

= $165

(B) Budgeted cell conversion cost per unit =

= 9 mins / 60 mins * $165 = $24.75 per unit

(C) Journal entries

Date Accounts title and Explanations Debit ($) Credit ($) July1 Raw and in process material 174,000 Accounts payable (1,200 * $145) 174,000 July 3 Raw and in process material   29,700 Conversion costs (1,200 * $24.75) 29,700 July 15 Finished goods inventory 203,700   Raw and in process material [1,200 *(145 + 24.75)] 203,700 July 25 Accounts receivable 429,200 Sales (1,160 *$370) 429,200 Costs of goods sold 196,910 Finished goods inventory [1,160 *(145 + 24.75)] 196,910

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