MN1018: MANAGEMENT ACCOUNTING

Seminar 5: Process costing and Pricing

Exercise 1
The mixing department incurred $46,000 of manufacturing costs during the month of December.
The department transferred out 2,300 units and had 500 units in ending work-in-progress, 40%
complete. There was no beginning work-in-progress.

a) The unit cost for the month of December is:

A. $20
B. $18.40
C. $16
D. $250
E. $183

b) The cost of goods transferred out is

A. $42,320
B. $46,000
C. $37,789
D. $460,000
E. None of these

c) The cost of ending work-in-progress is

A. $9,200
B. $10,000
C. $3,680
D. $3,286
E. None of these

Exercise 2: (Bhimani 2012, Ex. 4.11):

Euro Electronics SNC manufactures microchips in large quantities. Each microchip undergoes
assembly and testing. The total assembly costs during January 2010 were:

Direct materials used $720,000

Conversion costs $760,000

Total manufacturing costs $1,480,000

Required:

1. Assume there was no opening stock on 1 January 2010. During January, 10,000 microchips
were placed into production and all 10,000 microchips were fully completed at the end of
January. What is the unit cost of an assembled microchip in January 2010?

2. Assume that during February 10,000 microchips were placed into production. Further
assume the same total assembly costs for January are also incurred in February 2010, but
only 9,000 microchips are fully completed at the end of February. All direct materials had
been added to the remaining 1,000 microchips. However, on average, these remaining 1,000
microchips were only 50% complete as to conversion costs.
(a) What are the equivalent units for direct materials and conversion costs and their
respective equivalent unit costs for February?
(b) What is the unit cost of an assembled microchip in February 2010?

3. Explain the difference in your answers to requirements 1 and 2.

Exercise 3:
Please read Atrill/McLaney (2012), pp. 173-178.

Please explain when it is appropriate to use full-cost pricing and when marginal cost pricing. Discuss
the problems associated with each method.