Question

Number 3 City University uses a process cost system to accumulate costs incurred in handling student applications in the admissions department. When an application is completed, it is forwarded to the appropriate academic department for final processing The following processing and cost data pertain to March. 3. Applications in process on March 1 250 Applications started in March 1,100 Completed applications during March 950 Applications still in process at March 31 were 100% complete as to materials (forms) and 75% complete as to conversion costs. Beginning WIP: Direct materials Conversion costs $ 2,125 9,450 March costs: Direct materials Direct labor Overhead $ 8,000 43,000 10.050 Materials are the forms used in the application process, and these costs are incurred at the beginning of the process. Conversion costs are incurred uniformly during the process. Instructions (a) Determine the equivalent units of service (production) for materials and conversion costs. (b) Compute the unit costs and prepare a cost reconciliation schedule. (c) in an effort to improve efficiency, City University has changed their admissions procedures. Instead of adding all of the materials at the beginning of the process, they have decided to add half of the materials at the end of the process right before the applications are transferred to the academic departments. This has resulted in a $2.000 savings in March's direct materials costs (beginning direct materials are not affected). Determine the equivalent units of service (production) and the cost per equivalent unit for materials based on this change. If City University processes 12,000 applications during a typical year, what is the total dollar amount of savings that will result from this change? Note: Round all calculations to the nearest penny.

Answer 1

Answer-a:

STATEMENT OF EQUIVALENT PRODUCTION Equivalent production Material Conversion cost % of % of Units Unit completion Unit completion Application completed 950 950 100 950 100 Closing WIP 400 400 100 300 75 1,350 1,350 1,250

Answer-b:

STATEMENT OF EVALUATION Value of application completed: 950 unit x $57.50 54,625 Value of closing WIP: Material 400 units x $7.5 Conversion 300 units x $50 3,000 15,000 Total 18,000 72,625