Question

Richards Corporation uses the weighted-average method of process costing. The following information is available for October in its Fabricating Department: Units: Beginning Inventory: 86,000 units, 70% complete as to materials and 25% complete as to conversion. Units started and completed: 262,000. Units completed and transferred out: 348,000. Ending Inventory: 33,000 units, 40% complete as to materials and 10% complete as to conversion. Costs: Costs in beginning Work in Process - Direct Materials: $37,200. Costs in beginning Work in Process - Conversion: $79,700. Costs incurred in October - Direct Materials: $646,800. Costs incurred in October - Conversion: $919,300. Calculate the equivalent units of conversion.

Answer 1

Initially, Method 1 is the best production method with a total cost of $9,000. Even when labor costs rise to $200/unit, Method 1 remains the most cost-effective with a new total of $14,000.

Step-by-step explanation:

To determine the best production method, we must calculate the total costs for each method using the given costs for labor and capital. We then compare these costs to decide on the optimal method. A change in labor costs will affect this decision since it directly influences the total cost of each production method.

Initial Cost Calculation

For Method 1: (50 units of labor × $100/unit) + (10 units of capital × $400/unit) = $9,000.
For Method 2: (20 units of labor × $100/unit) + (40 units of capital × $400/unit) = $18,000.
For Method 3: (10 units of labor × $100/unit) + (70 units of capital × $400/unit) = $29,000.
Thus, Method 1 is the cheapest with initial labor costs.

Adjusted Cost Calculation With Increased Labor Costs

For Method 1: (50 units of labor × $200/unit) + (10 units of capital × $400/unit) = $14,000.
For Method 2: (20 units of labor × $200/unit) + (40 units of capital × $400/unit) = $18,000.
For Method 3: (10 units of labor × $200/unit) + (70 units of capital × $400/unit) = $29,000.
With increased labor costs, Method 1 still remains the least expensive and thus the best option.