Question

Tambin Inc. produces a gasoline additive that, when added to the gas tank of the average automobile, is designed to increase gas mileage by 15%. The company's controller suspects that the year-end dollar balances shown below in the inventory accounts may be incorrect. Units Costs Work in process, December 31 (materials 100% complete; conversion 60% complete) Finished goods, December 31 36,000 41,000 $ 71,000 $124,500 There were no finished goods inventories at the beginning of the year. The company uses the weighted average method of process costing. There is only one processing department. A review of the company's inventory and cost records shows the following: Costs Units Materials Conversion 31,000 611,000 $ 33,000 $ Work in process, beginning of year (materials 100% complete; conversion 50% complete) Started into production Costs added during the year Units completed during the year 59,000 $ 761,000 $2,110,000 790,000 Required: 1. Determine the equivalent units and the costs per equivalent unit for materials and conversion for the year. (Round your "Cost per equivalent unit" answers to 2 decimal places.) Materials Conversion Equivalent units of production Cost per equivalent unit 2. Determine the amount of cost that should be assigned to the ending work in process and finished goods inventories. Materials Conversion Total Cost of ending work in process inventory Cost of finished goods inventory 3. Prepare the necessary correcting journal entry to adjust the work in process and finished goods inventories to the correct balances as of December 31. (Round intermediate calculations to 2 decimal places.) View transaction list Journal entry worksheet < 1 Record the entry to adjust the work in process and finished goods inventories Note: Enter debits before credits. Event General Journal Debit Credit Record entry Clear entry View general journal

Answer 1

The best production method based on cost is Method 1 with an initial cost of $9,000. From the provided methods, even when the labor cost increases to $200/unit, Method 1 remains the most cost-effective option with a new total cost of $14,000.

Step-by-step explanation:

To determine the best production method based on cost, we need to calculate the total cost for each method using the given costs of labor and capital. Initially, labor costs $100/unit and capital costs $400/unit. Consequently, the total costs for each method are as follows:

• Method 1: (50 units of labor × $100/unit) + (10 units of capital × $400/unit) = $9,000
• Method 2: (20 units of labor × $100/unit) + (40 units of capital × $400/unit) = $18,000
• Method 3: (10 units of labor × $100/unit) + (70 units of capital × $400/unit) = $29,000

Method 1 has the lowest total cost and is therefore the best production method initially. If the cost of labor rises to $200/unit, the new total costs will be:

• Method 1: (50 units of labor × $200/unit) + (10 units of capital × $400/unit) = $14,000
• Method 2: (20 units of labor × $200/unit) + (40 units of capital × $400/unit) = $18,000
• Method 3: (10 units of labor × $200/unit) + (70 units of capital × $400/unit) = $29,000

Even after the increase in the cost of labor, Method 1 remains the most cost-effective production method.