Question

Use this information about department a to answer the question that follows. department a had 4,400 units in work in process that were 67% completed as to labor and overhead at the beginning of the period. there were 32,300 units of direct materials added during the period, 34,200 units were completed during the period, and 2,500 units were 35% completed as to labor and overhead at the end of the period. all materials are added at the beginning of the process, and the first-in, first-out cost flow method is used. the materials equivalent units of production for the period are

a. 36,700
b. 29,800
c. 34,200
d. 32,300

Answer 1

The company should use Method 1 as it has the lowest total cost, and if the cost of labor rises, Method 1 still remains the best choice.

Step-by-step explanation:

To determine the best production method, we need to calculate the total cost for each method. Let's calculate the total cost for each method:

1. Method 1: (50 x $100) + (10 x $400) = $5,000 + $4,000 = $9,000
2. Method 2: (20 x $100) + (40 x $400) = $2,000 + $16,000 = $18,000
3. Method 3: (10 x $100) + (70 x $400) = $1,000 + $28,000 = $29,000

The company should use Method 1 as it has the lowest total cost of $9,000. However, if the cost of labor rises to $200/unit, the new total costs would be:

1. Method 1: (50 x $200) + (10 x $400) = $10,000 + $4,000 = $14,000
2. Method 2: (20 x $200) + (40 x $400) = $4,000 + $16,000 = $20,000
3. Method 3: (10 x $200) + (70 x $400) = $2,000 + $28,000 = $30,000

In this case, the company should use Method 1 as it still has the lowest total cost of $14,000.

The best production method when labor costs $100/unit and capital costs $400/unit is Method 1 ($9,000). If the labor cost increases to $200/unit, Method 1 also remains the best ($14,000). With labor at $40/unit and capital at $50/unit, Method 1 is again the most cost-effective ($2,500).

When evaluating which production method to use based on the cost of labor and capital, we need to calculate the total costs for each method. Initially, when the cost of labor is $100/unit and the cost of capital is $400/unit, the total costs for each are:

Method 1: (50 units of labor × $100) + (10 units of capital × $400) = $5,000 + $4,000 = $9,000

Method 2: (20 units of labor × $100) + (40 units of capital × $400) = $2,000 + $16,000 = $18,000

Method 3: (10 units of labor × $100) + (70 units of capital × $400) = $1,000 + $28,000 = $29,000

The best production method based on the initial cost setup is Method 1, with the lowest total cost of $9,000. However, if the cost of labor rises to $200/unit, the calculations change:

Method 1: (50 units of labor × $200) + (10 units of capital × $400) = $10,000 + $4,000 = $14,000

Method 2: (20 units of labor × $200) + (40 units of capital × $400) = $4,000 + $16,000 = $20,000

Method 3: (10 units of labor × $200) + (70 units of capital × $400) = $2,000 + $28,000 = $30,000

With the increased cost of labor, Method 1 remains the most cost-effective with a total cost of $14,000. For the scenario where the cost of labor is $40/unit and the cost of capital is $50/unit:

Method 1: (50 units of labor × $40) + (10 units of capital × $50) = $2,000 + $500 = $2,500

Method 2: (20 units of labor × $40) + (40 units of capital × $50) = $800 + $2,000 = $2,800

Method 3: (10 units of labor × $40) + (70 units of capital × $50) = $400 + $3,500 = $3,900

In this case, Method 1 would again be the best choice for the firm due to its lowest total cost.