Question

Calculate the quantity of work in process (WIP) inventory in the Mixing department, and analyze the conversion cost (after computing it).

A. WIP quantity: 1,200 liters; Conversion cost: $1,120
B. WIP quantity: 720 liters; Conversion cost: $2,890
C. WIP quantity: 1,200 liters; Conversion cost: $2,890
D. WIP quantity: 720 liters; Conversion cost: $1,120
Find and analyze the cost per liter out of the Mixing department.
A. $1.42 per liter
B. $2.15 per liter
C. $0.90 per liter
D. $1.61 per liter

Answer 1

Initially, Method 1 is the most cost-effective at $9000. With a labor cost increase to $200/unit, Method 1 still remains the most cost-effective, with a new total cost of $14000.

Step-by-step explanation:

To determine the best production method for a company based on various costs for labor and capital, we first need to calculate the total costs associated with each method:

• Method 1: (50 units of labor × $100/unit) + (10 units of capital × $400/unit) = $5000 + $4000 = $9000
• Method 2: (20 units of labor × $100/unit) + (40 units of capital × $400/unit) = $2000 + $16000 = $18000
• Method 3: (10 units of labor × $100/unit) + (70 units of capital × $400/unit) = $1000 + $28000 = $29000

Initially, Method 1 is the cheapest with a total cost of $9000. However, if the cost of labor rises to $200/unit, we need to recalculate:

• Method 1: (50 units of labor × $200/unit) + (10 units of capital × $400/unit) = $10000 + $4000 = $14000
• Method 2: (20 units of labor × $200/unit) + (40 units of capital × $400/unit) = $4000 + $16000 = $20000
• Method 3: (10 units of labor × $200/unit) + (70 units of capital × $400/unit) = $2000 + $28000 = $30000

With the increased labor cost, Method 1 remains the most cost-effective with a total cost of $14000.