Vermont Instruments manufactures two models of calculators. The finance
model is the Fin-X and the scientific model is the Sci-X. Both models are
assembled in the same plant and require the same assembling operations.
The difference between the models is in the cost of the parts. The following
data are available for June:
Fin-X Sci-X Total
Number of units 9,000 43,000 52,000
Parts cost per unit $21 $28
Other costs:
Direct labor $55,000
Indirect materials 19,000
Overhead 82,000
Total $156,000
Vermont Instruments uses operations costing and assigns conversion costs
based on the number of units assembled.
Compute the cost per unit of the Fin-X and Sci-X models for June.
The cost per unit of the Fin-X model is $28 and the cost per unit of the Sci-X model is $33.
Explanation:
Process costing refers to a cost accounting technique that traces and accumulates direct costs for each product type or model, and then assigns indirect or conversion costs incurred in the manufacturing process to each product based on the method adopted by the firm.
The cost per unit of the Fin-X and Sci-X models for June can be computed by following the following steps:
Step 1: Calculation of total parts cost of Fin-X and Sci-X
Fin-X total parts cost = Units of Fin-X × Fin-X parts cost per unit
= 10,000 × $25
Fin-X total parts cost = $250,000
Sci-X total parts cost = Units of Sci-X × Sci-X parts cost per unit
= 40,000 × $30
Sci-X total parts cost = $1,200,000
Step 2: Assignment of total conversion cost of Fin-X and Scin-X
Fin-X portion of conversion cost = (Units of Fin-X ÷ Total units) × Total conversion cost
= (10,000 ÷ 50,000) × $150,000
Fin-X portion of conversion cost = $30,000
Sci-X portion of conversion cost = (Units of Sci-X ÷ Total units) × Total conversion cost
= (40,000 ÷ 50,000) × $150,000
Sci-X portion of conversion cost = $120,000
Step 3: Calculation of total cost of Fin-X and Scin-X
Fin-X total cost = Fin-X total parts cost + Fin-X portion of conversion cost
= $250,000 + $30,000
Fin-X total cost = $280,000
Sci-X total cost = Sci-X total parts cost + Sci-X portion of conversion cost
= $1,200,000 + $120,000
Sci-X total cost = $1,320,000
Step 4: Calculation of cost per unit for Fin-X and Scin-X
Fin-X cost per unit = Fin-X total cost ÷ Units of Fin-X
= $280,000 ÷ 10,000
Fin-X cost per unit = $28 per unit
Sci-X cost per unit = Sci-X total cost ÷ Units of Sci-X
= $1,320,000 ÷ 40,000
Sci-X cost per unit = $33 per unit
Conclusion
The cost per unit of the Fin-X model is $28 and the cost per unit of the Sci-X model is $33.