Universal Automotive Group Is a Maker of Engines for High

question 77

Multiple Choice

Universal Automotive Group is a maker of engines for high performance cars and uses a process costing system. The following information pertains to the final department of manufacturing for Universal's most popular engine, the "Atomic 8". $\begin{array}{lr}\text { Beginning work-in-process ( } 40 \% \text { completed) } & 400 \text { units } \\\text { Transferred-in } & 1,600 \text { units } \\\text { Normal spoilage } & 100 \text { units } \\\text { Abnormal spoilage } & 100 \text { units } \\\text { Good units transferred out } & 1,400 \text { units } \\\text { Ending work-in-process }(25 \% \text { completed) } & 400 \text { units }\\\text { Conversion costs in beginning inventory } & \$ 180,500 \\\text { Current conversion costs } & \$ 728,218\end{array}$ Universal Automotive Group calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of the Atomic 8 that are spoiled are the result of defects not discovered before inspection of finished units. Using the weighted-average method, answer the following question:
What are the equivalent units for conversion costs?

• A) 1,700 units.
• B) 1,800 units.
• C) 1,900 units.
• D) 2,000 units.

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Definitions:

Capital

Long-term assets or the money used to support long-term assets and projects. Long-term debt and equity on the balance sheet.

Profitability Index

A capital budgeting tool that measures the relationship between the present value of cash inflows and the initial investment, indicating the relative profitability of a project.

Cost of Capital

The rate of return a company must earn on its projects to maintain its market value and attract funding, often consisting of debt and equity costs.

Cash Flows

The aggregate sum of funds moving into and out of a company, particularly influencing its liquidity.