Grace Incorporated, Which Uses an Operation-Costing System, Has Three Processing

question 34

Essay

Grace Incorporated, which uses an operation-costing system, has three processing departments. All units pass through Department No. 1; upon completion, 60% of the goods are sent to Department No. 2 and 40% are sent to Department No. 3. Additional data follow.
Fifty thousand units were manufactured during the year.
Conversion costs in each department were: No. 1, $400,000; No. 2, $216,000; and No. 3, $170,000.
Batch No. A535, which consisted of 700 units, was sent to Department No. 3 for its additional processing. Direct materials of $24,500 and $12,900 were introduced to this batch in Department Nos. 1 and 3, respectively.
Grace assigns conversion costs to goods manufactured on the basis of units produced.
Required:
A. Determine the conversion cost per unit in Department no. 1, Department no. 2, and Department no. 3.
B. Compute the total cost of batch no. A535.
C. Operation costing is sometimes referred to as a hybrid costing system. Briefly explain.

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Definitions:

Incremental Borrowing Rate

The interest rate a borrower would have to pay to take on additional debt, used as a benchmark in lease accounting to measure lease liabilities in the absence of a specified rate in the lease.

Major Overhaul

Extensive repairs and maintenance on an asset that significantly extend its useful life or enhance its performance.

Non-Cancelable

A term referring to agreements or contracts that cannot be terminated or voided by one or both of the parties involved before the end of the term without penalties.

Service Life

The estimated period an asset is expected to be useful and productive for its intended purpose before it becomes obsolete or too costly to maintain.