Accounting : Pearl Inc. makes 20,000 units per year of Part Y

Subject: Business    / Accounting

1. Pearl Inc. makes 20,000 units per year of Part Y for use in one of its products. Pearl Inc. incurred the following manufacturing costs when producing the 20,000 units of Part Y.

Direct materials $300,000

Direct labor 125,000

Variable manufacturing overhead 50,000

Fixed manufacturing overhead 175,000

Total $650,000


Assume Pearl Inc. has no alternative use for the facilities presently devoted to production of Part Y and that none of the fixed costs are avoidable. If the outside supplier offers to sell Part Y for $23 each, should Pearl Inc. accept the offer? Please clearly state your answer and support your answer with appropriate calculations.

2. XYZ Company uses process costing to track its costs in two sequential production departments: Forming and Finishing. The following information is provided regarding the Forming department.

Forming Department
Month Ended June 30

Unit information
Beginning work in process, June 1 — 6,000
Started into production during June — 30,000
Completed and transferred to Finishing Department during June — 22,000
Ending work in process, June 30 (25% complete as to direct materials and 40% complete as to conversion costs) — 14,000

Cost information
Beginning work in process as of June 1 consists of $10,000 of direct materials costs and $5,500 of conversion costs) — $15,500
Direct materials used in June — $27,000
Conversion costs incurred in June — $14,850

(a) Calculate the equivalent units for direct materials. (Show your work)
(b) Calculate the cost per equivalent unit for direct materials. (Show your work