Process Costing – Exercise
The Internal Revenue Service must process millions of income tax returns yearly.
When the tax payer sends a return, documents such as withholding statements and
checks are matched against the data on page one. Then various other inspectors of the
data are conducted. Of course, some returns are more complicated than others, so the
expected time allowed to process a return is geared to an "average" return.
Some work-measurement experts have been closely monitoring the process at a
particular branch. They are seeking ways to improve productivity.
Suppose 1 million returns were received at April 15. On April 22, the workmeasurement teams discovered that all supplies (computer materials, inspection
check-sheets, and so on) had been affixed to the returns, but 40% of the returns still
had to undergo a final inspection. The other returns were fully completed.
Required:
1. Suppose the degree of completion of the final inspection is 80%.
Compute the total work done in terms of equivalent units of tax returns.
2. The materials and supplies consumed cost 150,000$. For these calculations, materials
and supplies are regarded just like direct materials. The conversion costs were
1,380,000$.
Compute the unit costs of materials and supplies and of conversion.
3. Compute the cost of the tax returns not yet completely processed.