Will this method yield a valid estimate of incremental cost

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Reference no: EM1311284

Finding the equivalent units for materials and conversion.

Bell Computers, Ltd., located in Liverpool, England, assembles a standardized personal computer from parts it purchases from various suppliers. The production process consists of several steps, starting with assembly of the \"mother\" circuit board, which contains the central processing unit. This assembly takes place in the CPU Assembly Department. The company recently hired a new accountant who prepared the following report for the department for May using the weighted-average method:

Quantity Schedule
Units to be accounted for:
Work in process, May 1 (materials 90% complete; conversion 80% compete)	5,000
Started into production	29,000
Total units	34,000
Units to be accounted for as follows:
Trasferred to next department	30
Work in process, May 31 (materials 75% complete; conversion 50% compete)	4,000
Total units	34,000

Cost Reconciliation
Cost to be accounted for:
Work in process, May 1	£ 13,400
Cost added in the department	87,800
Total cost to be accounted for	£101,200
Cost accounted for as follows:
Work in process, May 31	£ 8,200
Trasferred to next department	93,000
Total cost accounted for	£101,200

The company\'s management would like some additional information about May\'s operation in the CPU Assembly Department. (The currency in England is the pound, which is denoted by the symbol £.)

	Materials	Conversion	Total
Work in process, May 1	£9,000	£4,400	£13,400
Costs added during May	£57,000	£30,800	£87,800

The new manager of the CPU Assembly Department was asked to estimate the incremental cost of processing an additional 1,000 units through the department. He took the unit cost for an equivalent whole unit you completed in (3) above and multiplied this figure by 1,000. Will this method yield a valid estimate of incremental cost? Explain.

Reference no: EM1311284

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