Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 13

Service Organization with Work-in-Process Inventories, Multiple Departments, FIFO Method, Unit Cost
Hepworth Credit Corporation is a wholly owned subsidiary of a large manufacturer of computers. Hepworth is in the business of financing computers, software, and other services that the parent corporation sells. Hepworth has two departments that are involved in financing services: the Credit Department and the Business Practices Department. The Credit Department receives requests for financing from field sales representatives, records customer information on a preprinted form, and then enters the information into the computer system to check the creditworthiness of the customer. (Other actions may be taken if the customer is not in the database.) Once creditworthiness information is known, a printout is produced with this information plus other customer-specific information. The completed form is transferred to the Business Practices Department.
The Business Practices Department modifies the standard loan covenant as needed (in response to customer request or customer risk profile). When this activity is completed, the loan is priced. This is done by keying information from the partially processed form into a personal computer spreadsheet program. The program provides a recommended interest rate for the loan. Finally, a form specifying the loan terms is attached to the transferred-in document. A copy of the loan-term form is sent to the sales representative and serves as the quote letter.
The following cost and service activity data for the Business Practices Department are provided for the month of May:


Required:
1. How would you define the output of the Business Practices Department?
2. Using the FIFO method, prepare the following for the Business Practices Department:
a. A physical flow schedule
b. An equivalent units schedule
Transferred-in applications
c. Calculation of unit costs
d. Cost of ending work in process and cost of units transferred out
e. A cost reconciliation